London, UK – McKinsey’s global payments practice has just published its annual global payments report at the Sibos conference in London. Based on the newly available 2019 McKinsey Global Payments Map data: the industry’s premier source of information on worldwide payments transactions and revenues for well over a decade. The map gathers and analyses data from 45 countries comprising nearly 90 percent of global GDP.
Key findings include:
• The global payment market remains a large and growing revenue pool. Global payments revenues totaled $1.9 trillion in 2018, returning to a solid yet more sustainable growth level of 6 percent.
• Differences between regions have however never been bigger. McKinsey analysis reveals significant regional variations in performance as well as the perhaps counterintuitive finding that the largest and fastest-growing categories may not always be the most attractive candidates for entry. Payments revenue growth in Europe, in contrast with North America, has remained sluggish and below GDP growth, driven by the negative evolution of the European interest rate environment.
Latin America was the fastest-growing region in revenue terms, at 10 percent, in 2018. With nearly 40 percent of Latin America’s revenue growth coming from fee income, the fundamentals appear to point to continued strength.
Asia–Pacific (APAC) payments revenues grew by 6 percent in 2018, in line with GDP growth for the region (but contrary to what one could expect, slower than in North America). Asian revenues have been very volatile over recent years: their growth significantly lagged behind GDP growth in 2015 and 2016 before sharply exceeding it in 2017. The report looks in detail at the underlying drivers of this erratic trend.
At roughly $605 billion of revenue, mainland China is the single-largest contributing country to global payments revenues, surpassing the United States by more than $100 billion and comprising two-thirds of overall APAC revenue. At par with the US as recently as 2012, China has grown at a CAGR of 10 percent, compared with 6 percent for the United States. However, despite the size and strong underlying momentum of China’s payments market, it is not easy for nondomestic competitors to play a role in it.
• Outlook remains positive, but value is shifting and growth is vulnerable to external events. The impact of regulation, complexity of IT integrations, cost of innovations and differentiation of products are all proving major challenges for payments players.
• Shifts of revenues and emerging challenges lead to important shifts in the industry. By segment, global payments revenues in 2018 were split close to equally between retail ($1.02 trillion) and corporate ($930 billion)—similar to the distributions of the past few years. However, this mix has not remained static at a regional level. The estimated 2018 global cross-border-payments revenue was $230 billion, a 4 percent increase from 2017 and slightly below nominal GDP.
• Action is needed for banks to capture the opportunity. For global transaction banks, as well as for retail payment players, urgent steps are needed to capture the value created from the transactional business. Consolidation in the payment space is driving forward investment capabilities, new operating models, improved customer capabilities and higher efficiency in an environment of increasing need for talent, analytic skills, new technology and competitive differentiation.
Phil Bruno, McKinsey Partner and report author said: “Stable growth means it is still the best of times for banks and traditional payments players. However, the pace of change and competitive challenges requires players to transform at scale to a digital first operating model. However this plays out, the customer is the ultimate winner!”
Olivier Denecker, McKinsey Partner and report author said: “Despite regulatory and economic pressure, the resilient growth of the global payment revenue pools creates exciting opportunities for growth, illustrated by the strong appetite of investors to support industry consolidations. Regional differences and increasing struggle for resources, however, mean that a fundamental change in operating model is needed for incumbents to grab these opportunities. Not all will win.”
The report also looks in detail at the wave of industry consolidation including the rationale behind acquisitions and explains why the next wave may look different.
We also explore the notion of ‘payments as a service’, which is lowering barriers to market entry and enabling the testing of many of these new business models. As Global transaction banking continues to comprise roughly half of global payments revenue, we also take a detailed look at how customer-facing innovations that first impacted the retail banking space are now moving into commercial banking. The end of the report makes the case that despite margin pressures and heightened competition, the retail payments business remains a valuable catalyst for banking overall.