How geopolitics shape payments innovation

Globalization is in retreat. While multipolarity is becoming the new normal, interconnectedness remains necessary for most industries to grow and thrive.

In a conversation with Elena Mesropyan, Visa Innovation, Todd Fox, Vice President, Head of Global Policy, Visa, shares his perspective on the macroeconomic and geopolitical trends that will shape the global payments ecosystem and opportunities for payments innovation domestically and internationally in 2024 and beyond. 

Elena Mesropyan: Todd, what are some of the most important global macroeconomic developments that will have a direct impact on payments in 2024 and beyond?

Todd Fox: The big macroeconomic developments that will happen in 2024 include a series of interrelated dynamics across technological, geoeconomic, and macroeconomic trends.

Visa, as a company, is all about connecting the world and facilitating commerce both domestically and across borders. Technological progress continues to level the playing field, bringing people together, allowing international trade to become possible for companies of all sizes, and allowing consumers to travel the world physically and virtually. And everywhere they go, there's a way for them to pay and be paid. That's the technological trend.

But technological trends aren’t the only factors at play shaping global payments and commerce. What I am seeing is certainly not the end of globalization, but that globalization is in retreat. 2024 is likely not the year when we will see more momentum behind cross-border trade. Why? Because for the last three years, during the pandemic and its immediate aftermath, there have been concerns from some governments about supply chain efficiency and resilience, especially for certain goods that were considerably stressed during the aftershocks of COVID-19. Whereas there was once a huge amount of government energy going into opening up, now there's a bit more focus on making supply lines resilient against shocks. 

It doesn't mean that globalization is over. That’s very overrated. But I think it’s fair to say that everyone has to work a lot harder to operate in an environment where fragmentation is a factor that is countervailing the propulsive impact of globalization.

Elena Mesropyan: It appears that there is a higher degree of geoeconomic fragmentation and an emerging multipolarity. What are the sources of this fragmentation?

Todd Fox: You are spot on – we are definitely seeing more fragmentation. Let’s take international trade as an example; as globalization recedes, countries that used to take reciprocal free trade partners for granted are now looking a little closer at their relationships. That is a trend that will likely continue.

Another important trend is that during the pandemic, there was a massive effort to stimulate economic growth with monetary policy. You had very low interest rates for a very long time. It was an extraordinary circumstance – central banks had to utilize extraordinary measures to keep the world economy going. And then the very predictable outcome was cost-of-living concerns as inflation worked its way through the economy. This is a very relevant trend for the payments ecosystem for two reasons:

First, rising interest rates change the unit economics, and a lot of fintech companies that were founded in a zero or near zero interest rate environment suddenly find themselves under strain from viability perspective. The interest rate risk pushing its way through the economy continues to be a factor, even if it is largely coming down and you see some monetary loosening. But by and large, the macro picture from a central banking perspective is still a rocky road. And central banks deserve a lot of credit for trying to engineer a soft landing and have in many countries forestalled a recession. However, that macroeconomic interest rate environment combined with cost-of-living concerns in many countries can impact economic growth. This is an important trend that we should watch closely.

Second, there is a crisis of trust in the society, so it’s important for companies that are focused on delivering trust in the world to really be aware of this trend and double down on creating trust in the ecosystem.

Elena Mesropyan: In addition to the crisis of trust and making sure that people can trust businesses and governments, what are some other big challenges governments are facing in developing and implementing policies that support innovation but also adequately protect consumers and facilitate trust? And the larger question about this is really about what is the role of the government in driving payments innovation?

Todd Fox:  I will start by noting that we will see ~ 40% of the world's adult population live through an election in the next 12 months. Elected officials and anyone who is in government and exposed to changes in the political vicissitudes of their domestic population, have a strong incentive to focus on the political demands of their own citizens, which, among other things, translates to things that drive economic growth and drive down the cost of living. 

I will also note that there is a very active political contingency in many counties that are pushing governments to look inward, towards its own people first, to create jobs at home. And once upon a time, not so long ago, the consensus was in the other direction. We have gone from a unipolar world to a more multipolar, and more competitive, world.

Elena Mesropyan: This is a fascinating development and correction of the world order. Could you share your perspective on what this means for the central banking world? How will geoeconomic fragmentation influence central bank policy and initiatives? 

Todd Fox: The central banking world is very important to Visa and our clients. What are the jobs that every central banker is put in place to do? 

One, central banks are supposed to achieve price stability, lower inflation, hence the rising interest rates to contend with high inflationary trends trying to drive down inflation and create price stability. That's an objective and that objective has certainly been a dominant trend that we have observed in rate setting decisions by the G10 central banks. 

Two, central banks are responsible for financial stability. In most countries, the central bank also has a mandate to make sure that the safety and soundness of the financial system is protected. And that's not inherently at odds with this idea of price stability. But when you're using monetary levers to stimulate the economy during COVID-19 and then mitigate inflation in the post COVID-19 world, you are creating more pressure for financial institutions because the interest rate volatility creates risk – managing interest rate risk becomes harder as the interest rates go up, and they go up faster than people anticipate. 

And finally, most central banks have an objective to achieve something akin to full employment or economic growth. But of course, raising interest rates to address inflationary pressures also typically results in a reduction in economic stimulus as central banks must balance an overheating economy that could fan further inflation with sustainable, long-term economic growth. In seeking greater financial stability, the underlying driver should be enabling small businesses to go out, build, expand and create more jobs.

So, in the end, you have this trilemma of great ideas that are challenging to achieve simultaneously. At the same time, it seems as though there's a lot of activity on the fiscal side, i.e., the decisions around whether we raise or cut taxes, the decisions around how the public sector allocates money – building stuff becomes harder.

Elena Mesropyan: Todd, how does this translate into opportunities for innovation in payments? 

Todd Fox: Against this backdrop, it is notable that, notwithstanding the geopolitical fragmentation, reshoring, friend shoring, – all these trends, which are absolutely happening at a macroeconomic level when it comes to payments in particular, there is an interesting trend that almost goes in the opposite direction of travel from what's happening in the rest of the economy. What I mean by that is that there’s been a quiet effort to enhance cross-border payments that has strong support from the central banks and finance ministries of the G20. And the G20 has increasingly come to represent something akin to a global institution because of the decision to invite many African countries into the G20 in 2023. So, there's a roadmap to enhance cross-border payments that has stimulated many interesting experiments around things like Central Bank Digital Currency (CBDC) interoperability in a time when the government is trying hard to drive economic growth, and also when economic nationalism is in the ascendancy. 

When it comes to the direction the world is moving in, it may sound as if I've described a few things that are at odds with each other – certain trends like a focus on national payment systems and infrastructure could be perceived as counter to globalization, and enhancing cross-border payments is a pro globalization trend – it’s hard to imagine how both of those things could be happening at the same time. But the trend towards localization is also taking newer forms as technology grows and shifts. For example, a lot of energy today is going into pilot projects that are meant to experiment with and develop CBDC capabilities both at the wholesale level and in a certain number of jurisdictions at the retail level.

Elena Mesropyan: Central Bank Digital Currencies have been one of the most actively evolving areas of focus for many central banks around the world as one of the ways to modernize payment infrastructure. What do you think is the role of digital public infrastructure in driving inclusion and economic growth? 

Todd Fox: First, it’s important to unpack the different components of what individual countries have achieved under the banner of digital public infrastructure locally and globally. 

For example, India has created a tech stack that starts with digital identity, then you have a payments layer, then you have a paperless layer, and they are adding additional capabilities. That is powerful in a country with a large population, with still many opportunities for greater financial inclusion, a banking sector with its own, unique hallmarks, with a generally high cost of capital, and relatively large and complex domestic financial institutions that often are at least partially state-owned. But look at who is participating as the front end of that infrastructure, the last mile delivery, a partner for people that use UPI in India, and you will see large technology companies. We are also seeing interest out of Brazil in developing digital public infrastructure.  In fact, a big part of what I do every day, all day, is talk to people at international organizations who are asking exactly that same question, “What should we do about digital public infrastructures?” It is more accurate to say digital infrastructures, plural, because there are many different kinds of infrastructures necessary to have a thriving digital economy, and not every country needs the same things. And the more we can tailor the recommendation to the unique needs of that country, the better.

Elena Mesropyan: With digital public infrastructures often come up questions of data privacy and data sovereignty. How are consumer attitudes and policy around data privacy evolving and why? 

Todd Fox: Privacy is a highly contextual societal value, which may be understood differently based on social, cultural, and even technological contexts. People and governments may have differing attitudes and policy approaches on striking the appropriate balance of privacy and other public interests. 

For example, a company’s business model, incentives, and their choice of digital infrastructure can altogether determine whether a feature is adopted in a privacy-enhancing or privacy-effacing way. This is why consumer trust helps guide companies to prioritize the values that matter to individuals.

When you empower people with a choice over how their data is collected and what it's used for, they tend to trust you more. We've studied that empirically in many different countries and found that is it a common thread across many different jurisdictions all around the world. We have a great partnership with Consumers International and want to work with consumer groups that are equally concerned about making sure that consumers are getting the right level of protection and that they're putting their trust in the right companies. Giving consumers more power over their own financial lives and decisions will be good for the entire ecosystem, and over the long term, it will make people trust digital payments more and more.

Elena Mesropyan: To close our conversation, what is your message to public authorities who are working hard right now to drive economic growth? 

Todd Fox: We are very involved in helping public authorities understand what it actually takes to deliver value to end users and we are doing a lot of work to listen to public authorities and find out what problems they are actually trying to solve. And then drawing upon our decades of experience across many jurisdictions all around the world, we can partner with governments and central banks and work collaboratively toward more security, greater financial inclusion, more interoperability. 

We invite governments to come to our global network of Innovation Centers and tell us what they are interested in – this open dialogue is a great way for us to deliver value and continue to closely partner with public authorities. We also are absorbing information and trying to get better at advising our clients on what's really driving some of these trends, because if I've said anything important in this conversation, it's that the impact of all these macro trends on payments is not always exactly what one would predict, and the outcomes might look different depending on where you sit in the government and where you are in the world. There are a lot of nuances to this, and Visa can be a trusted advisor in understanding different objectives and priorities of public authorities around the world and even within countries because there is no one-size-fits-all approach. We can be a trusted advisor to governments and central banks as they think about next-generation payments because we understand how hard it is to actually balance the competing vision of more ubiquity, more inclusion, and more security. Visa has been doing it for more than 60 years. We want to unlock and share our experience and best practices through an open dialogue.

Headshot of Todd Fox, VP, Head of Global Policy at Visa.

About Todd Fox, VP, Head of Global Policy, Visa

Todd Fox is the Head of Global Policy at Visa. In this role, he partners with innovators in the public, private, and social sectors to advance public policies that expand the digital payments ecosystem. 

Prior to joining Visa, Todd was principal advisor for external affairs at Rio Tinto, a global metals and mining company. He also held positions at the United States Department of Commerce and Inter-American Development Bank. 

Todd earned a Master of Arts at Johns Hopkins School of Advanced International Studies and was a Fulbright Scholar at McGill University. Todd serves on the board of trustees of the Bay Area Discovery Museum.


The views and opinions expressed in this interview are those of the authors and do not necessarily reflect the official policy or position of Visa Inc.