Total System Services Inc.'s joint venture in China has signed a card processing deal with Huaxia Bank Co. Ltd. that gives TSYS a large share of an increasingly competitive market.
"Everybody that's looking at China is looking at the great potential of the Chinese cards market," said David E. Duncan, the managing director of TSYS Asia-Pacific.
The deal between Huaxia and China UnionPay Data Services Co. Ltd., a joint venture between TSYS and China UnionPay Ltd., China's only card network, closed in March but was not announced until Thursday, because of regulatory hurdles, Mr. Duncan said.
TSYS, which is majority-owned by Synovus Financial Corp. of Columbus, Ga., owns 44.5% of China UnionPay Data, which began handling transactions for Huaxia Bank this month.
With the signing of Huaxia, TSYS processes for three of the four largest issuing banks in China that outsource part of their payment programs, Mr. Duncan said in an interview Thursday.
It is going after other big clients in China, and "a very prominent bank will be working with us very soon as well," he said, though he would not name it.
"The competition to win Huaxia was fierce," Mr. Duncan said. Both First Data Corp. of Denver and Atos Origin AG of Paris were bidding for the Beijing bank's processing business, he said.
Since China's credit cards market is so young, TSYS does not normally have to fight an incumbent outsourcer to get new customers, but that could change as the market matures and contracts begin to expire, Mr. Duncan said. He would not say how long the contract with Huaxia will run.
Another challenge TSYS faces in China is the regulatory environment, which can be more restrictive than here, he said.
For example, the Chinese government regulates rates and other terms that banks can set for credit cards. "A good approach in the U.S. is teaser rates," Mr. Duncan said. "You cannot do that in China."
The regulations affect banks and TSYS alike. Mr. Duncan said TSYS is anticipating a regulation that would determine how much equity foreign companies can own in Chinese companies. He does not expect that TSYS to have to give up any of its stake in China UnionPay Data, but it is waiting for the regulation to be finalized before attempting to increase the stake.
TSYS bought a 35% equity interest in the card network in December 2005 and expanded the stake to 44.5% in September 2006.
"For right now, we're probably going to stay where we're at," Mr. Duncan said. He noted that TSYS owns more equity in the card network than any other company owns in any other China UnionPay subsidiary.
Madhavi Mantha, a senior analyst at Celent LLC in Boston, said the processors' interest in China and other countries with emerging credit card markets is understandable. "These countries have a lot of upside from a transaction growth perspective," she said.
Even large banks in China and similar markets are new to the credit card processing space and open to working with outsourcers, shea said.
"I think in the U.S., typically the logic is we have enough scale to operate our own infrastructure," she said. "The difference in these new markets is they don't necessarily have existing capabilities."
Banks in emerging markets may not "be interested in building an infrastructure from the ground up," she said. Nonetheless, processing "is viewed still as a fairly commoditized function and is something that institutions don't feel is as critical to keep in-house," which presents an opportunity for outsourcers like TSYS.
