Fragmentation and Concentration within the International Payments System – Risks, Challenges, Opportunities

This paper underscores the dynamic and complex context of international payments, with the aim to identify specific forces, risks and challenges behind current megatrends. It underlines also the opposite tendencies of fragmentation and concentration within the international payments system. Fragmentation is due to three main categories of factors: differences in regulation, difficulties of interoperability and lack of common standards; variety of participants, with different objectives and goals; geopolitical tensions, which may lead to the emergence of parallel payment systems, which do not interact with each other. Concentration within the international payments system is reflected by the market power of specific private actors, especially big technology companies (BigTechs), but also financial technology actors (FinTechs). This concentration is also evidenced by the overwhelming share held by the most used currencies in global payments. Our paper argues that the ideal international payments system should provide fast, cheap, safe, transparent and cyber resilient services. At the same time, financial stability, deterrence of illegal activities and the level playing field should be ensured. The qualitative analysis that is the basis of this paper takes into account multiple perspectives, including demand side, supply side and regulators.