Payment fragmentation is here to stay, and banks must adapt

For years, the payments industry has been on a seemingly unstoppable path toward global harmonisation, integration and alignment. The most recent poster child of this trend was the shift to the ISO 20022 messaging standard, which promised to unlock interoperability and seamless value movement across borders.

That somewhat utopian vision has now collided with reality. Geopolitical tensions, national security priorities, and rapid technological innovation have seen fragmentation – not harmonisation – emerge as the defining feature shaping the modern payments ecosystem.

About a year ago, I wrote the article “Wero: The EU’s Ambition to Rattle Credit Card Behemoths,” which explored Europe’s drive to strengthen domestic payment sovereignty through initiatives like the European Payments Initiative (EPI). This trend has not only continued, but accelerated across various payment ecosystems worldwide as countries seek to have greater control over their financial infrastructures.

Payments fragmentation in action

While the proliferation of payment systems brings benefits such as greater competition and increased customer choice, it inevitably adds layers of complexity for regional and global banks that must support both legacy and emerging rails across multiple jurisdictions.

By charting developments in the underlying rails and models across different payment types – such as account-to-account (A2A), in-store, cross-border, and digital assets – it is clear how fragmentation is already reshaping how money is moved:

• A2A payments
  The evolution of A2A payments in Europe is a prime illustration of the impact of fragmentation. There are now dozens of digital wallet providers, each rooted in domestic or regional markets rather than a single pan-European rail. For example, there is Payconiq and Bancontact in Belgium, iDEAL and Tikkie in the Netherlands, BLIK in Poland, and Bizum in Spain. The response? Yet another digital wallet solution. The European Payments Initiative (EPI) has launched Wero, a pan-European digital wallet initiative aiming to standardise A2A payments across borders and, in the future, support in-store purchases.

• In-store payments
  For decades, card schemes have dominated in-store payments. But alternative networks are succeeding in increasing adoption. QR-based payments through AliPay and WeChat in China and UPI in India show how local ecosystems can bypass international card rails entirely. Similar trends are emerging across Latin America as countries seek to localise control over domestic payment systems.

• Cross-border payments
  Cross-border payments perhaps remain the clearest example of the impact of fragmentation for, despite sustained global efforts, they remain slow, expensive, and opaque. In fact, the Financial Stability Board recently announced the G20 2027 targets for faster, cheaper, and more transparent international payments will be missed.
  While correspondent banking and Swift remain dominant, alternative initiatives like SEPA OLO and Project Nexus are emerging, along with various non-bank solutions. While these offer new models that could help to address some of the underlying challenges, they also add to the diversity of rails that banks must support.

• Digital assets
  The digital assets space is fragmenting particularly rapidly, driven by differing regulatory approaches, technology choices, and strategic priorities. In the US, stablecoins are supported as a way to protect the dollar’s primacy, with major banks JPMorgan Chase & Co., Bank of America, Citigroup and Wells Fargo exploring a joint stablecoin. In contrast, the EU is advancing its CBDC agenda while tightening its stance on stablecoins. The UK is evaluating its own digital pound.
  Regulatory divergence is being compounded by fragmentation at the technology layer itself. Stablecoins, CBDCs, and asset tokenisation initiatives are being built on different distributed ledger technology (DLT) networks from permissioned blockchains to public networks and hybrid models. This means multiple platforms, standards, and interoperability protocols will need to coexist for value to move seamlessly between digital and traditional rails.

Understanding the challenge for banks

Considering these ongoing developments, it is clear that we are entering an era of interconnected but sovereign networks. This will not be a passing phase and, as noted in a recent industry report, “what was once a pursuit of universal efficiency has become a competition among various market systems, each with its own philosophies, capabilities, and constraints.”

Given the rate of innovation and change we are seeing, it is unclear how this fragmentation will ultimately play out and what the end-state will be. What we do know is that multiple infrastructures – both old and new – will co-exist for the foreseeable future.

This presents a massive strategic and operational challenge for banks. Supporting these parallel systems stands to drives up costs, operational risks, and compliance burdens. It also renders the previous pace of change untenable, and it is no longer feasible (if it ever was) to take years to bring a new payment rail online.

Embracing fragmentation strategically

The answer to addressing this increased fragmentation lies in consolidation.

It is no longer feasible to develop and maintain individual end-to -end processing engines for different payment types. But by rethinking the payments processing value chain and moving towards a single flexible infrastructure capable of supporting any payment, anytime, anywhere, banks are empowered to safely and easily support new payment types, clearing and settlement methods, markets and use-cases as they emerge.

By designing for divergence, and not against it, banks have the opportunity lead payments forward.