National Payment Systems Challenge Visa and Mastercard’s Dominance
Synopsis
Key Highlights Countries are increasingly developing domestic and regional payment systems to decrease dependence on U.S.-based settlement networks. Brazil expands its Pix, Wero in Europe, India with UPI, and China with payment infrastructure. Visa…
Key Highlights
- Countries are increasingly developing domestic and regional payment systems to decrease dependence on U.S.-based settlement networks.
- Brazil expands its Pix, Wero in Europe, India with UPI, and China with payment infrastructure.
- Visa and Mastercard cited the increasing popularity of domestic payment systems as a business risk.
Visa and Mastercard will be facing increasing competition in new markets where managed financial infrastructure using U.S.-controlled credit card companies feels like a poor risk. The move comes amid waning tensions and increasing international government interest in controlling domestic and cross-border payments.
The issue was flagged after U.S. Trade Representative Jamieson Greer slammed Pix, the Brazilian instant payment system, for unfairly putting American companies like Visa and MasterCard at a disadvantage. In retaliation, the U.S. implemented another 25% tariff on Brazilian imports.
Brazilian president Luiz Inácio Lula da Silva denied the criticisms over Pix, stating simply that Pix is a national achievement and they will not relinquish it. Opposition politician Flavio Bolsonaro also advocated for maintaining Pix. But noted that Brazil should not connect the system to cross-border payment networks which directly compete with the US.
Countries Expand Domestic Payment Networks
The Economist said the global financial system is becoming more regionalised and countries are charging ahead with payment sovereignty.
Aurore Lalucq, the chair of the European Parliament’s economic and monetary affairs group, was cautioning in January for Europe to find alternative solutions to Visa and Mastercard. The European Central Bank is pursuing its target to introduce a digital euro by 2029.
The Single Euro Payments Area (SEPA) now includes 41 countries in Europe with the launch of digital wallet Wero, designed to link national instant payment systems with the support of a group of European banks and fintech firms.
Expansion of cross-border payment systems between China and India
China has also been growing its own payment infrastructure. China’s Cross-Border Interbank Payment System (CIPS) experienced an average daily flow of a record 920 billion yuan in March, which is up 20% from the previous year. FXC Intelligence stated that in April it reached a single-day volume of 1.2 trillion yuan in transactions.
It has also extended the implementation of its digital yuan cross-border payment system to dozens of countries, with the Bank of China being at the forefront.
India’s Unified Payments Interface UPI is already being used in nine countries and more markets are planned. It plans to extend UPI by connecting other live payment systems and assisting other countries in developing their own domestic networks, NPCI International said.
Visa and Mastercard Respond
Visa and Mastercard could see pressure on their international business from the growing move toward domestic payment systems, especially in Europe, where they do large volumes of revenue.
In their most recent annual reports, both companies mentioned the preferential treatment of home-grown payment systems as a key risk to their businesses.
Visa also announced a €500 million investment in European infrastructure, including a technology centre set to open in Poland in 2027. The company also announced a partnership with UnionPay to offer real-time payments within China.
Mastercard has announced a €250 million investment to construct three data centres in France, expanding on its existing network of 12 across Europe.
Financial Fragmentation Remains a Concern
The Financial Stability Board stated that increasing fragmentation could undermine efforts by the G20 to implement fast and cheaper cross-border payments.
SWIFT sponsored a report by Economist Impact that warns the global GDP could shrink 2.6% by 2030 due to continued financial fragmentation. It also warned that incompatible regional payment systems may enhance financial fraud and sanctions evasion.
Source: The West
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