UnionPay (a card scheme similar to Visa and MasterCard) has recently been making waves as a new entrant in Pakistan.

UnionPay started off in China; it was established in 2002 and has since expanded to over 131 countries. Globally UnionPay currently has the largest base with 2.8 billion cards in circulation – for context Visa has two billion cards (Source: Visa Fact File, March 31, 2012). In 2011, UnionPay added the largest number of cards – 534 million, even more than Visa’s 88.5 million – to the global pool of 6.54 billion cards (Source: The 2011 Report on Global Credit Card Brands by the Nilson Report).

In Pakistan, however, UnionPay has yet to establish itself in a card market that is still developing. Currently, there are 18 million plastic cards in circulation – 16 million debit cards, over 1.2 million credit cards and 0.7 million ATM cards (Source: SBP Payment Systems Review – April-June 2012). However, this only accounts for a miniscule penetration in a country with a population of over 170 million. Thus, the opportunity is tremendous for a new card scheme such as UnionPay.

According to Asad Burney, Senior Market Representative, Middle East, West Asia and North Africa Office, International Division, UnionPay, “China has been contributing to Pakistan’s economy for a very long time and in different sectors. However, when it came to Pakistan’s payment landscape, the sector has been dominated by western payment schemes. [Visa is currently the dominant player and MasterCard has a small share.]”

Furthermore, UnionPay’s entry into Pakistan fit in with its global strategy “to explore more and more international markets,” says Burney

“We see Pakistan as one of the major countries for UnionPay in Asia,” he adds.

UnionPay marked its entry into Pakistan through Faysal Bank (FBL), which is the first bank to issue a UnionPay Card (Faysal UnionPay Debit Card) in Pakistan.

The move to introduce the cards through FBL, says Burney was determined by the fact that “FBL is considered as a pioneer in establishing payment gateways in Pakistan. FBL is also acting as a settlement bank for almost 95% of the banks in Pakistan.”

He adds, “FBL is one of the few banks that is currently operating with the two other card schemes [Visa and MasterCard] and this allows us to show the industry that even in the presence of these other schemes, UnionPay can compete with them.”

For FBL, which acquired the Royal Bank of Scotland (RBS) in 2010, adding a new card to its existing portfolio (Visa Debit Cards and MasterCard Credit Cards) allows “us to enhance our product menu and offer more options to customers,” says Aarij Ali, Head Retail Banking Group, Faysal Bank.

However issuing cards is only one part of the task for UnionPay must also work towards making the card accessible. So far UnionPay has established ties with 1Link so that its card can be used on any 1Link ATM machine.

The challenge however for UnionPay is to develop the market locally and create an uptake in the usage of cards in Pakistan. At the moment debit cards are mostly used as ATM cards and only one percent of personal consumption is done through cards. (Source: Interview with Amer Pasha, former Country Manager, Pakistan and Afghanistan, Visa International – Aurora, July-August 2011.)

Burney says UnionPay will be looking towards developing this market, and plans include introducing credit and prepaid cards. Burney confirms that two banks have agreed to issue UnionPay credit cards, and although he declined to name the banks, the likelihood is that one of them will be FBL. At this point it is worth noting that credit cards in Pakistan have not done particularly well and the number of credit cards in circulation in the FY 2011-12 saw a decline of 11%. (Source: SBP Payment Systems Review – April-June 2012).

Along with these challenges UnionPay will have to contend with Visa which has largely captured the local market.

Burney says in light of the competition, “our strategy is simple,” which is “to provide cost benefit solutions”. One way of doing this has been to make the annual fee on the UnionPay debit card almost half of what the other card systems charge.

Although FBL’s recent campaign announcing the launch of the UnionPay Debit Card has given the brand some visibility, Burney says, UnionPay plans to launch its own independent promotional campaign to further create awareness for the brand.

In the meantime UnionPay continues to make headway. Burney says currently seven banks have agreed to issue UnionPay cards in Pakistan.

Habib Bank Limited (HBL) is one which recently announced that it will be issuing UnionPay Cards by the end of the year. An added benefit for UnionPay is that HBL will also issue these cards in the 25 countries it has a presence in.

UnionPay has set an ambitious goal, it plans to have four million UnionPay cards in circulation in Pakistan in the next three years, make its cards accessible on all ATM and POS (point-of-sale) machines by the next year to further facilitate the use of its cards to purchase items.

With UnionPay bringing these new dynamics to the local cards market which has essentially had one dominant player (Visa) up until now, it will be interesting to see how this game of cards will play out.