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Beijing plans further crackdown on UnionPay abuse

China is planning a further crackdown on abuses of the UnionPay card system, according to a report in the South China Morning Post, which cites a memo issued by China UnionPay headquarters.

The memo will require millions of mobile "point of service" (POS) transaction devices across the nation to be properly registered.

Seen by the South China Morning Post, the memo sets out a detailed nationwide audit and warns that sanctions will be imposed by the "relevant authorities" if a raft of new controls are not adhered to.

The new measures seem to be designed to combat illegal POS devices. Under the new controls, POS device licensees will have to register all of their existing mobile devices in use, while manufacturers are required to have their devices validated by China UnionPay. This includes hardware and software.

With respect to Macau, the new measures are designed to combat illegal devices that record purchase transactions as if they occur in China (rather than overseas).  In the past, there have been instances of illegal POS devices in use in pawnshops in Macau and on some casino floors.

Bernstein believes these actions are all a part of continued Chinese government enforcement against illegal activity related to UnionPay card use.

Macau authorities last year stepped up supervision of the use of China UnionPay terminals amid concern they were being used by retailers to circumvent China’s currency controls.

In September this year, China's State Administration for Foreign Exchange (SAFE)  announced new annual limits on UnionPay cash withdrawals outside of China.

The new annual limit has been set at RMB100,000 ($15,700 ) per card for 2016 (and RMB 50,000 for the remainder of 2015).

This limit is on top of the existing policy which sets daily withdrawal limits at RMB10,000 per card.

“In Macau, pawnshops are often used to bypass UnionPay cash withdrawal limits. The pawnshop transactions are legal in Macau and occur through ~200 shops. However, there is risk that Chinese authorities may pressure Macau into creating tighter regulations around pawnshops,” analysts at Bernstein said at the time.

As a result of enhance anti-money laundering, and know your customer rules, VIP will face greater headwinds, Bernstein says.


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