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Global Payment Report
Global Payment Report
A dynamic industry
continues to break
new ground
Authored by:
Sukriti Bansal
Philip Bruno
Olivier Denecker
Madhav Goparaju
Marc Niederkorn
Introduction
The prominence of payments in the global Following section 1’s quantitative analysis of the
financial services system has undeniably risen $1.9 trillion global payments market—exploring
over the 12 years that McKinsey has formally the factors behind recent double-digit growth as
tracked the sector’s dynamics. Even against this well as the five-year outlook—section 2 details
backdrop, however, 2017’s results are striking. opportunities in the lucrative but complex cross-
border payments market. At times overlooked
The 11 percent growth generated by payments— because of its relatively minor share of stated
which topped $1.9 trillion in global revenue—is the revenue, cross-border operations carry
largest annual increase we have measured in the disproportionate weight due to their significant
past five years. The milestone of a $2 trillion global margins and connection to lucrative broader
industry is set to be surpassed two years sooner corporate banking relationships.
than expected, and a $3 trillion threshold looms
just beyond our five-year projection horizon. The importance of ecommerce and the shift
toward digital payments methods has been well
Although the Asia-Pacific region—and China in documented. Section 3 considers the real-time
particular—has unsurprisingly been the growth implications of this transition and suggests
engine, there is no shortage of avenues, both avenues for engagement, notably the growing
geographic and channel-based, for firms of all omnichannel imperative.
countries and categories to pursue. In fact, the
heady growth belies an industry in the midst of In section 4, we address payments in the global
significant disruption, in which new and redesigned transaction banking business, a large and
business models pose competitive threats. Even growing sector that faces a unique set of
established firms in this robust sector may need to challenges. The imperative here is for incumbent
consider near-term transformation to ensure their firms to proactively update strategies to better
position in the value chain. align with market realities, and, ideally, to find
common ground for collaboration with fintechs to
Per-transaction revenue metrics are under produce even more powerful offerings.
intense pressure; fortunately, transaction growth
fundamentals are healthy, creating opportunities The insights in this report are based on the 2017
to redesign back-office processes to continue to version of McKinsey’s Global Payments Map,
deliver impressive margins at scale despite which has been the industry’s premier source of
shifting dynamics. This report builds upon a data- information on worldwide payments transactions
driven assessment with insights on the steps and revenues for two decades. The map gathers
needed to engage profitably in the emerging and analyzes data from more than 40 countries.
payments landscape.
Global payments revenues swelled to $1.9 trillion broader banking industry. After an extended
in 2017, the best single year of growth in the last period in which payments generated roughly 30
five years (Exhibit 1). In last year’s report we percent of overall banking revenues, this metric
forecast that payments would become a $2 trillion has turned sharply upward. Payments’
business by 2020. Indeed, 2017’s market continued prominence in banking revenues
performance was so robust—its 11 percent might come as a surprise, given the continued
growth rate fueled by continuing strength in the pressure on payments fees—increasing
Asia-Pacific corridor—that global revenues are competition and regulatory pressure—and
poised to surpass that $2 trillion threshold in 2018, ongoing low-interest-rate environments in many
and to approach $3 trillion within five years. developed economies. On the other hand, the
trend makes sense, given healthy underlying
This rapid growth makes payments an expanding fundamentals, including electronic transaction
and increasingly important component of the and digital commerce growth, and increasing
Exhibit 1
0.3 13 8
+11% p.a.
0.4 0 6
1.9
+7% p.a. 0.6
1.7 0.2 5 7
1.6 0.2
0.1 0.3
1.3 0.1
0.1 0.3
1.1 0.1 0.3
Latin 1.1 0.5
0.1 0.3
America 0.9 0.4
0.4 0.3 0.4
1.6 12 11
EMEA 0.3 0.4
0.4 0.4 0.9
North America 0.3 0.7 0.8
0.5
Asia-Pacific 0.2 0.3 0.3
Exhibit 2
“Credit card
Commercial
and
Consumer “Commercial “Credit card liquidity
driven” driven” “Balanced” driven”
100% = $945 $470 $320 $205
Cross-border transactions 1 6% 5%
12% 3%
10%
12%
9% 11%
Account-related 10%
33%
liquidity2 4%
11%
23% 2%
5%
1% 21%
9%
Domestic
transactions 3 23% 8%
Credit cards 2% 16%
17%
14%
Cross-border transactions4 3%
Account-related 22%
liquidity2 19%
35%
31%
Domestic transactions 3 5%
11%
Credit cards 6%
APAC North EMEA Latin
America America
1
Trade finance and cross-border payments services (B2B, B2C).
2
Net interest income on current accounts and overdrafts.
3
Fee revenue on domestic payments transactions and account maintenance (excluding credit cards).
4
Remittance services and C2B cross-border payments services.
Source: McKinsey Global Payments Map
Malaysia India
China
Nigeria
25 Morocco Russia
20
trillion in 2017, and will more than double by commerce growth, due to rising smartphone
2022. Asia-Pacific already comprises over half of adoption, an increasing shift towards online
this $3 trillion and, due to the fast-growing shopping, and improvements in network
Chinese market, will increase its share to nearly bandwidth. Mobile commerce accounts for 48
70 percent by 2022. Mobile commerce, including percent of digital commerce sales globally as of
in-app payments and mobile browser payments, 2017, and is forecasted to reach 70 percent by
is the dominant factor driving strong digital 2022 (tripling to $4.6 trillion).
1
Digital commerce defined as all consumer remote point-of-sale transactions through online or mobile channels, including retail
ecommerce and digital travel, but excluding in-store digital wallets.
38%
716
69%
644
30% 16%
62%
70% 84%
90 9%
91%
Global Asia-Pacific North America EMEA Latin America
Consumers and merchants alike are increasingly increases; and in emerging markets, the
embracing app-based commerce and in-app introduction of new payments solutions will
payments, with retailers ramping up investments influence how people pay. In the United States,
in mobile apps with innovative use cases to in-person use of digital wallets will increase at a
provide omnichannel shopping experiences for 45 percent CAGR to reach nearly $400 billion in
customers. Globally, mobile apps accounted for annual flows by 2022. Although most of this
more than 30 percent of total digital commerce growth is expected to be on “pass-thru” wallets
volume in 2017, and are expected to continue like Apple Pay, private-label wallets such as
strong growth across all regions (Exhibit 4). Starbucks and Walmart Pay—both of which have
Digital wallets are estimated to have added enjoyed impressive early adoption—will also
approximately 40 billion to global payments continue to increase in popularity. Even with
revenues in 2017. these gains, however, digital wallets will
comprise less than 10 percent of US consumer
The outlook for in-store commerce varies in-person POS payments in 2022. Lack of
significantly by country and region: In countries ubiquitous merchant acceptance will remain a
with NFC infrastructure, tap-and-pay will drive barrier, along with the continued percentage of
growth; in the United States, in-store app use consumers who do not know how to use their
will grow as consumer use of order-ahead mobile phone to pay at the point of sale.
195
Cross-border
transactions1 4% (5) +4
Growth decomposition, by region,
2016-17
Volume driven
Margin driven
64% 55
Liquidity2 +15 APAC
(125) 65
10
EMEA
-15
Latin 10
America -15
Domestic 32%
+9
transactions 3 (65)
10
NA
5
1
Trade finance, remittance and cross-border payments services.
2
Net interest income on current accounts, overdrafts, and credit cards.
3
Fee revenue on domestic payments transactions and account maintenance.
4
At fixed 2017 USD exchange rates.
Source: McKinsey Global Payments Map
In the UK, a total of 38 million contactless on closed-loop systems like WeChat Pay and
transactions were conducted using a mobile Alipay. China’s ratio is projected to continue to
device in 2016 (representing roughly $358 million increase to nearly 60 percent by 2022. Within the
in spending). While this is significant in absolute same region, Japan remains a largely untapped
value, it accounts for only 1.2 percent of in-store market. Research has found that close to 70
payments, indicating a huge opportunity for percent of Japanese consumers across all age
growth. China leads on this front with 40 percent groups still prefer to use cash when making in-
of in-person spending already on mobile digital store purchases, mainly due to security concerns
wallets. However, unlike the US, almost all of this is with mobile payments. It is interesting to note,
Latin
America 9
Account-
28 related
liquidity4
EMEA 10 64
APAC
5
Cross-border 3
transactions2
19
Account fees Credit cards
1
At fixed 2017 USD exchange rates.
2
Trade finance and cross-border payments services, including remittance services.
3
Fee revenue on domestic payments transactions.
4
Net interest income on current accounts and overdrafts.
Source: McKinsey Global Payments Map
The $2.9 trillion of global payments revenue both). In EMEA, for instance, payments will
anticipated in 2022 by McKinsey’s Global continue to represent a stable one-quarter of
Payments Map represents a significant share of banking revenues. The rapidly growing payments
overall banking revenues. Naturally, growth will market in China and other Asian economies,
be unevenly distributed by country, by meanwhile, will push payments to over half of
instrument, and by segment (retail versus Asia-Pacific banking revenues—a level already
corporate, as well as the subgroups within reached in recent years in Latin America.
Cross-border commerce has continued on a globally (Exhibit 7), split roughly evenly
healthy growth trajectory. Despite price between transaction fees and foreign exchange
pressures from increasing competition, cross- (FX); estimated revenue per transaction
border payments of all types remain far more remains healthy at nearly $45 per transaction
economically attractive for providers than their (e.g., 600 vs. 6 basis points for a person-to-
domestic equivalents. International cross- person payment; 11 vs. 5 for a
border payments revenues exceed $200 billion business-to-business payment).
Exhibit 7
Revenue margin
(revenue on flow)
%
FROM 6% 3.5%
Consumer
1.5 54
26 12 24
0.4 14
30
1.5% 0.1%
127
2 124 21
Business
50
1 109 7
9 16 56
Cross-border
share of total4 16% 27%
CAGR 6% 5%
1
Includes payments initiated by treasury for intercorporate and intracorporate lending, investment, liquidity flows, etc.
2
Excluding FI to FI flows and related revenues.
3
Includes transaction fees, FX fees and float income and documentary business fees.
4
Total transactional revenue from payments excluding interest income, annual and maintenance fees.
Source: McKinsey Payments Practice
Exhibit 8
B2C
Periodic payouts (e.g., interest and social
contributions) 500-700 ~5
Exhibit 9
30 30
Domestic Regional
banks banks
82
80
Source: Coalition; ECB Correspondent banking survey 2017; SWIFT; McKinsey interviews
Exhibit 10
Age groups1
18-34 35-54 55 and up Total
Non-digital
payments 16% 22% 40% 27%
user
1
N= 18-34 (283); 35-54 (396); 55 and up (422); total (1,101)
2
Buy things and/or pay for services using a retailer’s app on my device (e.g., Amazon, Starbucks, Uber).
3
Buy things through a website on my device (e.g., Target.com).
4
Use my device to pay at retail locations by interacting with a terminal (e.g., Apple Pay, Android Pay, Samsung Pay, LevelUp).
5
Transfer money to friends, family, or acquaintances through an app (e.g., PayPal, Venmo, Square Pay).
Source: McKinsey Digital Payments Survey, 2016
~85% 23%
~$750 ~$1,000
~25% ~60% 17%
~75%
~75%
~65% 25% ~25% ~15% 7%
2016 2021E 2016 2021E
Card issuers cannot afford to maintain their strict Many payments service providers and gateways
focus on the payments event itself while APMs are offering merchants the opportunity to process
build a broader value proposition across the value cross-border transactions locally; for instance,
chain. We estimate that half of global digital when a Brazilian customer makes a purchase on
commerce volume is already inaccessible to a Spanish website, the transaction can be
traditional issuers/networks, with that share authorized and processed in the consumer’s
potentially growing to two-thirds over the next home market rather than the seller’s. This model
several years (Exhibit 11). Many of these APMs improves the consumer experience, and at the
are bank-led initiatives, however, and the same time creates an opportunity to extend the
potential to tap into adjacent value-added merchant relationship with commercial cash
revenue streams in a rapidly growing market management services such as cash
provides ample opportunity. concentration, commercial FX, and hedging.
Exhibit 12
Source: McKinsey Panorama Global Banking Pools; McKinsey Global Payments Map
■ Determine who will be the next revenue streams that extend deeper into the
competitor in a fast-moving and crowded payments value chain, applying advanced
global digital business buffeted by numerous analytical tools to proprietary data sets.
Exhibit 13
+
rules
+
processing
100% = 30-40%
productivity improvement
1
DLT also facilitates syndicated participation of third-parties in open account transactions (e.g. credit insurers, export credit
agencies) improving not only operations but also risk profile.
Source: McKinsey Panorama Global Banking Pools; McKinsey Global Transaction Banking Service Line
Philip Bruno
Partner, New York
philip_bruno@mckinsey.com
Olivier Denecker
Partner, Brussels
olivier_denecker@mckinsey.com
Marc Niederkorn
Partner, Luxembourg
marc_niederkorn@mckinsey.com
Madhav Goparaju
Senior Expert, Chicago
madhav_goparaju@mckinsey.com
Sukriti Bansal
Knowledge Expert, Gurgaon
sukriti_bansal@mckinsey.com
The authors would like to acknowledge the contributions of Aaron Caraher, Octavio Gonzalez, Reema
Jain, Vishakha Khemka, Baanee Luthra, Pavan Kumar Masanam, Tamas Nagy, Glen Sarvady, and
Michelle Zhou to this report.
Global Banking Practice
October 2018
Copyright © McKinsey & Company
www.mckinsey.com/clientservice/financial_services