Accelerating Winds of Change in Global Payments



Philip Bruno | Carlos Trascasa | Gustavo Tayar | Marie-Claude Nadeau | Reet Chaudhuri | Alessio Botta | McKinsey & Company

The public health crisis triggered by COVID-19 has had an impact on nearly all aspects of daily life for people across the globe, and has put the world economy on an uncertain footing. For the payments industry, the pandemic and its consequences have accelerated a series of existing trends in both consumer and business behaviors, and introduced new developments, such as a restructuring of both supply chains and cross-border trade. Ongoing shifts toward e-commerce, digital payments (including contactless), instant payments, and cash displacement have all been significantly boosted in the past six months. And while a degree of reversion to past behavior is likely for some of these shifts, the overall trajectory for these trends has received a strong push forward. Overall, the crisis is compressing a half-decade’s worth of change into less than one year—and in areas that are typically slow to evolve: customer behavior, economic models, and payments operating models. As with most structural shifts, challenges will inevitably arise.

The impact of the crisis has not been consistent across sectors or geographies, of course. Travel and entertainment, which had been among the most advanced e-commerce sectors, was hit particularly hard and faces an uncertain path to recovery. Payments providers in regions that have lagged in digitization, meanwhile, in many cases possess greater potential for revenue increases in the new environment. On the other hand, a protracted period of low interest rates, which began before the current crisis, will pressure payments revenues, as will a persistent slowdown in economic activity.

This is the context in which we release our annual report on the global payments industry. As always, these insights are informed by McKinsey’s Global Payments Map and by continuing dialogue with practitioners throughout the payments ecosystem.

Given the impact of the changes and challenges in 2020, however, we are taking a different lens to our analysis, focusing more on the current moment and on the future, than on examining past growth. Our first chapter briefly tells the story of 2019—a solid year with broad-based revenue growth—but focuses primarily on current developments and takes a forward-looking view of the payments landscape. It also details the actions we believe payments providers will need to take to weather the pandemic and position themselves for the “next normal.”

Our “now-cast” analysis of 2020 paints a contrast between the first and second halves of the year— namely, an estimated 22 percent payments revenue decline in the first half will be softened somewhat by stronger performance in the second half. Still, we expect full-year 2020 global payments revenue to be roughly 7 percent lower than it was in 2019—a $140-billion decline roughly equal to recent years’ annual gains, and 11 to 13 percent below our prepandemic projection. Beyond this, in some countries and segments, the likely sustained increase in digital penetration could result in a recovery of revenue pools to levels matching our pre-COVID-19 expectations for 2021.

In following chapters, we explore four areas of payments we consider critical to achieving success in the context of accelerated change. Like many aspects of payments, the merchant-acquiring business was already undergoing significant transformation. Consolidation had driven scale economy imperatives, and non-bank market entrants were gaining inroads with underserved verticals. Our experts detail the need to redefine acquiring offerings to encompass a full suite of value-added services extending well beyond payments settlement—including fraud controls and cart optimization for the fast-growing e-commerce segment. In a separate chapter we look at the specific opportunity for small- and medium-size enterprises, a segment that has historically been expensive to serve for large incumbents, but which has been the focus of many fintech attackers and is well overdue for a closer look.

Supply chain finance has long been considered to be a source of untapped value, but unlike other payments sectors, has struggled to develop enough momentum to address its structural challenges.

Given an expected increased focus on working capital, a step change in digital adoption at scale, and the potential geographic re-shuffling of roughly $4 trillion of cross-border supply chain spending in the next five years—the value embedded in supply chain finance will become even more attractive. The question is whether it will be enough to spur a long anticipated transformation.

Finally, in this overview of global payments, we look at a challenge many established payments providers are facing—the need to transform the operating model to meet the growing imperatives for efficiency, scale, modularity (e.g., Payments-as a-Service), and global interoperability. With many banks likely unwilling to commit the hundreds of millions of investment dollars needed to modernize existing payments infrastructure, we outline various paths worth considering before more focused players can establish an insurmountable advantage.

We hope you find the insights in these pages thought-provoking and valuable as you navigate these uncertain times.

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Alessio Botta is the Leader of the Europe Payments Practice at McKinsey & Company. 

Philip Bruno is the Co-leader of the North America Payments Practice at McKinsey & Company.

Reet Chaudhuri is the Leader of the Asia Payments Practice at McKinsey & Company.

Marie-Claude Nadeau is the Co-leader of the North America Payments Practice at McKinsey & Company.

Gustavo Tayar is the Leader of the Latin America Payments Practice at McKinsey & Company.

Carlos Trascasa is the Leader of the Global Payments Practice at McKinsey & Company.