Introduction[1]:
The global landscape of digital payments is undergoing a profound metamorphosis, ushering in an era marked by platforms that transcend boundaries. At the forefront of this transformative wave is BRICS Pay, a joint initiative by the economic powerhouses of Brazil, Russia, India, China, and South Africa. Launched in 2023, BRICS Pay is not merely a digital payments platform; it represents a commitment to redefine cross-border transactions in local currencies. In this article, we delve into the features, advantages, and implications of BRICS Pay and explore how it could reshape the FinTech landscape in the years to come[2].
What is BRICS Pay and How Does It Work?
BRICS Pay is more than a digital payments platform; it’s a joint commitment to facilitate cross-border payments in local currencies seamlessly. The platform employs a digital token known as BRICS Coin, which, crucially, is not a cryptocurrency but a stablecoin pegged to a basket of currencies representing the BRICS nations. This stablecoin acts as a bridge currency, enabling the exchange of different national currencies without intermediaries or transaction fees. Leveraging blockchain technology, BRICS Pay utilizes a distributed ledger to record and verify transactions, ensuring security without the need for central authorities.
Global Integration and Open Access:
Accessible to anyone with a bank account or card issued by a bank in any of the BRICS countries or potential BRICS PLUS members, BRICS Pay integrates seamlessly with prominent payment systems, including SWIFT, Visa, Mastercard, and PayPal. This integration ensures interoperability and compatibility, underlining its commitment to providing an accessible and inclusive platform.
Why BRICS Pay Matters for Trade and Financial Integration:
Beyond its technological prowess, BRICS Pay holds immense promise for trade and financial integration. With a mission to provide a fast, cost-effective, and straightforward way to make and receive payments in local currencies, BRICS Pay addresses a critical need. The unbanked and underbanked populations, comprising over 1.7 billion adults globally, face significant barriers to participating in the formal economy[3]. BRICS Pay aims to overcome these barriers by offering a low-cost, secure alternative, fostering financial inclusion, and introducing cutting-edge technologies like central bank digital currencies (CBDCs) and decentralized finance (DeFi).
How BRICS Pay Could Challenge FinTech Payment Services:
In the fast-paced world of FinTech payment services[4], characterized by innovation and convenience, BRICS Pay emerges as a formidable contender. The potential advantages it offers, such as lower transaction costs, faster processing, and enhanced security, could lure users away from traditional FinTech services. Within the BRICS countries and their partners, BRICS Pay’s access to local currencies and markets, coupled with the political and economic influence of the BRICS bloc, may reshape user preferences significantly.
Strategies for FinTech Adaptation:
Against these potential trends, Fintech payment services need to adapt to the changing environment and find ways to leverage the opportunities and overcome potential threats posed by BRICS Pay. Some possible strategies include:
- Collaboration: FinTech companies can collaborate with BRICS Pay to integrate their services and platforms, providing complementary and value-added products to their customers.
- Diversification: Expanding into regions where BRICS Pay is not dominant or available allows FinTech services to diversify their markets and customer segments.
- Innovation: Staying ahead in the competitive landscape involves continuous innovation. FinTech companies can differentiate their services by offering unique and customized solutions tailored to the specific needs and preferences of their customers.
- Investment in Technology: To enhance efficiency, security, and scalability, FinTech companies should invest in research and development, adopting new technologies and standards.
Interoperability of CBDC and BRICS Pay
At the recent Singapore Fintech Festival 2023, the International Monetary Fund (IMF) advocated for nations to embrace Central Bank Digital Currencies (CBDC). The primary objective is to establish a unified regulatory framework for digital currencies, fostering seamless global interoperability. This vision encompasses the potential interaction and exchange of various digital currencies, including the IMF-supported digital currency and BRICS Pay, guided by agreed-upon standards and protocols[5].
If both systems are designed with interoperability in mind, a scenario where they coexist and complement each other becomes plausible. For example, BRICS Pay might seamlessly facilitate transactions within the BRICS countries, while the IMF-sponsored digital currency could find utility in transactions involving other nations.
However, a central challenge looms in reconciling competing objectives. While BRICS Pay aims, among other things, to reduce dependency on the USD, the IMF-sponsored CBDC is yet to specify whether it will be backed by the USD, a basket of currencies, or even Gold. This ambiguity adds a layer of complexity to the potential collaboration between these two transformative systems.
Observations & Conclusion:
In the dynamic interplay between BRICS Pay and FinTech, we witness not just a clash of technologies but the emergence of a new era in digital finance. The transformative force of BRICS Pay, with its commitment to cross-border transactions in local currencies, raises profound questions for the FinTech landscape. The potential advantages it offers, from reduced transaction costs to enhanced security, pose challenges that demand adaptation and innovation from FinTech companies.
As we navigate this transformative era, one thing is certain: the synergy between traditional FinTech players and emerging platforms like BRICS Pay will define the future of digital finance. The traditional and the revolutionary are not in binary opposition but can coexist and even complement each other.
The recent advocacy by the IMF for Central Bank Digital Currencies (CBDC) adds another layer to this intricate landscape. The call for global interoperability sets the stage for potential interactions between various digital currencies, including the IMF-supported CBDC and BRICS Pay. The challenge lies in reconciling competing objectives, notably the reduction of dependency on the USD.
In conclusion, we stand at the cusp of reshaping the financial frontier. The journey forward demands adaptability, innovation, and a collaborative spirit. BRICS Pay is not merely a disruptor; it’s a catalyst for a financial landscape that is not just dynamic but inclusive. As these forces converge, the future promises a financial realm where traditional and emerging players work in tandem to create a more accessible and equitable digital financial ecosystem.
Should you wish to discuss any of issues raised in the note, please do not hesitate to contact: Laurie Antioch, Chief Finance & Strategy Officer.
[1] See a related article published on our web entitled: “The Emergence of a BRICS currency and its implications for the Payment System”.
[2] BRICS Pay official website: https://www.bricspay.org/.
[3] World Bank report on global financial inclusion: https://www.worldbank.org/en/programs/global-findex
[4] FinTech payment services have been growing rapidly in recent years, driven by the increasing demand for digital and contactless payments, especially amid the COVID-19 pandemic. According to Statista, the global transaction value of FinTech payment services reached $5.2 trillion in 2020 and is expected to grow to $8.1 trillion by 2024. For more detail: https://www.statista.com/outlook/dmo/fintech/payment
[5] IMF Approach to Central Bank Digital Currency Capacity Development. https://www.imf.org/en/Publications/Policy-Papers/Issues/2023/04/12/IMF-Approach-to-Central-Bank-Digital-Currency-Capacity-Development-532177.