Escaping America’s payments empire
The new geography of digital money is fracturing the global economy
Welcome to Payments Culture!
This newsletter explores how money moves, around the world.
This week I’m pulling together payments, geopolitics and trade to look at how tariffs are butting heads with mobile wallets.
On April 2nd, Trump unleashed a tariff storm for the ages. Trump dubbed it “Liberation Day”, and the tariffs have had sweeping consequences for the world.
Since that day, we’ve had non-stop talk of tariffs. Countries have spent months working to improve their starting position and secure the best deal possible. It’s been a hokey-cokey, a back-and-forth, a set of negotiations and recriminations.
When it comes to the discussions on tariffs and trade, it’s not only import taxes on Scotch whiskey, Chanel handbags, and Porsche supercars that countries have to worry about. Payments infrastructure has also entered the arena. How so? Consider the role that mobile payments play in this battle.
Taking a side
In the past months, the Trump administration has targeted Brazil and Indonesia, claiming their domestic mobile wallets, Pix (Brazil) and QRIS (Indonesia), constitute non-tariff barriers to trade. This is important to understand.
There’s now a bifurcation of payments. The global payments market is divided into two, and where you live determines which side you’re on. How money moves is ever-changing, yet exactly how you’re impacted depends on your geography.
On one side, you’ve got the American payment giants such as Visa, Mastercard, and American Express. They’ve permeated our financial lives in the West. We see their brands on our cards and mobile wallets every time we shop.
On the other side, we have national payment systems without shareholders, operating mainly with QR codes rather than cards. These are mobile payment systems that prioritise sovereignty and financial inclusion over profit.
(As well as Brazil and Indonesia, another success story can be found in India, where the UPI payment system is responsible for more than 80% of all digital payments.)
Mapping the dispute(s)
Earlier this year, the Office of the United States Trade Representative (USTR) released its annual report. As the federal agency that reports directly to the White House on trade matters, USTR’s assessments carry significant heft. In the report, Indonesia’s QRIS payment system is flagged:
Under BI Regulation No. 21/2019, Indonesia established national standards (termed QRIS, or Quick Response Code Indonesian Standard) for all payments using QR codes in Indonesia.
BI stands for Bank Indonesia, which is Indonesia’s central bank and regulator for payment systems. The report went on to say that:
U.S. companies, including payment providers and banks, noted concern that during BI’s QR code policy-making process, international stakeholders were neither informed of the nature of the potential changes nor given an opportunity to explain their views on such a system, including how it might be designed to interact most seamlessly with existing payment systems.
Sure, some US banks operate in Indonesia. But that’s not the real issue. The trade office is likely frustrated because Visa and Mastercard, two of America’s corporate juggernauts, were excluded from the policy-making process.
Indonesia isn’t the only one stuck playing this game. Take Brazil. The Financial Times reported that the US government would:
Probe whether the South American giant [Brazil] was discriminating against US companies in favour of its government-developed electronic payment system.
Brazil’s president, known as Lula, fired back, “We will not accept attacks on Pix”, and many suspect the US probe is likely because American payments companies can’t compete with Pix’s success.
It’s easy to say why Pix is seen as a challenge to Visa and Mastercard in Brazil.
By the end of 2024, Pix was processing more payments than all credit and debit cards combined (in Brazil). On December 20th, 2024, Pix processed over 252 million transactions — its biggest day so far. Pix will add instalment payments and recurring payments in 2025 to make itself even more integral to local needs.
Visa and Mastercard saw Brazil, with its population of over 200 million, as a massive growth opportunity. But while the card giants do have a foothold, Pix has smashed its way to the top of most users’ wallets, leaving the card brands to rethink their Brazil strategy.
In terms of trade negotiations, Indonesia reached a deal with the US on July 22nd. The deal focuses on tariffs, non‑tariff barriers to goods, and digital data flows. QRIS wasn’t part of the recent trade deal in any way. However, it’s likely not off the table for good.
Brazil’s situation is heating up. The US has implemented tariffs of 50% on much of Brazil’s imports, and the USTR has opened a Section 301 investigation into Brazil, of which electronic payment services are one component. A public hearing is scheduled for September 3rd, and Brazil has until August 18th to submit evidence.
The US needs to prove that Brazil’s practices are “unjustifiable, discriminatory, or burdensome”. Essentially, they’ll argue Pix gives domestic companies an unfair advantage and makes it nearly impossible for international firms to compete.
Brazilian legal expert Fernando Canutto commented:
Brazil may argue that Pix is a domestically regulated financial service, covered by the general exception clause (Article XIV of the GATS), which allows for national regulation for the security, stability, and integrity of the financial system.
Note: GATS stands for the General Agreement on Trade in Services (a WTO treaty)
How the Brazil case unfolds could have wider ramifications for mobile wallets, fintechs, and banks far beyond Brazil, especially for other countries that have built their own national mobile payment systems similar to Pix.
Following their own path
I remember conversations over a decade ago about how Visa and Mastercard were going to make inroads into China. Every Western company was trying to land their China strategy. The world’s second-largest economy was expected to be a goldmine for the card behemoths.
But it never happened. Visa and Mastercard struggled to gain a foothold in China. Mobile wallets took off way faster than cards. Alipay and WeChat Pay captured nearly all the payments market, and they built integrated ecosystems that we now commonly call super apps.
The market leapfrogged cards almost entirely. The card payments, which still do occur, are usually via China Union Pay1 - a domestic payment system. Despite its potential on paper, China is not in the top 10 largest markets by revenue for either Visa or Mastercard.2
The card companies, perhaps naively, expected not only China but other emerging economies to follow the same playbook as Western markets. The usual progress looks like this:
Cash (including checks/cheques)
Credit and debit cards (in markets like the UK, this meant progressing from magnetic stripe cards to EMV “Chip and PIN” cards, which require PIN rather than signature for authorisation)
Contactless (often referred to as tap-to-pay, this includes card-based mobile wallets such as Apple Pay and Google Pay)3
Many of the world’s most populous countries are taking a different path. Instead of moving from cash to card, they jumped straight from cash to digital wallets, bypassing cards altogether.4
Redrawing the map
Visa and Mastercard have seen the emergence of digital wallets scramble their growth plans in emerging markets. This happened quickly – QRIS in Indonesia and Pix in Brazil launched in 2020. It only took five years to cement them their dominance, and in this context, the bifurcation of payments acts as a growth brake on Visa and Mastercard.
China, India, Indonesia, and Brazil will generate less cash than once expected. It’s shown the card giants that owning payment rails alone isn’t enough.
In the past two decades, Visa and Mastercard have been wildly successful. A $1,000 investment in Mastercard at the time of their IPO in 2006 would be worth around $29,300 today.
The next 19 years will be more of a challenge.
The companies will need to expand and transform to cope with the new geography of digital money. We’ll see more M&A, new partnerships, and a move into areas far beyond card payments.
The challenges of Visa and Mastercard in emerging markets show that the worlds of fintech, global trade and geopolitics have fused. The tussle for digital payments is now a feature of our world, and of how nations compete.
Recent reading
📚 I finally read the Almanack of Naval Ravikant. This had been in my kindle library for over a year waiting for me to get stuck into. It’s one of those books you can breeze through in a weekend. It’s full of passages to highlight and return to.
📚 On a similar note I got through Cal Newport’s Slow Productivity. It could have been 30% shorter, but it left me with myriad of ideas and actions to improve my productivity. Recommended.
🔗 On Working Theorys there’s a thought provoking post about human-machine interaction titled Doomprompting Is the New Doomscrolling.
🔗 Gurwinder’s How Social Media Shortens Your Life has been one of the must-reads articles across Substack over the past couple of weeks and for good reason!
🔗 I enjoyed this recent long-read in the Economist titled What if AI made the world’s economic growth explode? The article discusses the prospect that annual economic growth could exceed 20% if AI is able to handle 30% of human tasks.
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Note that views expressed on this Substack are my own and do not represent any other organisation. Also nothing I say should be taken as investment advice.
China Union Pay processes more than 95% of the card payment volume in China.
Visa and Mastercard both derive 50-60% of their revenue from North America, with the remainder from what they call international markets. The UK, Australia, and Japan are estimated to be among their top-performing international markets by revenue, and Brazil and India also make the top ten. Neither company provides a detailed geographic breakdown of revenue, so any estimates are from a variety of third-party sources.
There is a more complex version of this progression, which includes real-time payments, BNPL and so on. But the core paradigm remains that the move from cash to cards was seen as inevitable. For a long time, the cashless economy was envisaged as a card-based economy.
Some users do stick with cards though — cards may be needed for international travel, as domestic digital wallets usually don’t work overseas, although there is a degree of interoperability emerging across some economies. But for most users in emerging economies cashless now means domestic digital wallets.
Good read. I am a big fan of Pix and UPI because these systems show a different path - one not grounded on profit maximization but on financial inclusion. QR code payment / mobile wallets took off in Asia, Africa, and Latam because it's simple to use and it enables faster and cheaper money movement. And they enable not only better services for consumers, but also for merchants. So win-win.
This is a super interesting piece. I have not heard about Pix before, and I am surprised to learn that US launched an investigation over electronic payment system in another country.