How politics are carving up the global payments market

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Global politics are carving up the world of e-commerce, forcing companies to make tough decisions about their strategies for the U.S., India and other regions.

In one example, WorldFirst said it would halt payments in the U.S. after Feb. 20 and will rebrand as Omega. WorldFirst didn’t provide a lot of details about the change, which it is making to stave off U.S. regulatory opposition to Ant’s hopes to buy WorldFirst for $700 million.

At almost the same time, Amazon pulled items from its India site to comply with new rules that forbid online merchants from selling through vendors in which they have an equity stake. “While we remain committed to complying with all laws and regulations, we will continue to look to engage with the government to seek clarifications that help us decide our future course of action as well as minimize the impact on our customers and Indian sellers," Amazon said in an emailed statement.

At stake in all of these deals is control over the data produced by e-commerce payments, a $3.5 trillion yearly market that’s rapidly getting larger; and the ability of artificial intelligence to wring income out of e-commerce through improvements in marketing, risk management, sales and fulfillment.

AI and distributed ledgers such blockchain are also making e-commerce a potentially borderless market by removing traditional hurdles such as locally owned correspondent banks, which extract fees for handling part of the processing for cross-border payments. Also, fintechs such as Square and Stripe have international ambitions, giving U.S.-based companies a greater share of local merchant markets in hundreds of countries.

That’s placing pressure on governments and institutions that rely on more traditional trade structures to to protect what they see as rival nations seizing AI and payments-driven economic benefits. The result has been Indian data storage rules, a Chinese government that frequently changes regulations for foreign payment companies and a U.S. presidential administration that threatens remittances and issues tariffs.

“These are defensive moves to protect [the country’s] underlying data sovereignty,” said Richard Crone, a payments consultant. “AI businesses are built with data, and payments is one of the richest data veins.”

The WorldFirst deal, which has been rumored for months but still hasn't been formally announced, would allow Ant Financial and Alibaba — the e-commerce giant that owns about a third of Ant — to benefit from PSD2's mission to connect fintechs to the traditional financial system to obtain actionable payments data.

Ant would gain improved access to the new European open banking regime, which connects banks and mobile commerce apps and enables powerful expansion of cross selling and marketing that can come from more data-rich digital payments.

Ant and Alipay have about 700 million users, providing staggering scale for merchants in Europe. WorldFirst is closer than most non-Chinese companies to obtaining a license to operate a domestic payments service in China, creating international retail, payments and data analysis synergies that it doesn't necessarily need the U.S.

WorldFirst and Ant did not return requests or comment, but it’s likely Ant can’t afford to have the WorldFirst deal fall apart because of U.S. political pressures connected to China, a fear that already appears to be impacting Alibaba’s general business strategy. The tariff battle is a threat to international payment processing collaboration, and U.S./China tensions have already scuttled Ant’s attempt to acquire MoneyGram.

If the slowdown in China’s economy weakens domestic demand and payments revenue, Alibaba could benefit from a greater presence in international markets. Chinese companies such as Ant and WeChat are already active outside China, signing a series of deals that mostly serve Chinese travelers in Europe and the U.S., so Chinese companies don't face the same local data storage pressure that U.S. companies face in China.

“Unlike U.S. financial institutions, Ant and Alibaba and WeChat ... are already exploiting these payment data feeds regardless of borders and boundaries,” Crone said.

India’s economic stress is also behind moves in India, where isolationism threatens substantial investments from the card networks, Amazon and Walmart and others to build a presence in India. There has been fierce lobbying over data storage rules, with mostly U.S-based companies on one side and Indian mobile payments company Paytm on the other.

Walmart recently spent more than $12 billion to acquire Indian e-commerce company Flipkart, outbidding Amazon and gaining a market to build both a retail and financial services presence. But the new Indian investment laws, which went into effect Feb 1, will hurt Amazon and Walmart’s ability to use their scale to dominate the Indian e-commerce market.

Visa and Mastercard have also faced regulatory hurdles in India, and are making efforts to comply with data storage rules. Both card brands are also facing regulatory hurdles in building a payments market in China.

While Mastercard CEO Ajay Banga has objected to the Indian data storage rules, local data storage in both China and India would provide greater control over data and its downstream usage, including marketing or sales revenue.

“AI and data security are just as important as border security,” Crone said.

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Compliance M&A Digital payments Cross border payments Amazon Alibaba Ant Financial U.S. U.K. India China