Last month, Jamison Greer, a top U.S. trade official, complained that Pix, Brazil’s instant payments system, was putting American companies like Visa and Mastercard at a disadvantage.
The United States has proposed a 25 percent tariff on Brazil in response. But Brazilians appear unfazed.
“Pix is a Brazilian achievement and we are not going to abandon it,” said Luiz Inacio Lula da Silva, Brazil’s president and a frequent critic of American power. Even his right-wing rival, Flavio Bolsonaro, has said he is not prepared to give up on the system.
Instead, he has proposed a compromise in which Brazil would commit not to linking Pix to cross-border payment infrastructures that compete with the U.S.’s.
This episode captures the new geopolitical reality of global finance.
As America implements what Scott Bessent, the US Treasury Secretary, recently described as “21st century economic state policy,” in which global access to the dollar and the US economy “is no longer unconditional,” while other countries try to respond with similar measures, the global financial system is fragmenting into regional and national systems.
This is happening first in the payments sector — and it is a headache for Visa and Mastercard, the American duopoly that dominates the industry.
In January, Auror Lalook, chair of the European Parliament’s economic and monetary affairs group, warned that a hostile America could easily cut off the continent’s access to payments infrastructure.
“You won’t be able to say you weren’t warned,” he said, arguing that Europe must create its own alternatives.
A few weeks later, a group of British banking executives reportedly met in London to discuss the creation of a British competitor to Visa and Mastercard.
After US and European sanctions cut Russia off from international payment infrastructure, the country turned to its own messaging system (SFPS) and its own card network (Mir).
China has also built its own cross-border infrastructure, both through state initiatives and through the expansion of private giants, most notably Alipay and WeChat Pay, fearing US dominance. They are no exception now.
While much of the discussion has focused on the role of the dollar, governments increasingly see payment infrastructure as a more realistic path to independence.
Those seeking to diversify the infrastructure over which their cross-border payments travel have several options.
Option 1: One of these is to build domestic systems.
Several recent European projects are typical, accelerating after years of delays.
The Single Euro Payments Area (SEPA), a set of infrastructures for euro payments, now has 41 member countries. A coalition of European banks and fintech companies is backing Wero, a digital wallet system that aims to unify national instant payment systems, such as iDeal, a Dutch platform.
The ECB also hopes to launch a central bank-issued digital euro by 2029.
Option 2: Another option is to move away from American systems and towards those linked to the other superpower.
The Bank of China has recently added dozens of countries to its digital yuan system for cross-border transactions.
In March, the China Interbank Payments System (CIPS), an alternative to the Belgium-based but US-dominated SWIFT interbank payment network, handled a record 920 billion yuan ($134 billion) in average daily flows, up 20% from the same month a year earlier.
In April, it hit a new record high in daily transaction volume of 1.2 trillion yuan.
Option 3: A third option is to eschew international projects in favor of bilateral agreements.
United Payments Interface (UPI), India’s QR code-based payments system, is currently operational in nine other countries, with several more in the pipeline.
NPCI International, which manages UPI’s international efforts, says its team has “a rich roadmap” for further expansion, both through interconnecting existing systems and helping countries develop their own.
In the short term, insufficient liquidity in some currencies may limit the volume of payments in these corridors. Ultimately, innovations in digital money may allow many more retail payments to bypass existing channels entirely. However, in the medium term, established players in the payments space are likely to feel the pressure.
Time for retaliation
The rise of “dominant” payment systems, particularly in Europe—a region that is a major source of Visa and Mastercard’s international business—could erode their enviable operating profit margins, which exceed 50%.
In their latest annual reports, both companies cited the “preferential” treatment of domestic payment systems as a risk to their businesses.
This may be one reason why investors have recently been wary of the two giants, despite their strong financial results.
After a steady rise that began in 2023, their share prices have fallen over the past year.
In May, Visa announced a €500 million ($571 million) investment in European infrastructure, including a technology center in Poland, which is expected to be operational in 2027.
In April, the company’s management also announced a partnership with UnionPay, a Chinese payment company, to provide real-time payment services in China.
Mastercard, for its part, is also rushing to protect its business from geopolitical shifts.
The company is building three data centers in France, with a total investment of €250 million, adding them to the dozen or so facilities it already has in Europe. The shift towards financial and technological “dominance” could create problems not only for the payment card giants.
The Financial Stability Board, an international organization that monitors progress on cross-border payments, estimates that the fragmentation of systems will likely prevent the G20 group of major economies from achieving the international payments goals it set in 2020 — particularly for faster and cheaper money transfers.
The more serious risk, however, is that the pursuit of payments dominance could eventually lead to the development of different regional systems that are not compatible with each other.
This would increase the risk of financial fraud and evasion of sanctions. At the same time, it would hurt the global economy.
A SWIFT-funded report (“
Growth at a crossroads: measuring the cost of financial fragmentation”) estimates that, if current trends continue, financial fragmentation could reduce global GDP by 2.6% by 2030.
Countries may find that the price of payments sovereignty is higher than they think. The same may be true for America.
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