The events and trends-COVID-19 pandemic – in the year 2020 created a changed global context for payments at a great speed.The COVID-19 public- health crisis and its many repercussions such as government measures to protect citizens and rapid changes in consumer behavior, hence leading to the changed operating environment for businesses, large and small, around the world.
For the global payments sector, the events of 2020 changed expectations and significantly accelerated several existing trends. The 2021 McKinsey Global Payments Report, shows that, global revenues declined by an estimated 22 percent in the first six months of the year compared with the same period in 2019. Expectations were that, revenues will be recovered in the second half of 2020, ending 7 percent lower than full-year 2019. In past years, payments revenues grew by roughly, 7 percent annually, which meant that the crisis left revenues 11 to 13 percent below the pre-pandemic revenue projection for 2020.
Projection for 2021 global payment revenue as reported in The 2020 McKinsey Global Payments Report, was that, the pandemic’s economic impact would lead to the first decline in global payments revenues in 11 years.
The 2021 Report
Surprisingly, the picture is unexpectedly positive a year later despite the challenges. Payments revenue did decline to $1.9 trillion globally but less than what was anticipated in the last year’s report. 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 2021 McKinsey Global Payments Report is based on the analysis of the key insights behind the 2020 (and estimated 2021) numbers with some chapters offering perspectives on critical areas where payments leaders’ actions will help determine market trajectory.
The report 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.
Also, there is 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.
Finally, it looks into the new payments-adjacent revenue models that will help define the future of merchant services, as the line separating payment and software continues to blur.
The report sees a handful of primary drivers influencing the payments revenue trajectory. On one hand, continued cash displacement and a return to global economic growth will accelerate existing upward trends in the share and number of electronic transactions, while on the other, interest margins will likely remain muted. Sustained softness in this key top line contributor will create greater incentive for payments players to pursue new fee-driven revenue sources and to expand beyond their traditional focus to adjacent areas such as commerce facilitation and identity services.
Given the above assumptions it is expected that global payments revenues will quickly return to their long-term 6 to 7 percent growth trajectory, recouping 2020’s declines in 2021 and reaching roughly $2.5 trillion by 2025. More importantly, however, as payments become further absorbed into commercial and consumer commerce journeys, established payments providers will gain access to adjacent opportunities as large as the core payments revenue pool.
Of course, an opportunity of this magnitude draws attention—tech firms and ecosystem competitors are already focusing on these attractive and often less regulated elements of the payments value chain, rather than traditional interchange, acquiring, and transaction fees linked to payment flows.
Find more on The 2021 McKinsey Global Payments Report