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2021 McKinsey Global Payments Report

McKinsey & Company | Philip Bruno, Olivier Denecker, and Marc Niederkorn  | Oct 7, 2021

global payments 2021 McKinsey report - 2021 McKinsey Global Payments ReportUndoubtedly, 2020 was a tumultuous year on many levels. Payments was no exception—the sector experienced its first revenue contraction in 11 years, a consequence of the economic slowdown that accompanied the global health crisis of COVID-19. Still, government and regulatory measures such as fiscal and monetary stimulus held the decline below the 7 percent we projected in last year’s report. 1 At the same time, the continued digitization of commercial and consumer transactions contributed even greater upward momentum than expected.

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Global payment revenues totaled $1.9 trillion in 2020, a 5 percent decline from 2019 (Exhibit 1), as compared to the 7 percent growth rate observed between 2014 and 2019. This result seems fairly intuitive on the surface; a granular analysis, however, reveals a series of often offsetting trends. Overall, the payments industry proved remarkably resilient to drastic economic changes even as many economies spent significant portions of the year in lockdown.

Looking forward, we see a handful of primary drivers influencing the payments revenue trajectory. On the 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. On the other, interest margins will likely remain muted. Sustained softness in this key topline 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 we expect global payments revenues to 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.

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Select Highlights:

  • Asia-Pacific dominates the global payments revenue pool
  • Cross-border payments, a natural casualty of reduced travel and global supply chain challenges, accounted for the remainder of the revenue decline. By contrast, the explosion in e-commerce and reduction in cash usage helped minimize the decline in domestic transaction fee income.
  • The pandemic reinforced major shifts in payments behavior: declining cash usage, migration from in-store to online commerce, adoption of instant payments.
  • Cash payments declined by 16 percent globally in 2020
  • Digital-wallet usage surged, as consumer preferences evolved even within contactless forms. In Australia, an early success story in “tap to pay” adoption, digital-wallet transactions grew 90 percent from March 2020 to March 2021—by which point 40 percent of combined debit/credit contactless volume originated via digital wallets. In Indonesia, the value of e-money transactions grew by nearly 39 percent between 2019 and 2020, fueled primarily by an increase in digital adoption.
  • Real-time payments are playing an increasingly important role in the global payments ecosystem, with the number of such transactions soaring by 41 percent in 2020 alone, often in support of contactless/wallets and e-commerce. 4 Over the last year growth in instant payments varied widely across countries—from Singapore at 58 percent to the United Kingdom at 17 percent.
  • The push for digital identity verification systems gained momentum during the pandemic, both as a facilitator for expanding e-commerce volumes and as a means for governments to rapidly disburse welfare and other social payments.

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