Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How Emerging Markets Are Building Their Own Payment Rails
Transcript
- Lucas: Taiwan's stock market just had a 4.8% week. That's the EWT ETF, down almost 5% in five days. Big move for a market that usually just hums along. Luna: Right, and the headline risk is obvious — Iran stepping up tanker attacks in the Strait of Hormuz, and Taiwan sits right on the other big global chokepoint. But I want to look at something else Taiwan is doing quietly. Lucas: Go on. Luna: Taiwan is rolling out a national qr code payment system. It's called the Taiwan Pay QR Code Common Standard. It's not flashy, but it's part of a much bigger trend across emerging markets — building domestic payment rails that bypass the Visa-Mastercard duopoly. Lucas: Yeah, and this is exactly the kind of infrastructure story that doesn't show up in ETF flows but could reshape how money moves in these economies over the next decade. India is the obvious poster child — the Unified Payments Interface, UPI, processed about $2 trillion in transactions last year. Luna: Two trillion dollars. That's roughly the GDP of Canada moving through a mobile payments system that barely existed a decade ago. Lucas: And the key detail for the economics listener is that UPI is a public good — it's built and operated by the National Payments Corporation of India, which is a not for profit entity owned by a consortium of banks. The cost per transaction is essentially zero for users. Compare that to the typical 1.5 to 3 percent merchant discount rate on card networks. Luna: So merchants in India are saving billions of dollars a year in swipe fees. That's money that stays in the local economy instead of flowing to Visa's headquarters in Foster City, California. Lucas: Exactly. And other countries have noticed. Brazil launched its instant payment system, Pix, in 2020. Over 70 percent of the adult population now uses it. It's become the default way to pay for everything from a street-food snack to a used car. Luna: Pix processed something like 30 billion transactions last year. That's more than Visa and Mastercard combined in Brazil. Lucas: Right. And Indonesia launched QRIS in 2019 — a standardized QR code that works across all payment apps. It's mandatory for all payment service providers. So if you're a merchant in Jakarta, you put up one QR code, and it works with Gojek, Grab, OVO, Dana, any wallet. Luna: That's smart from a competition standpoint. It prevents any single player from owning the merchant relationship via a proprietary QR. Lucas: Exactly. The pattern here is countries saying: we don't want our payment infrastructure controlled by foreign companies, and we don't want our transaction data flowing abroad. There's a sovereignty angle that's often overlooked in the finance press. Luna: And it's not just about sovereignty — it's also about inclusion. In Nigeria, the NIBSS Instant Payment platform has brought millions of unbanked people into the formal financial system. They can send money using just a phone number. Lucas: The numbers are striking. Nigeria's NIBSS processed over 5 billion instant payment transactions in 2025. That's up from basically zero in 2015. And the value was something like 600 trillion naira, which is about $400 billion. Luna: But here's the question for investors: Does this actually threaten Visa and Mastercard? Their stock prices seem to shrug it off. Lucas: Short term, yes, because these companies still have enormous moats in cross-border payments and in developed markets. But if you look at where transaction growth is happening over the next decade — it's emerging markets. The unbanked, the underbanked, the shift from cash to digital. If those new digital transactions happen on local rails, Visa and Mastercard miss that growth. Luna: And there's another layer: cross-border payments. Right now, if I want to send money from the US to the Philippines, it goes through correspondent banks, gets priced in dollars, takes days, and costs 6 or 7 percent. But countries are starting to link their domestic systems together. Lucas: India's UPI is already connected with Singapore's PayNow. You can transfer money between the two instantly using just a mobile number. Thailand and Malaysia have linked their systems too. The ASEAN region is talking about a unified payment zone. Luna: So imagine a world where a small business in Vietnam can pay a supplier in Indonesia directly in local currencies, bypassing the dollar entirely. That's a big deal for the dollar's role in trade. Lucas: It is. And central banks are paying close attention. The Bank for International Settlements has a project called Nexus that's specifically about connecting domestic instant payment systems across borders. There are 25 central banks involved. Luna: Let's bring it back to the numbers we see today. Taiwan's sell-off might be about geopolitics, but the long-term story is that Taiwan's economy is also building infrastructure that makes it less dependent on foreign payment networks. Lucas: And the broader EM ETF picture supports the thesis. Look at the iShares MSCI Emerging Markets ETF, EEM, at 63.36, down 1.8 percent this week. The VWO, the broader FTSE fund, at 57.70, down 1.9 percent. These markets are under pressure from the strong dollar and trade tensions. But inside those markets, structural changes like payment modernization are happening regardless. Luna: It's a reminder that EM investing isn't just about export demand or commodity cycles. A lot of the value creation over the next decade will come from domestic productivity gains — and payments infrastructure is a huge part of that. Lucas: You know, one thing that makes these deep-dive episodes possible is that the show is listener-supported. A small group of people chip in monthly through Buy Me a Coffee at buy me a coffee dot com slash fexingo, and that's what keeps it ad-free and allows us to chase stories like this. Luna: Yeah, and it's genuinely a small group — but it makes a big difference. If you've gotten value from the show, consider joining them. Lucas: Anyway, back to payments. The next frontier is probably central bank digital currencies, or CBDCs. Over 130 countries are exploring them, and many emerging markets are further along than developed ones. Luna: Nigeria's eNaira, the Bahamas' Sand Dollar, China's digital yuan — these are live. And they'll eventually plug into these domestic payment rails. Lucas: So the takeaway for today: if you're thinking about emerging markets, don't just look at the export numbers or the ETF flows. Look at the plumbing. Because the countries that build their own payment infrastructure are positioning themselves to capture more of the economic value of their own transactions. Luna: And for investors, that might mean looking beyond the big US payment stocks when you think about payments growth. The next billion digital transactions may not go through the usual rails. Lucas: The Taiwan sell-off this week is a short-term headline. But the quiet work of building domestic payment systems is a long-term structural shift. And it's happening in dozens of countries right now.