The fight over the future of global payments

Having transformed how people use money at home, the race to transform payments is now going global. Cross-border retail spending and remittances will hit $5trn this year; business-to-business payments are worth eight times that. Three big players are duking it out to process these vast flows of funds. The West’s legacy system, including the Visa-Mastercard duopoly and, a messaging system for bank payments, is the dominant incumbent.

The Asian giants have several motives for spreading their wings. The most important is to become less dependent on the West. Russia’s card network, Mir, launched after Vladimir Putin’s illegal annexation of Crimea in 2014, has limited the damage done by the withdrawal of Visa and Mastercard from Russia after its full-scale invasion of Ukraine. Volumes on. But building a sanctions-workaround is not the only goal.

The West might fear a fragmentation of the global financial infrastructure that allows wrongdoers to escape future sanctions. Yet a more open landscape for global payments will benefit its consumers and businesses. Under competitive pressurehas already upgraded its once-clunky system and has nearly halved the cost of messaging. The average cost of a remittance has been cut by a third in the past decade partly because of new fintechs. The Western card networks are overdue a shake-up.

Domestic payments markets have tended to be winner-takes-most because people like using a big network with lots of other users. For cross-border payments, consumers and businesses will tend to favour the payments system they use in their respective home countries. Since it is increasingly easy for merchants to accept many different payment options, change seems likely. A system where people can use their domestic networks to pay abroad promises to be more convenient as well as cheaper.The countries that benefit most will be those that stay open to all platforms and let them overlap, rather than forcing people to use national champions.

Source: News Formal (newsformal.com)

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