The Growing Fragmentation of Global Payment Systems: A 2024 Perspective

Government-backed payment systems have been gaining significant traction globally in recent years, reshaping the landscape of digital payments and financial transactions. This trend is fragmenting the global payments system, with various countries developing their own unique solutions tailored to their specific needs and goals.

These systems are digital platforms developed or supported by national authorities to facilitate fast, secure, and cost-effective financial transactions. They are designed to promote financial inclusion, reduce reliance on cash, and enhance the overall efficiency of a country's payment infrastructure.

This article highlights some of the latest regional developments in payment systems backed by jurisdictions. While not exhaustive, these examples provide a snapshot of the diverse innovations reshaping the payments landscape worldwide.

Global landscape

Asia: India's UPI system continues to demonstrate remarkable growth in the digital payments space, with  transaction volumes up 52 per cent in the same period to 78.97 billion in the first six months of 2024, according to a recent report. The platform's success extends beyond transaction volumes, having successfully brought more than 300 million people into the formal financial system, marking a significant achievement in financial inclusion.

Europe: The EU's Instant Payment Regulation now requires Eurozone payment providers to support instant SEPA transfers by early 2025, with extra time for non-Eurozone countries. The European Central Bank is also developing a digital euro, aiming to provide a secure and efficient digital payment solution for the Eurozone. Sweden has emerged as a pioneer with its e-krona development, preparing for potential future implementation by focusing on design aspects and necessary legislative groundwork. Meanwhile, the UK government recently launched the National Payments Vision (NPV), outlining plans for a world-leading payments ecosystem with diverse options, seamless account-to-account payments, potential exploration of a retail digital currency, and strong consumer protection standards.

Americas: Brazil leads the region with its comprehensive PIX system implementation. Launched in 2020 by the Central Bank, PIX has become a leading instant payment system with 143 million users and 42 billion transactions in 2023. Its success is driven by features like no fees for individuals, integration with third-party providers, and strong security measures. Future developments include recurring payments, NFC capabilities, and potential cross-border interoperability.

Middle East: The GCC Real-Time Payments Programme represents a significant development in the region, with all six Gulf Cooperation Council states now operating real-time payments programmes as part of a governmental push towards a cashless, financially inclusive society. Another key regional initiative is the Arab Regional Payment System (BUNA), which brings together GCC, Middle East, and North Africa markets for intra-regional payments, as well as with global trading partners. The system currently supports six currencies and has over 110 participants. Saudi Arabia has further advanced its Open Banking agenda with the second release of its Open Banking Framework in September 2024, focusing on payment initiation services (PIS).

Africa: The continent marked a notable milestone with the Pan-African Payment and Settlement System (PAPSS), which allows companies to pay for intra-African trade transactions in their local currency, potentially saving businesses USD 5 billion in transaction costs annually. Several African countries have developed their own instant payment systems, including Nigeria's NIBSS Instant Payment (NIP) and Ghana's GhIPSS platform. Regional integration is advancing through systems such as GIMACPAY in the CEMAC region and SADC RTGS in Southern Africa. The launch of the Open Finance African Group in Central and West Africa in April 2024, supported by key stakeholders including Axway, BGFI Bank, GIM UEMOA, HPS, InTouch, SBS, and Deloitte, marks another step towards promoting financial inclusion and expanding access to financial services across the region.

Impact on Global Payments

The proliferation of government-backed payment systems is having several significant effects on the global financial landscape. As countries develop their own systems, the global payment landscape is becoming more fragmented, potentially complicating cross-border transactions. These government-backed systems are challenging the dominance of established payment networks and reducing dependence on cash.

On the positive side, these systems are making digital payments more accessible to underserved populations, particularly in developing countries. Real-time payment capabilities are becoming the norm, reducing transaction times and costs. Additionally, countries are gaining more control over their financial data and transaction information.

Future Outlook

As more countries adopt and refine their government-backed payment systems, the focus is increasingly turning toward cross-border collaboration and system interoperability. Integration initiatives are emerging as a crucial response to potential fragmentation. Regional collaboration programmes are expanding to address interoperability challenges, while new systems demonstrate potential for substantial cost reduction across borders. This balance between national innovation and international integration represents a key challenge for the payments industry.

To learn more about how HPS can help you navigate this evolving payment landscape, please contact sales@hps-worldwide.com.