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McKinsey Global Payments On Cusp of ‘Decoupled Era’

Oct 3, 2023

McKinsey 2023 global payments report Exhibit 1 - McKinsey Global Payments On Cusp of 'Decoupled Era'

Iage: McKinsey 2023 Global Payments Report, Exhibit 1

Navigating the Surge and Strategy of Global Payments

The McKinsey 2023 Global Payments Report unveils a realm where regions experience unprecedented revenue hikes, digital transactions become paramount, and new payment business strategies are essential for navigating through the intricate financial ecosystem. Explore the pivotal insights and trends shaping the future of global payments, unearthing opportunities, challenges, and the strategic pathways ahead for financial entities.

Widespread Double Digit Growth

The global payments industry has witnessed robust growth, with revenues increasing by double digits for the second consecutive year. This growth trajectory reflects a remarkable resilience despite the numerous challenges and adversities faced by the financial ecosystem globally.  Most regions experienced significant revenue growth, with North America, Latin America, and Europe, the Middle East, and Africa (EMEA) recording double-digit increases - the highest in the past decade.

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In contrast, the Asia–Pacific region, which traditionally has been a major contributor with 47% of global payments revenues, showed a subdued trend. While the region has been a key growth driver in recent years, 2022 saw only a 4% increase in its revenues. This slowdown can be attributed to a 3% drop in payment revenues in China. However, when we exclude China's figures, the Asia–Pacific region displayed a robust growth of 25%, surpassing its own growth rate from the previous year.

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India has seen a substantial shift, moving into the top five countries for payments revenues. This movement is propelled by the sustained growth experienced in the country, which is significantly fueled by the displacement of cash transactions.

For the first time in several years, interest-based revenue has made a significant contribution, accounting for nearly half of the revenue growth in the payments sector. This indicates a shift in the revenue generation dynamics within the industry.

In 2022, cash usage globally declined by nearly four percentage points. Over the past five years, the growth rate for electronic transactions has been nearly triple the overall growth in payments revenue, signaling a shift towards digital and electronic payment modalities.

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The payments sector has undergone significant evolution, moving through distinct eras and currently transitioning from the Account Era to what the team at McKinsey calls a "Decoupled Era." This transition implies a shift towards more integrated and user-centric payment solutions, decoupling traditional account mechanisms from payment functionalities.

Building New Payment Businesses 'Carpe Diem'

$3 Trillion payment revenue is estimated by 2027.  Electronic transactions have been growing at a rate nearly triple the overall growth in payment revenue over the past five years, and as such building new payment businesses is a crucial strategy for banks, financial institutions, and fintechs.

  • The era of embedded finance is upon us, opening avenues for financial institutions to integrate services within non-financial platforms, enhancing user experiences and facilitating seamless transactions. By embedding financial services into e-commerce, social media, and other digital ecosystems, new revenue streams are created, fostering a cohesive relationship between various sectors.
  • In the realm of cross-border payments, technology like blockchain and stablecoins are pivotal in ensuring transactions are faster, more transparent, and cost-effective. Financial institutions can leverage these technologies to facilitate global trade and enhance international financial connectivity, thereby reinforcing their role in the global financial infrastructure.
  • Alternative supply chain finance solutions provide an avenue for financial institutions to offer liquidity and stability to suppliers and buyers, thereby contributing to the overall robustness and sustainability of the global trade ecosystem. This ensures enhanced operational efficiency and facilitates a stable financial flow within the global supply chain.

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  • With interest-based revenue contributing nearly half of revenue growth for the first time in several years, reimagining deposit strategies becomes imperative. Financial institutions must develop and promote products that cater to specific needs and preferences of various customer segments, ensuring financial inclusivity and health, such as:
    • Liquidity Insight for Clients
    • Centralized Deposit Management Hub
    • Targeted Deposit Growth Sales Strategy
    • Value Offerings for Liquidity-Rich Clients
    • Advanced Analytics and Strategic Pricing Models

Payment Modernization and Operational Efficiencies

Embracing technological advancements, streamlining operations, and enhancing digital capabilities are pivotal in modernizing payment infrastructures. By focusing on improving productivity and aligning with contemporary payment modalities, financial entities ensure they are equipped to navigate the complexities of the modern financial landscape.

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