Written by: Alessio Botta, Senior partner, Milan; Philip Bruno, Partner, New York; Jeff Galvin, Senior partner, Tokyo
When McKinsey’s 2020 Global Payments Report was published last October, it was already clear that the pandemic’s economic impact would lead to the first decline in global payments revenues in 11 years.
One year later, the picture is unexpectedly positive – on the payments front – despite challenges. Payments revenue did indeed decline – to $1.9 trillion globally – but by less than we anticipated last fall. Indicators point to a nominal but geographically uneven rebound in 2021, bringing revenue back into the range of 2019’s record high. From there, McKinsey projects a return to historical mid-single-digit growth rates, generating 2025 global payments revenue of roughly $2.5 trillion.
The relatively muted 2020 topline numbers mask some important countervailing effects, however, which are poised to reset the scale of opportunity for payments players for years to come. The pandemic accelerated ongoing declines in cash usage and adoption of electronic and e-commerce transaction methods. Revenue gains in these areas were offset by tightening of net interest margins earned on deposit balances. All these trends are expected to outlast the pandemic. The contraction of net interest income – combined with technology breakthroughs and the impact of open banking and fintech innovation – has spurred the creation of revenue models that within five years will offer adjacent opportunities as large as the core payments revenue pool.
In this report, we follow our analysis of the key insights behind the 2020 (and estimated 2021) numbers with a set of chapters offering perspectives on critical areas where payments leaders’ actions will help determine market trajectory.
First, the highly publicized field of digital currency is entering a critical new phase. Prominent private firms are planning the introduction of “stablecoins,” while a growing number of central banks are proceeding with plans for central bank digital currencies (CBDCs) and simultaneously considering enactment of new regulations with the dual objectives of consumer protection and preserving the efficacy of traditional monetary policy. The trend may yet evolve in any of several directions—or ultimately prove to be more hype than substance. In “CBDC and stablecoins: Early coexistence on an uncertain road,” we explore current initiatives, highlighting potential challenges and opportunities for various financial players and steps each can take to prepare for and influence the ongoing conversation.
Next in the report, we look at the evolution of global transaction banking. Changes have been under way for some time, but the events of the past 18 months have brought the needs of corporate treasurers and CFOs into sharp relief. Historically, bank-provided treasury platforms have focused on transaction execution. The advent of software-as-a-service and API connectivity has enabled a varied landscape of third-party providers to offer robust multifunctional workstations. In “How transaction banks are reinventing treasury services,” we examine the emergence of white-label treasury-as-a-service solutions, the digitization of corporate payments, and the options that banks have in this evolving ecosystem to defend and extend client opportunities.
We close with a look at how the new payments-adjacent revenue models will help define the future of merchant services, as the line separating payment and software continues to blur. “Merchant acquiring and the $100 billion opportunity in small business” describes the importance of expanding merchant acquiring and services to encompass a fuller array of commerce-related services, differentiation of merchant needs between large corporate enterprises and small to medium-size enterprises as well as by various sectors, and the ongoing impact of omnichannel commerce on merchant services.