Weekly Business Insights from Top Ten Business Magazines | Week 297 | Shaping | 1

Extractive summaries of and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Week 297 | May 19-25, 2023.

The fight over the future of global payments

The Economist | May 18, 2023

Listen to the Extractive Summary of the Article

Over the past two decades the ways people pay, receive and transfer money have changed beyond recognition. The revolution began in 2007 when m-pesa made it possible for Kenyans to make payments with a text message. In 2011 Alipay launched payment-by-qr-code in China, a system that has all but replaced cash in cities. Since then India’s state-led Unified Payments Interface (upi) and Brazil’s Pix have vastly widened access to the financial system among the poor. As the Economist’s special report explains, globally the use of notes and coins has been cut by a third, e-commerce has boomed and life without digital payments has become unimaginable.

Having transformed how people use money at home, the race to transform payments is now going global. Cross-border retail spending (including tourism) 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 swift, a messaging system for bank payments, is the dominant incumbent. China is the most advanced challenger, with its payment apps, its card network, UnionPay, and cips, its more expansive alternative to swift. In third place is India, whose ambition to deploy upi globally has grown.  The competition among the three blocs is heating up fast.

The Asian giants have several motives for spreading their wings. The most important is to become less dependent on the West.  Countries also crave for themselves the clout that comes with control over the world’s financial infrastructure, as well as seeking more convenience for their people when they transact internationally.

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 pressure swift has 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. The spread of Alipay, upi and even other newcomers like GrabPay in South-East Asia or WhatsApp Pay, which just launched in Singapore and Brazil, will give consumers other options.

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.

3 key takeaways from the article

1. Over the past two decades the ways people pay, receive and transfer money have changed beyond recognition. Globally the use of notes and coins has been cut by a third, e-commerce has boomed and life without digital payments has become unimaginable.
2. Having transformed how people use money at home, the race to transform payments is now going global. Cross-border retail spending (including tourism) and remittances will hit $5trn this year; business-to-business payments are worth eight times that. 
3. 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 swift, a messaging system for bank payments, is the dominant incumbent. China is the most advanced challenger, with its payment apps, its card network, UnionPay, and cips, its more expansive alternative to swift. In third place is India, whose ambition to deploy upi globally has grown.  The competition among the three blocs is heating up fast.

Full Article

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Topics:  Global Financial System, Technology, Cash-less payment