Trump's trade war will reduce trust in and thereby hurt the US payments industry

President Trump’s trade war and threats will affect more than the cost of hard goods like steel, lumber, baby carriages, and coffee. It will increase the cost and risk of doing business with US firms including the payments industry.

US payment systems play an outsized role planetwide. Coming from the world’s most competitive payments market, they often view their opportunity as global and have enjoyed enormous success against national systems.

For payment systems to achieve network critical mass, users and policymakers alike must trust them. Trust takes time to build and can be destroyed quickly.

The Zimbabwean dollar was introduced in 1980. Hyperinflation reached an astounding 89 sextillion percent in 2008, destroying all trust in it as a means of payment. The US dollar and South African rand substantially replaced it.

Ecuador’s central bank digital currency – an electronic dollar, never achieved meaningful adoption because Ecuadoran consumers and businesses didn’t trust it.

Hostile regimes have long distrusted US-domiciled payment systems.

Moscow had reason to worry about relying on US payment systems. After Russia’s 2014 invasion of Ukraine, Washington cut off access to Visa, Mastercard, American Express, and PayPal in occupied Crimea. After its 2022 invasion of Ukraine, Uncle Sam turned off the US payment networks’ switch in Russia. However, because Moscow had mandated that Mastercard and Visa transactions be processed in-country by a Bank of Russia subsidiary, Mastercard and Visa cards issued by Russian banks continued to work domestically.

China for nearly a quarter of a century flouted its 2001 WTO commitment to open its domestic payments market.  Today, three payment networks, card giant China UnionPay and mobile payment dragons Alipay and WeChat Pay, dominate the domestic market. They didn’t exist in 2001. Viewing America as an enemy, Beijing doesn’t want to depend on its payment networks.

It's no surprise Beijing won’t rely on US payment networks. But Trump’s battery of on-again, off-again tariffs and threats risk making longstanding trading partners and allies equally wary.  

In Europe, American payment networks like Mastercard and Visa, and alternative payment systems Apple Pay, Google Pay, and PayPal, are leading players at a pan-European level and in most national markets. Mastercard and Nebraska-headquartered ACI Worldwide both provide technology supporting critical real-time interbank payment systems.

EU regulators and politicians have long resented American payment firms’ roles. Until recently it was easy to mock EU poohbahs as indulging in harmful mercantilist sentiment, which if actualised would force Europeans to use inferior payment systems purely because they’re European. Now, however, with Trump’s barrage of tariffs and incendiary rhetoric, calls for payments sovereignty resonate. 

European policymakers, and, increasingly, Europe’s payments industry are now singing from the same hymnal, calling out the danger of depending on American payment systems to promote European payments autarky.

There’s been a vigorous public discussion about the need for a digital euro. Given that existing digital payment systems work well, have critical mass, and are habit, the case for a digital euro is hard to make. It’s not clear it solves any problem. It’s likely to cost tens of billions of euros to implement. It would compete with private payment systems. It might reduce banks’ lending base. However, souring economic relations with the US have put wind at the backs of a digital euro’s advocates.

When pressed on what Trump’s ‘Liberation Day’ meant for Europe ECB President Christine Lagarde said it underscored the need for Europe to ‘have digital payments under our control’ and worried that payments with a card or a phone go through Visa, Mastercard, PayPal, and China’s Alipay.

The European Card Payment Association warns ‘at a time when economic relationships between nations can quickly sour, the sovereignty and cooperation that are unique to Europe’s card schemes demand continued support from all stakeholders’ and urges building on that ‘to ensure Europe maintains control of its payment infrastructure for decades to come’. National card schemes’ principal advantage over the global US payment networks, is that they generally have lower fees. They’re inferior in terms of network reach, capabilities, and ability and propensity to innovate. 

The European Mobile Payment Systems Association is pushing for interoperability between the patchwork of national schemes. Bluecode Executive Chairman Christian Pirkner declares ‘The interoperability of European payment systems will strengthen Europe as an economic power because a sovereign and independent European payment system can react to pressure from overseas more resiliently and more agile’.

The latest putative European payments champion, the European Payment Initiative’s Wero, is live supporting P2P payments in Belgium, France, and Germany. It plans to introduce retail payments online and offline. EPI promotes itself as a ‘European-grown player committed to offering a sovereign payment alternative’ to European consumers.

If touting one’s Europeanness were all it took to build a compelling payment system that delighted consumers and merchants, Wero would rule the roost. Wero has a much smaller – i.e. less useful network, weaker business model, and more limited functionality than the US payment systems it hopes to displace. Its commercial prospects, therefore, were dim. Trump’s thrown it a lifeline.

King Dollar remains a global payment network enjoying high trust notwithstanding Washington’s economic threats and financial sanctions. People worldwide will accept a hundred-dollar bill.

Specialist- and bank-issued dollar stablecoins may enhance the greenback’s utility. On the one hand, dollar stablecoins will benefit from greater legal and regulatory clarity from Washington. On the other hand, Washington’s ability and perceived inclination to weaponize them will make dollar tokens less trustworthy. Unlike the physical dollar, none will be anonymous.

In a world in which people can make and accept dollar stablecoin payments from their mobile phones, they will be used in lieu of debased and untrustworthy national currencies in many countries. Société Generale was the first major bank to issue dollar stablecoins. It would be a delicious irony if the next truly pan-European payment network were dollar stablecoins.

America’s payment systems deliver enormous value globally. It’s in America’s interest that foreign consumers, businesses, banks, and governments – other than enemy regimes, trust them. Washington should avoid giving them cause not to.

About Eric Grover

Eric Grover is the Principal at Intrepid Ventures, providing corporate development and strategy consulting to financial services, payment network, and processing businesses, principally in North America and Europe. He’s a payment thought leader with a comprehensive understanding of the global payment network and processing space, including each stage in the payments value chain: credit, debit and prepay issuing, issuer processing, payment networks, and merchant acquiring and processing. His prior experience includes Visa International, GE Consumer Finance, BofA, NationsBank, Transamerica, and serving as a director on Nordstroms credit card A/R subsidiary’s board.