Rise of the national network

A world-wide battle for domination among payment card networks is building momentum, underlining Asian and European regulators’ and governments’ belief that cards-based payment systems are strategic national infrastructure.India and China are both trying to create global alternatives to Visa and MasterCard, the dominant global players. As US companies quoted on the New York stock exchange, they are seen by rivals in fast-growing developing economies as predominantly serving American interests – and therefore ripe for competition from powerful new entrants.

Profits from world-wide card credit cards sector (the most attractive part of the global payments cards business) are estimated to be in excess of $40 billion. The latest player to enter the network game is Rupay of India, an initiative of National Payments Corporation of India (NPCI) which is owned by the major Indian banks and has the support of Reserve Bank of India. Rupay will initially focus on clearing and settlement of debit card transactions before moving on to credit cards. Before long, it will be operating internationally alongside another relative newcomer to the cards networks business, China UnionPay.

China UnionPay (CUP) is the Chinese equivalent of Rupay but it is several years ahead of the Indian initiative and is already well-advanced on plans to build a global network of its own that will compete with Visa and MasterCard. Its immediate priority is building acceptance of CUP cards to service the tens of millions of Chinese consumers who are now travelling worldwide. Adding to the potential headache for Visa and MasterCard, CUP has a monopoly on domestic transactions in China, which prevents Visa and MasterCard from entering this lucrative payment cards arena.

Meanwhile, in Europe, the European Commission and the European Central Bank have been actively promoting the development of Europe-based cards networks. Three possibilities have emerged:

• Monnet – a project with ancestry stemming from Deutsche Bank-inspired initiatives of the 1980s and 1990s such as eurocheque, Eurocard and the euro Travellers Cheque – all now defunct. (The German bank does not seem particularly committed to Monet, hardly boding well for the project.)
• EAPS, a system that plans to grow by linking up national ATM networks across Europe.
• PayFair, a retailer-inspired initiative, which achieved some notoriety by labelling SEPA (the Single European Payment Area) as ‘sending European payments to America’.

Judging from industry reactions to recent presentations by the three European networks , none has much chance of success. 2011 will be the decisive year. The possibility of two or three of them merging cannot be discounted.

Other smaller networks are also competing – notably US-based American Express (Amex) and Diners Club and Japan-based JCB.

Amex is possibly the classiest global brand in consumer financial services and cards payments worldwide. Today it is an issuer of T & E (travel and entertainment) and revolving credit cards to well-heeled consumers in the US and worldwide – and the operator of a payments network which is an up-market alternative to Visa and MasterCard.

Despite being the first ‘credit card’ to be issued in the late 1950s, Diners Club is a US-based cards network that has never lived up to its potential. Its recent acquisition by Discover, the giant US credit cards company, may change all that. Its immediate priority is to build global acceptance of the Diners and Discover brands. The other entity ready for expansion is JCB , a Japanese payment cards company with global ambitions but which for now is primarily focused on Asia.

The chances are that Rupay, CUP and the prospective European projects will not be the only new payment networks to emerge around the world. Similar initiatives are brewing in Russia, Brazil and South East Asia. Despite that, the days of global American dominance in cards-based payments seem destined to continue for the foreseeable future.