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Global payments 2017: Amid rapid change, an upward trajectory

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McKinsey & Company

McKinsey & Company

The global payments industry continues to deliver healthy growth, with underlying fundamentals such as transaction volumes and account balances demonstrating even greater strength. This rosy scenario also lays the groundwork for significant disruption likely to alter the dynamics between financial institutions and fintechs.



In 2016, the global payments industry accounted for 34 percent of overall banking revenues—up from 27 percent just five years earlier. For the next five years, annual growth will average 7 percent, making payments a $2-trillion-dollar-industry by 2020, according to McKinsey’s latest Global Payments Map data (Exhibit). As is always the case, the dynamics underpinning performance in various countries vary; revenue drivers in China are starkly different than those in the United States, for instance. The overall data, however, reinforce our previously stated view that the industry has reached a turning point, with strong fundamentals providing a buffer against macroeconomic uncertainties.

Exhibit

svgz global payments map ex

As always, a meaningful portion of performance in payments is related to macroeconomic factors—increasing global GDP growth expectations, an improved interest rate environment—largely beyond payments executives’ control. But the fundamental aspects of the business are on a clear positive trajectory as well—particularly electronic transaction volumes and account balance growth.

The payments industry outperformed most financial services sectors in 2016—indeed, payments was a stand-out among all industries. These solid results come at a time of increased change. Non-banks have stepped up the pace of innovation, and the advent of open banking and development of e-commerce ecosystems stand to fuel significant disruption in the coming years. Financial institutions must rise to the occasion and play a formative rather than reactive role in this transformation.

Beyond the top-line revenue numbers, the results of this year’s Global Payments Map led to six key insights—some counterintuitive, others offering data-driven validation and subtle twists on conventional wisdom—that can inform an effective payments strategy:

  • Fee-based payments revenue now nearly equals liquidity-driven income.
  • Consumer revenues have overtaken business revenues.
  • The war on cash continues to have meaningful impact in several countries.
  • Cross-border transactions still generate substantially higher margins than domestic, even as volume increases.
  • Payments between consumers and businesses represent the largest opportunity, despite heightened competition and a frequent focus on B2B and C2C.
  • Although trends indicate that consumers are less likely to carry balances, credit cards remain the primary revenue driver in the Americas, and are projected to extend their lead.

The insights in this paper are based on the 2016 version of McKinsey’s Global Payments Map, which gathers and analyzes data from more than 40 countries.