Global payment revenues are projected to remain strong over the next five years, with the sector potentially unlocking an additional $700 billion by 2028, according to a McKinsey report.
While global payment revenues continue to grow, the rate will slow to an expected five percent annually, compared to seven percent from 2018 to 2023, as outlined in the latest McKinsey five-year forecast. Contributing to this slower growth are factors such as declining interest rates, the rise of instant payments, further fragmentation of the value chain, and increasing costs associated with fraud.
Despite these challenges, McKinsey anticipates that the sector could still generate an additional $700 billion in revenue, bringing the total to $3.1 trillion by 2028. The report highlights six key trends affecting this landscape:
1. The decline of cash will persist, albeit unevenly.
2. Instant payments will increasingly replace other payment methods.
3. The growing adoption of digital public infrastructures will drive digital payment growth.
4. Intermediaries will continue to capture market share from traditional players.
5. Transaction banking will evolve to mimic consumer experiences.
6. Central Bank Digital Currencies (CBDCs) will establish a baseline for digital currencies.
Currently, global cash usage is at 80% of 2019 levels and is decreasing at a rate of four percent annually. In countries with low card penetration, such as India and Malaysia, instant payments are rapidly reducing cash usage. Conversely, in card-dominant markets like the US, the decline will be slower from a higher base.
Instant payments are expected to see significant growth in regions like India and Brazil. In the US, their impact will be particularly notable in the bill payment sector, whereas in the EU, new regulations promoting cost parity will likely boost instant payment transactions from around three billion today to nearly 30 billion by 2028.
Although enthusiasm for CBDCs has lessened, McKinsey believes they will fulfill three crucial roles in payments: establishing a minimum level of functionality, cost, and services for digital currencies; providing an alternative to regulate commercial offerings; and serving as a counterpart to opaque private-sector stablecoins.
The report concludes that increasing system complexity and regulatory pressure will drive three main trends in the future payments landscape: heightened market consolidation as companies strive to reduce costs through economies of scale, an increase in payment orchestration as firms aim to simplify the user experience, and greater regulatory action to reduce costs and financial crime while enhancing consumer protections and reliability.
In summary, while global payments are not yet universally safe, simple, fast, and affordable, the industry is making strides in various areas.