Trump's policies repeatedly threaten payments, but with little effect
Since his 2016 campaign, Donald Trump has loomed over the international payments system with a series of threats that are proving increasingly empty.
While it remains to be seen if German Foreign Minister Heiko Maas’ call for an independent payment system to save the Iranian nuclear deal will actually happen, the potential severity of such a move joins a growing list of Trump-era potential casualties including remittance bans, foreign technology worker visa shutoffs, canceled mergers and choked fintech collaboration.
All that said, the impact to date has been relatively muted, and Maas' wish is probably just that.
This week’s development in Germany does not involve anything Trump has said or promised directly; generally, he has had little to say about the European payments market.
Maas contends in an open letter that independent European payment rails can save the Iran nuclear deal. Trump in May broke with European allies by saying the U.S. would pull out of the 2015 Iranian deal, in which economic sanctions would be lifted on Iran in exchange for concessions on nuclear development.
The tie between the Iran deal and payments, as Haas sees it, is European countries won't be able to provide the economic incentives to Iranian companies—particularly Iranian banks—if European companies and banks face punishment from the U.S. for doing business with Iran.
“In this situation, it is of strategic importance that we clearly tell Washington [that we] want to work together. But we will not let you act on our heads [and] over our heads,” Maas wrote, according to a translation. “That is why it is essential that we strengthen European autonomy by setting up payment channels independent of the U.S., creating a European Monetary Fund and building an independent Swift system.”
How that would happen is unclear, as is the impact on the global economy, the burgeoning cross-border payments market, gig economy payrolls and the card networks. Maas himself says the “devil is in a thousand details.”
It wouldn't be the first dramatic change to payments that was signaled by Trump's rhetoric but never came to be. Trump's plan to strong-arm Mexico to pay for his border wall originally hinged on shutting off remittance corridors. That didn't happen.
Other possible impacts of Trump's proposals on payments volume, such as a crackdown on technology worker visas, or tariffs on Chinese goods, have yet to fully materialize. Companies that process international payments for contract workers have noticed an uptick in volume that corresponds with possible changes to visas. The payments industry's most notable casualty of the current political environment in the U.S. is likely the scuttled Ant/Moneygram acquisition, though even in that case Ant has found large market in the U.S. in supporting travel payments for Chinese tourists and temporary residents.
These impacts fall far short of the politically driven moves elsewhere, such as India, where government-driven demonetization has sparked a huge move toward digital payments, or China, where government support for outside payment processors is a moving target that's kept Visa and Mastercard from developing business inside China.
While the Maas plan has some comparison to Russia’s independent Mir payment system set up in response to Western sanctions as a way to dilute the market share of Visa and Mastercard, the Russian market is not nearly as intertwined with the U.S. as the European market.
Within hours of Maas’ declaration of payments independence, German Chancellor Angela Merkel, a member of the same political party as Maas, said she was opposed to an independent payment system.
The concept of a distinct European payment system has some political traction in the European Union over the years, though it’s not been successful, according to Eric Grover, a principal at Intrepid Ventures.
The Monnet Project, for example, included about two dozen European banks that would have provided a Pan-European alternative to Mastercard and Visa. The project failed in 2013 over regulatory uncertainty and concerns over the sustainability of the business model.
“If Maas were simply urging the formation of a new payment system to increase competition that would be a formidable challenge, but I’d applaud it,” Grover said, adding the concept of a distinct European payment system is borne more out of resentment toward the U.S. “The supranational EU at its heart, however, is a political project.”
The challenge for any would-be Swift challenger would be to achieve critical mass — and therefore relevance, Grover said. “Ripple is taking a run at it. I would imagine, however, what Maas has in mind is the formation of a Swift consortium controlled by European banks, which would have to serve non-European institutions, including Iranian banks.”
That sort of challenge, and Merkel's quick opposition, suggests strong headwinds for Maas' vision.