Digital Payment Systems are Reshaping Global Financial Architecture
The digitisation of payment, trading, and settlement systems is dramatically reshaping the global financial architecture. This transformation is redefining how value is created, stored, transferred, and accounted for, while also altering the balance between public and private money. It is enabling the bundling of services, challenging traditional financial institutions, and prompting a wave of regulatory and institutional responses.
This article is the first in a two-part series providing an overview of key trends in digital finance across the globe, with a focus on successful innovations in India and Brazil. The second part will explore the role of monetary “singleness” and will cover advances in stablecoins, tokenisation, and decentralised finance.
The Digital Finance Revolutions in India and Brazil
India and Brazil have emerged as global leaders in digital finance, particularly in areas like financial inclusion, identity verification, and secure data sharing. India’s Unified Payments Interface (UPI), launched in 2016, has significantly improved the efficiency of account-based payment systems by addressing core challenges around information exchange, authentication, and final settlement. Developed through a public-private partnership, UPI allows real-time, low-cost, and interoperable digital payments between any two entities, irrespective of their bank or payment service provider.
India has successfully overcome challenges related to identity verification and financial inclusion by implementing a nationwide biometric-based digital identification system and expanding access to bank accounts for millions of previously unbanked individuals. The success of UPI has been driven by substantial investments in digital infrastructure and regulatory support for private sector participation, resulting in lower transaction costs and improved access to credit for small businesses.
The interoperable design of UPI has enabled users to select from competing apps, fostering innovation and reinforcing network effects. Early adoption by banks has led to sustained increases in digital payment usage. Moreover, UPI has facilitated streamlined welfare disbursements, with nearly 60% of subsidy payments being made directly into beneficiary accounts by 2024. Overall, the UPI experience underscores the importance of coordinated efforts across both public and private sectors, as well as a flexible, inclusive regulatory framework.
Brazil’s digital finance strategy, led by the Central Bank of Brazil, offers another success story. The bank’s Agenda BC# initiative has promoted tokenisation and integrated systems to enable faster, more transparent, and programmable asset transfers. Key components of this strategy include:
- Pix: An instant payment system launched in 2020 that supports a ‘synthetic’ retail central bank digital currency (CBDC).
- Open Finance: A framework that encourages secure data sharing and competition among financial providers.
- Drex: Brazil’s CBDC, which serves as a platform for a tokenised economy.
- Internationalisation of the Brazilian real: Through regulatory modernisation and cross-border interoperability.
Together, these initiatives create a cohesive digital ecosystem that improves efficiency, security, innovation, and inclusivity. Brazil’s approach aims to create a user-centric financial system driven by AI and user-controlled data, making services more accessible through intelligent aggregators.
The Need for Strong Governance and Institutional Capacity
While the digital finance revolution has made significant strides in many regions, other parts of the world highlight the importance of governance and institutional capacity in supporting these innovations. In sub-Saharan Africa, digital payment systems have reshaped the landscape, promoting financial inclusion, improving payment efficiency, lowering remittance costs, and reducing informality. Private mobile money services have been particularly impactful, with account ownership growing far faster than traditional bank accounts. However, the adoption of central bank digital currencies, fast payment systems, and cryptocurrencies is hindered by weak infrastructure, limited institutional capacity, low financial literacy, and the high costs of deploying new systems.
The challenges of cross-border payments, which remain slow and costly, are compounded by fragile governance frameworks, raising concerns about consumer protection, data privacy, and financial integrity. To address these issues, experts suggest four key policy priorities:
- Investment in infrastructure and skills development.
- Supporting private innovation within secure and competitive regulatory frameworks that promote interoperability.
- Positioning public digital tools to complement, rather than compete with, private solutions, based on an assessment of market gaps.
- Fostering regional and international coordination to ensure interoperability and resilience.
Ultimately, digital payment reforms must be anchored in sound macroeconomic policies that preserve monetary sovereignty and ensure financial stability.
Competing Models in Advanced Economies: The US vs the Euro Area
In advanced economies, the digital finance landscape is similarly evolving, with significant questions surrounding the issuance of new forms of digital money and how to balance privacy concerns with financial stability. In the United States, the 2025 Executive Order on digital financial technology and the GENIUS Act signal a shift towards private sector-driven innovation in blockchain-based financial systems. The Executive Order rules out the development of a central bank digital currency (CBDC) while endorsing a technology-neutral approach and offering regulatory clarity for stablecoins. The GENIUS Act establishes a federal framework for fiat-backed payment stablecoins, which will be required to offer at-par redemption and to be primarily backed by US dollar cash and cash equivalents.
Despite the growth of over 340 stablecoins, many concerns remain around the transparency of reserves, with some of the major providers, such as Tether and Circle, facing scrutiny over their reserve practices. Alongside stablecoins, other financial instruments, such as tokenised US Treasury funds and tokenised deposits, are emerging, each balancing accessibility and returns in different ways.
As private, often foreign, service providers dominate the retail payments market, risks are rising, including the potential for oligopolistic market power, reduced financial stability, loss of seigniorage income, and increased geopolitical vulnerability. To safeguard monetary sovereignty, experts argue that central bank electronic cash (CBEC) is crucial. CBEC could help preserve macro-financial stability by preventing dollarisation and ensuring continued access to payment systems without market abuse, while also protecting seigniorage income and reducing dependency on foreign actors.
In contrast to the US approach, the Euro area is focused on introducing a CBDC—the digital euro—which aims to address privacy concerns in digital payments. As digital payments generate detailed records that are monitored by payment service providers and regulators, there are growing concerns that these data could be misused to monitor, censor, or exclude individuals. The digital euro’s design, which includes both online and offline payment options, could help close the privacy gap. However, experts such as van Oordt (2025) caution that the digital euro will not reverse the erosion of privacy in retail payments, stressing that privacy in payments is a public good.
Additionally, the European Central Bank (ECB) is tasked with ensuring that the digital euro does not destabilise the financial system. The ECB’s proposal includes individual holding limits to prevent significant bank deposit outflows, which could undermine financial stability. Research suggests that such outflows would only be triggered if holding limits exceed €5,000.
Conclusion
The digitisation of payment systems is fundamentally transforming the global monetary system. While different regions are following distinct paths, some have managed to leapfrog others by balancing innovation with regulation and public-private collaboration. Diverging political priorities are increasingly reflected in the evolution of digital finance, which promises to reshape the global financial architecture in profound ways.
References
Araujo, F., and A. da Silva Correa (2025), “The Future Financial System: Brazil’s Experience”, in D. Niepelt (ed.), Frontiers of Digital Finance, CEPR Press.
Assenmacher, K., and O. Soons (2025), “Bank Deposit Outflows and the Digital Euro Holding Limit”, in D. Niepelt (ed.), Frontiers of Digital Finance, CEPR Press.
Bindseil, U., and P. Cipollone (2025), “Central Bank Electronic Cash and Monetary Sovereignty”, in D. Niepelt (ed.), Frontiers of Digital Finance, CEPR Press.
Lee, M. J. (2025), “The Tokenised US Dollar Ecosystem”, in D. Niepelt (ed.), Frontiers of Digital Finance, CEPR Press.
Niepelt, D. (ed.) (2025), Frontiers of Digital Finance, CEPR Press.
Purnanandam, A. (2025), “Cashless Payments in India: The UPI Story”, in D. Niepelt (ed.), Frontiers of Digital Finance, CEPR Press.
Ricci, L. A., et al. (2025), “Strengthening Digital Payments in Sub-Saharan Africa: An Overview”, in D. Niepelt (ed.), Frontiers of Digital Finance, CEPR Press.