Time to Stop China from Infiltrating U.S. Payments

Real Clear Policy, Op-Ed

According to the Pentagon’s National Defense Strategy, China remains the top threat to the U.S. national security interest.

"The [People's Republic of China] is the only competitor out there with both the intent to reshape the international order and, increasingly, a power to do so," said Secretary of Defense Lloyd Austin in an October 2022 briefing. 

This sentiment isn’t new. Former Secretary of State Mike Pompeo notably gave a scathing review of the communist country in 2020, noting that “today China is increasingly authoritarian at home, and more aggressive in its hostility to freedom everywhere else.”

Given the severity of concern, it would behoove our federal government to more closely examine how we can untangle our domestic industries from a web of Chinese relationships.

One obvious relationship in need of a breakup is the one the credit card industry has with China UnionPay — a Chinese state-owned financial services corporation. Visa and Mastercard, for example, welcomed China UnionPay with open arms into our payment system over a decade ago. In 2010, Mastercard entered into a Memorandum of Understanding with China UnionPay to “explore business cooperation.” Then, in 2013, EMVCo — the security standards organization controlled by Visa and Mastercard —  made China UnionPay a member of its governing body.

At the time of EMVCo’s work on payment card security, Visa executive Joe Cunningham said “we are delighted to welcome UnionPay as a member and active contributor to this work.” Then, in 2017, the Payment Card Industry (PCI) Security Standards Council, also controlled by Visa and Mastercard, welcomed China UnionPay into its decision-making body on payment security. 

This unequivocal embrace of China UnionPay into our payments system feels counterintuitive to the mission of the U.S. Pentagon that just identified China as the greatest threat to our national security. And while expanding industry and business opportunities should be applauded, the rather sudden incorporation of a foreign entity and known bad actor into our payment security and operational standards is a step too far. Further, payment security concerns aside, there is also the very real concern about the informational value embedded in payments. Do we really want the CCP knowing how and where Americans and our businesses spend money across the nation?

It's worth remembering the prescient warnings that former Congressman Mike Rogers shared with the world about Huawei’s attempts to hijack technology standards and protocols. Is financial information any less important than traditional communication? The Chinese Communist Party (CCP) already has an explicit strategy to influence and/or control global technology standards. 

That’s why it’s so important to reintroduce and pass bills like the Credit Card Competition Act first introduced by Sens. Roger Marshall (R-KS) and Dick Durbin (D-IL) in 2022. There currently is no law to stop China UnionPay from making further incursions into the U.S. payment system. The Credit Card Competition Act halts China in its tracks by requiring the Federal Reserve to create a list of payment card networks (including China UnionPay) that pose national security risks and block them from the U.S. credit card market.

In addition, this bill takes steps to make our domestic payments system more competitive by mandating a second routing option for merchants processing credit card transactions. Provisions like these will help loosen the stranglehold Visa and Mastercard have on an industry that allows them to unilaterally dominate the same organizations that should create guardrails on their business practices. Competition has been one of the most powerful forces to incentivize innovation and service improvements. Consumers will benefit with lower costs and better offerings.

The Credit Card Competition Act would patch a glaring loophole in our payments system and help further our national security priorities. If we want to get serious about protecting ourselves from China, this bill is must-pass legislation in 2023.

Vikram Mansharamani is a global trend-watcher and advisor to some of the world's largest companies. He formerly taught at Yale and Harvard University, and recently ran for the United States Senate in his home state of New Hampshire.

Related Topics: china, national security, banking regulation, credit cards, banking, Credit Card Competition Act, roger marshall, Dick Durbin, EMV, banks