The US$2.5 trillion ecosystem: understanding global payment flows
The global payments industry represents one of the most valuable segments of financial services, generating US$2.5 trillion in annual revenue from $200 trillion in value flows, supported by 3.6 trillion transactions worldwide.
Yet beneath these headline figures lies a complex infrastructure that few practitioners truly understand. How money moves is becoming as critical as how much money moves.
According to McKinsey’s 2025 Global Payments Report, the landscape is undergoing a fundamental transformation: “What was once a pursuit of universal efficiency has become a competition among various market systems, each with its own philosophies, capabilities, and constraints.” This fragmentation reflects broader geopolitical shifts, with regional payment systems gaining prominence alongside traditional global networks.
The composition of revenue varies dramatically by region. In the Asia-Pacific region, 59% of payment revenues come from commercial activity, with account net interest income accounting for 25% of the total.
North America, by contrast, remains consumer-driven, with credit cards accounting for 40% of revenues. Europe, the Middle East, and Africa display the most diversified structure, with 20% from commercial account NII and 20% from consumer account NII.
The correspondent banking labyrinth: how money travels across borders
Cross-border payments remain the invisible plumbing of the global economy, yet this plumbing is leaking time, money, and trust.
When a bank in London needs to send funds to a supplier in Singapore, the money rarely travels directly. Instead, it navigates a maze of correspondent banking relationships, each introducing friction, cost, and delay.
The traditional correspondent banking model operates through nostro and vostro accounts, reciprocal arrangements where banks hold accounts with each other in different currencies.
A nostro account (from the Latin “our”) represents a domestic bank’s account held with a foreign bank in the foreign currency. The mirror image, a vostro account (“yours”), is how the foreign bank views the same relationship.
As the Bank for International Settlements (BIS) notes in its quarterly reviews, this architecture creates inherent inefficiencies.
Each intermediary in the chain deducts fees, extends settlement times, and introduces opacity. The result: cross-border transfers through traditional rails typically take 3-5 business days and incur total costs of 2-7% when accounting for transfer fees, FX spreads, and intermediary charges.
The SWIFT network, which processes the messaging between these correspondent banks, has modernised significantly.
According to the Financial Stability Board’s 2025 progress report, 90% of cross-border payments sent through SWIFT now reach the recipient bank within an hour—surpassing the G20 target.
Nevertheless, reaching the recipient bank is not the same as reaching the end customer. Due to local processing delays and regulatory checks, only 43% of payments are credited to the final account within an hour.
The rise of real-time: instant payment systems reshaping fund flows
The most significant transformation in domestic fund flows has been the proliferation of real-time payment systems. These networks settle transactions in seconds rather than days, fundamentally altering how businesses and consumers interact with money.
India’s UPI: the global benchmark
India has emerged as the undisputed leader in real-time digital payments. According to the IMF-FIS Global Fast Payments Report 2025, India’s Unified Payments Interface (UPI) recorded 18.39 billion transactions in June 2025 alone, achieving a Faster Payment Adoption Score (FPAS) of 87.5%.
The UPI system now processes over 640 million transactions daily, serving 491 million individuals and 65 million merchants across 675+ integrated banks.
What distinguishes UPI is not merely its scale but its architecture. Built atop the India Stack – integrating Aadhaar identity verification, eKYC, DigiLocker, and Account Aggregator services – UPI demonstrates how payment infrastructure can drive financial inclusion.
Transfers complete in under five seconds at near-zero cost, with the system now operational in seven countries, including France, the UAE, and Singapore.
Brazil’s Pix: Latin America’s success story
Brazil’s Pix system has achieved equally remarkable penetration. The Central Bank of Brazil data from the first half of 2025 reveals that Pix moved R$15 trillion (approximately US$2.6 trillion) in six months, representing 36.9 billion transactions – a 27.6% year-on-year increase.
Pix now accounts for 50.9% of all payments in the country, surpassing cards (34.3%) and dramatically reducing cash usage.
The system’s success has prompted international expansion, with Pix now operational across Latin America. This regionalisation of payment infrastructure represents a broader trend: domestic instant payment systems are increasingly interoperating across borders, creating new pathways that bypass traditional correspondent banking networks.
FedNow: America’s catch-up play
The United States, long reliant on ACH and wire transfers, has witnessed explosive growth in instant payments since the Federal Reserve launched FedNow in 2023.
According to Federal Reserve data, FedNow processed US$245 billion in Q2 2025—a staggering 49,000% year-on-year increase from the $492 million processed in Q2 2024. The network now reaches approximately 40% of demand deposit accounts through 1,500 participating financial institutions.
Critically, the FedNow transaction limit increased to $10 million in 2025, enabling high-value B2B use cases beyond consumer payments.
According to Bernadette Ksepka, senior vice president at the Federal Reserve: “The goal with FedNow is to achieve ubiquity.” Yet challenges remain: most participating institutions are still “receive-only,” creating friction in the payment ecosystem.
Tokenised deposits and stablecoins: the new settlement rails
Beyond traditional banking infrastructure, a new class of settlement rails has emerged based on distributed ledger technology.
These digital asset systems promise atomic settlement – the simultaneous exchange of assets and payment – eliminating the settlement risk inherent in conventional approaches.
The stablecoin surge
Stablecoin supply has grown from US$5 billion to over $309 billion as of early 2026, with transaction volumes exceeding $32 trillion in 2024 according to Visa data. However, as Oliver Wyman observes in its 2025 analysis, “usage remains concentrated in crypto trading and speculative contexts rather than mainstream commerce.”
Friction is fundamental: using stablecoins requires businesses to overhaul their treasury management, accounting systems, and compliance frameworks.
For enterprises operating in mature markets with efficient payment rails, these operational overheads often outweigh incremental benefits. The promised revolution in everyday money has not materialised at scale, stablecoins have found their niche, but it is narrower than headlines suggest.
Tokenised deposits: banking’s digital evolution
Major financial institutions are converging on an alternative model: tokenised deposits. Rather than creating money-like instruments outside the banking system, tokenised deposits transform existing commercial bank money into programmable, blockchain-based forms while retaining regulatory protections.
JPMorgan’s deployment of its JPMD deposit token on the Base blockchain for institutional clients represents a landmark move – a regulated deposit token on public infrastructure.
HSBC has expanded its tokenised deposit service to cross-border transactions between Hong Kong and Singapore. BNY Mellon, which handles US$2.5 trillion in daily payments, is exploring tokenised deposits to modernise its infrastructure.
The UK Finance GBTD pilot, running through mid-2026, is testing fungible tokenised sterling deposits across three use cases: marketplace payments, remortgaging processes, and digital asset settlement. As UK Finance notes: “Tokenised deposits provide a practical pathway to modernise UK payments, aligning with the National Payments Vision’s pillars of innovation, competition, and security.”
Settlement risk and the PvP imperative
Foreign exchange settlement risk, the possibility that one party delivers its currency without receiving what the counterparty owes, remains one of the most significant vulnerabilities in global finance. This risk, first exposed by the collapse of Bankhaus Herstatt in 1974, continues to threaten systemic stability.
CLS Bank, established in 2002 to address this Herstatt risk, has become the industry standard for payment-versus-payment (PvP) settlement.
In the first half of 2025, CLS settled an average of $7.9 trillion daily, a 12% year-on-year increase, across 18 major currencies for 76 settlement members and over 38,000 third-party participants.
However, emerging market currencies remain outside CLS coverage. The IMF’s October 2025 Global Financial Stability Report highlights that “settlement risk is particularly relevant for emerging market and developing economies, many of which are outside risk mitigation arrangements.” This gap has driven the development of complementary services like CLSNet, which provides automated bilateral netting for over 120 currencies.
The Global FX Committee’s Code of Conduct establishes a clear hierarchy for settlement methods: eliminate settlement risk through PvP where practicable; reduce the size and duration of settlement risk through netting where elimination is impossible; and minimise gross bilateral settlement. Yet implementation remains uneven across market participants and jurisdictions.
The de-risking dilemma: when correspondent banking relationships vanish
The decline in correspondent banking relationships represents one of the most pressing challenges to global financial connectivity.
Since 2011, the Pacific region has experienced a 60% drop in CBRs, double the world average, leaving some countries teetering on the edge of financial isolation.
Global banks cite high compliance costs, low profitability, and perceived risks of money laundering and terrorist financing as the primary drivers of de-risking.
Small markets with differing regulatory requirements face particular challenges: transaction volumes in Tuvalu or Kiribati individually fail to attract international financial institutions.
The World Bank’s Pacific Strengthening Correspondent Banking Relationships Project, a US$77 million initiative launched in 2024 across eight countries, represents one response.
As Rodney Kirarock, former economic adviser to the Pacific Islands Forum, stated: “The loss of correspondent banking links has been one of the most urgent financial challenges facing our region.”
The proposed Pacific Payments Mechanism would aggregate transaction volumes across multiple jurisdictions, making the combined flows economically viable for correspondent banks. This platform approach—aggregating volumes and flows under common standards and shared services—could provide a template for other regions facing similar challenges.
Project Agora: reimagining cross-border infrastructure
Project Agora, led by the Bank for International Settlements (BIS) in collaboration with seven central banks and more than 40 private-sector institutions, represents the most ambitious attempt to reimagine wholesale cross-border payment infrastructure.
The project brings together the Bank of England, the Bank of France (representing the Eurosystem), the Bank of Japan, the Bank of Korea, the Bank of Mexico, the Swiss National Bank, and the Federal Reserve Bank of New York.
As the BIS explains, “Cross-border payments today are fraught with challenges that make them slow, expensive, and opaque. Businesses and banks must often navigate complex correspondent banking networks, which can delay transactions, increase costs, and obscure the payment process.” Project Agora seeks to address these inefficiencies through tokenisation and smart contracts on a unified, programmable platform.
The project’s core innovation lies in combining tokenised commercial bank deposits with tokenised wholesale central bank money on the same ledger. This architecture enables atomic cross-border transactions—payments completed synchronously and in full—while preserving the critical depositor-bank relationships that underpin financial stability.
Having entered the testing phase in early 2026, Project Agora is examining how tokenised money can comply with existing rules on settlement finality, anti-money laundering, and countering the financing of terrorism. A full project report is expected following the conclusion of the prototype phase.
The fragmentation paradox: competing systems in a contested landscape
The payments ecosystem is entering a phase of unprecedented complexity. The McKinsey Global Payments Report 2025 captures this inflexion point: “Global payments are no longer converging – they’re fragmenting, digitising, and becoming programmable.”
Three structural forces are reshaping how money flows between individuals, businesses, and intermediaries.
- First, the payment system is becoming increasingly fragmented and regionalised, driven by geopolitical tensions and the pursuit of “payment sovereignty.”
- Second, digital assets are finding large-scale application in payment scenarios, from stablecoins to tokenised deposits.
- Third, artificial intelligence is transforming operations from fraud detection to liquidity management.
The IMF’s August 2025 working paper on Payment Frictions, Capital Flows, and Exchange Rates provides crucial insights into these dynamics. The research finds that “lower frictions in cross-border payments reduce uncovered interest parity deviations and increase capital flows.” However, the impact on volatility depends on the type of shock and the degree of friction reduction. For real shocks, lower frictions increase capital-flow volatility while reducing exchange-rate fluctuations. For financial shocks, the effects reverse.
As the authors note, “The landscape of cross-border payments is undergoing significant transformations. The combination of accelerating technological innovation and growing geopolitical risk paints an exceptionally uncertain path for the near-term evolution of the costs of conducting payments across borders.”
Looking ahead: the programmable future of money movement
The future of money movement lies not in any single technology but in the orchestration of multiple rails, traditional and emerging, into seamless, intelligent infrastructure.
As the Federal Money Services Business Association (FedMSB) observed in its year-end analysis, “cross-border payments stopped evolving on one modernisation track and started converging across several at once.”
The new mental model is no longer linear – send, correspondents, FX, settle, notify – but rather a composable stack: a data plane (message quality, structured fields, identity artifacts); a routing plane (rail selection per transaction with retries and fallbacks); a risk plane (KYC/AML/sanctions plus fraud and disputes); a settlement plane (nostro/vostro, prefunding, local clearing, blockchain options); and a distribution plane (wallets, platforms, embedded finance).
The strategic question has shifted from “Which network?” to “Which layer do we own—and which layers do we rent?” Institutions that invest early in modern infrastructure will deliver faster, more reliable, more transparent payments and capture the revenue opportunities that accompany them.
Money movement in 2026 is neither fully transformed nor static. It exists in a state of productive tension, legacy systems operating alongside experimental rails, regional systems interoperating with global networks, and traditional banks competing with fintech innovators. For practitioners, the imperative is clear: understand the full stack, monitor emerging developments, and prepare for a future where how money moves matters as much as how much moves.