Digital Payment Systems Are the Latest Geopolitical Battlefield

Yahoo

29-04-2025

In a recent interview on the Irish radio program Newstalk, European Central Bank President Christine Lagarde listed the payment systems that most Europeans depend on for everyday transactions. 'Visa, MasterCard, PayPal, Alipay,' she said, counting them off on one hand, before ending with a question: 'Where are all these coming from?' The interviewer grasped the point even before Lagarde answered her own question: the U.S. and China.
Europe's 'march toward independence,' Lagarde went on to explain, must involve bringing 'digital payments under [its] control.' In other words, out with foreign providers, in with a 'European option.'
But in making it clear that sovereign payment systems are now central to Europe's quest for strategic autonomy, Lagarde was only saying the quiet part out loud.
In the weeks since U.S. President Donald Trump unleashed the most sweeping tariffs in a century, only to put the most draconian among them on pause for 90 days, commentators have called into question the future of the U.S. dollar as the cornerstone of the global economy. But amid the headlines about bond yields and stock prices, it is easy to miss a quieter transformation of the international financial system that is already underway: efforts to wrestle back local control over digital payments.
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Beneath the basic function of transferring money digitally lies a dense, largely invisible architecture of clearinghouses, settlement mechanisms and messaging platforms, as well as a web of banks and other financial intermediaries. In 2024, an estimated $195 trillion crossed borders, nearly twice the value of global GDP. Whether it's a billion-dollar bond purchase or a $100 remittance from a migrant worker, each transaction moves through a complex system of financial plumbing that few understand but everyone depends on.
Much of that system is controlled, directly or indirectly, by the United States. Though the U.S. was surpassed by China as the world's largest trading nation a decade ago and today accounts for just a quarter of global GDP, it exerts outsize influence over how money moves both across and within borders worldwide.
Nowhere is U.S. control over international payment systems more apparent than with the Society for Worldwide Interbank Financial Telecommunication, or SWIFT. Based in Belgium, SWIFT was designed as a neutral body to standardize communication between banks in the post-Bretton Woods era of financial liberalization. But in the aftermath of 9/11, the network became a tool of U.S. statecraft. In 2006, the New York Times revealed that U.S. intelligence agencies had been granted access to SWIFT data as part of their counterterrorism surveillance efforts. Since then, Washington has used political leverage, including the threat of secondary sanctions, to cut Iran, North Korea and Russia out of the SWIFT system.
Countries wary of U.S. economic coercion have sought to build alternatives to SWIFT, with limited success. Russia's SPFS system now connects financial institutions in 20 countries, but processes less than 1 percent of SWIFT's traffic. China's CIPS, a clearinghouse for yuan, has signed up 170 direct participants, but an estimated 80 percent of CIPS payments use SWIFT technology. The proposed BRICS Pay system, which would facilitate payments among BRICS countries using blockchain technology, remains for now more rhetoric than reality.
Domestic digital payments are a different story. Through Visa and Mastercard, which process the vast majority of digital retail transactions outside of China, the U.S. also has leverage over other countries' domestic payment systems. But in an overlooked example of how countries are adapting to a world of weaponized interdependence, central banks and other public payments corporations have begun to deploy homegrown systems in an effort to bring critical payment infrastructures under local control.
Digital public infrastructure, or DPI, has been the most successful approach to date. Core to that approach is the development of open protocols that connect and allow competition between private providers of payment apps and banks. An analogy for understanding protocols is email. Just as a user of Outlook can seamlessly send an email to a user of Gmail, both of which use the SMTP protocol, an individual using an open protocol can pay peers, businesses or even government agencies running on any payments processor that plugs into the system. And instead of Visa, MasterCard, AliPay or a domestic monopoly charging fees for these transactions, they are governed by public interest entities domiciled in the countries where they operate.
Brazil's Pix and India's Unified Payments Interface, or UPI, are two of the leading public instant payments infrastructures. They already process hundreds of millions of transactions per day, catapulting their countries to the top of the global real-time payments list. According to research from University College London, at least 93 countries operate DPI payment systems at varying levels of adoption.
One of the key motivators for developing these systems is their impact on financial inclusion, as interoperable instant payments tend to be cheaper than credit cards or mobile money. For example, peer-to-peer transactions on Pix are free, and transactions involving merchants run at 0.22 percent of transaction value, compared to 2.2 percent for credit card payments. UPI reduced the cost that internal migrants in India spent to send money home from between 5 percent and 10 percent, to between 1 percent and 2 percent, putting money back in the pockets of consumers instead of financial intermediaries. And lower cost means these systems reach hundreds of millions of new users: Pix introduced over 70 million Brazilians to the digital economy.
But the move toward DPI is not just about inclusion. It is also fundamentally about sovereignty, as Lagarde emphasized in her interview with Newstalk. The withdrawal of U.S. payment providers from Russia after the 2022 all-out invasion of Ukraine underscored that payment systems have become part of the arsenal of U.S. economic coercion, raising the stakes when it comes to building sovereign alternatives.
Countries are now beginning to think about linking up domestic payment systems as a strategy for contesting SWIFT, taking a bottom-up approach where top-down approaches have failed. Singapore's digital payments infrastructure is connected to UPI, for instance, allowing users in Singapore to transact in India. Efforts like the Bank of International Settlements' Project Nexus as well as regional projects, like the Pan-African Payment and Settlement System or Mojaloop's deployment across the 21-member Common Market for Eastern and Southern Africa, share a vision of a federation of national payment infrastructures that are able to speak to each other—and that no single country can switch off.
Now the European Union is looking at these creative solutions from emerging economies as it charts its own roadmap to financial sovereignty. It's not the first time the EU has made such an effort. In 2007, eight member states backed a pan-European payment solution, the Monnet Project, which they hoped to operationalize by 2010. But the project quickly collapsed amid technical hurdles, the absence of a viable business model and diverging priorities among participating banks. The revived European Payments Initiative, or EPI, which was launched in 2020, has similarly stalled.
What has changed is the context. Trump's sweeping tariffs and erratic foreign policy have further destabilized an already fragile global financial order, injecting urgency into efforts across and beyond Europe to reclaim economic sovereignty. Visa's mission statement is to connect businesses and individuals through the world's most 'reliable and secure' payments network. But for as long as Trump is in the White House, it will be hard for any U.S. company working abroad to guarantee reliability or security.
'We have to reduce that vulnerability and make sure that there is a European offer that is available,' Lagarde explained.' Just in case. You never know.'
Jeremy McKey is an international tech policy researcher at Princeton University and was formerly director of special projects at the Rockefeller Brothers Fund.
Jordan Sandman is honorary research fellow at University College London and principal at Co-Develop, a philanthropic fund for digital transformation.
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