Rethinking Next Moves in Global Payments

Rethinking Next Moves in Global Payments

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Rethinking Next Moves in Global Payments

Global payments industry

The global payments industry demonstrated
its resilience again in 2021, more than recouping
the revenue erosion experienced in 2020, which
was the sector’s first decline since the 2008–09
financial crisis. Our five-year revenue outlook
now exceeds prepandemic expectations, topping
$3 trillion by 2026. The factors fueling this
expected growth have shifted in unexpected
ways.

than a decade of low inflation and interest
rates, many central banks—particularly in
Europe and North America—have shifted
their policies, leading to rapidly rising interest
rates. Geopolitical factors, capital market
resets, commerce expectations, technology
advancements, and societal responsibilities
are creating more pronounced sector
and regional dynamics as well. This
rapidly evolving landscape will create new
opportunities for incumbents and disruptors
alike to win customers, develop new solutions,
and claim market share, reshaping the
competitive chessboard.

Payments industry revenues rebounded strongly
in 2021, growing at an 11 percent rate—more
robust than we forecast last year and reaching
a new high of $2.1 trillion globally. Growth was
strong across all regions, with both Asia–Pacific
(APAC) and Europe, the Middle East, and Africa
(EMEA) registering double-digit gains. Feebased revenue continues to increase at a faster
rate than net interest income and comprises
more than half of the total (although this trend
may soon reverse, as we will discuss).

A closer look at 2021
Payments revenues recovered rapidly from
2020’s nominal contraction: Global revenue
growth exceeded expectations by not only
recouping 2020’s pandemic-driven 5 percent
decline but also registering a new high of $2.1
trillion (Exhibit 1). Including 2021’s 11 percent
increase, revenue growth over the past two

Looking forward, a confluence of events is
reshaping the payments landscape. After more
Exhibit
Web 20221

Emerging cautiously: Australian Consumers in 2022
Global
payments revenues increased 11 percent globally in 2021.​
Exhibit 2 of 10
Global payments revenues increased 11 percent globally in 2021.

Global payments revenues, 2012–26F, $ trillion
Asia–Pacific

North America

EMEA¹

Latin America

CAGR, %
2016–21 2021–26
+9%

–5%

+11%

+6%
2.0
0.2
0.1

1.3
0.3
0.3

Share of
banking
revenues²
1
2

2

0.1

1.6

0.3

1.9
0.2
0.3

0.3

0.5

0.5

2.1
0.2

0.9

1.0

2016

2019

2020

2021

38%

39%

37%

40%

2012
38%

9

4

6

0.6

4

9

0.8

4

7

1.7

8

10

0.5

1.0

0.7

6

0.4

0.5

0.6

3.3
0.2

2026F

Europe, Middle East, and Africa.
Total banking revenues excludes Capital Markets and Investment Banking (CMIB) revenues. Given the current macroeconomic volatility, payments share in
banking revenues for 2026 are not forecast.
Source: McKinsey Global Payments Map

The chessboard rearranged: Rethinking the next moves in global payments

years has averaged 3 percent—below the long-term
trend but well above the outcome feared by many.
Demonstrating the resilience of the payments
industry, overall electronic payment transactions
grew at a 19 percent rate in 2021—in line with
prepandemic growth rates. Global e-commerce
registered growth of roughly 17 percent, primarily
driven by China, which now accounts for roughly
half of global retail e-commerce sales.¹ The most
dramatic COVID-19 impact can be seen in cash
usage, which plummeted by 15 percent in 2020. As
physical stores reopened in 2021, the cash rebound
some expected did not materialize. The slight 1
percent uptick in usage indicates that the vast
majority of transactions that migrated to electronic

channels in 2020 have remained electronic. Within
the European Union, for instance, Greece and the
Czech Republic had the sharpest reductions in cash
usage from 2019 to 2021—15 percentage points and
12 percentage points, respectively.
Revenue growth was strong across all regions in
2021, surging to 13 percent in both Asia–Pacific and
EMEA. The robust performance of Asia–Pacific,
the largest regional revenue pool, accounted for
57 percent of global revenue growth, and China
accounted for 88 percent of Asia–Pacific’s growth,
largely centered on account-to-account (A2A)
activity (Exhibit 2). EMEA’s increase reflected more
broad-based growth in electronic transactions.
Latin America and North America each grew at a

Exhibit 2

Web 2022
Asia–Pacific
accounts
forin over
half of global payments revenues.
Emerging cautiously: Australian
Consumers
2022
Exhibit 2 of 10

Asia–Pacific accounts for over half of global payments revenues.
Global payments revenues, 2021, %
100 =
Revenue per capita

$1.1 trillion
7

$0.5 trillion
7

Commercial
(53%)

11

Cross-border¹

29

Account-related liquidity²

27
23

Consumer
(47%)
Cross-border⁴

Credit cards

9

12

Credit cards

Domestic transactions³

15

9

Domestic transactions³

Account-related liquidity²

$0.4
trillion

1

4

2

9
17

3
3

$0.1
trillion
5
14
12
4

1

13

16

10

15
22
6

35

33

15

11

Asia–Pacific

North America

EMEA

Latin
America

$286

$1,424

$399

$324

Cross-border payment services (B2B, B2C) and documentary trade finance.
Net interest income on current accounts and overdrafts.
Fee revenues on domestic payment transactions and account maintenance (excluding credit cards).
⁴Remittance services and C2B cross-border payment services.
Source: McKinsey Global Payments Map
1

2

3

1

Karin von Abrams, “These are the top global ecommerce markets,”Insider Intelligence, July 14, 2021, insiderintelligence.com.
The chessboard rearranged: Rethinking the next moves in global payments

3

still-robust 7 percent but were limited by credit card
economic headwinds. Average US revolving card
balances began to recover in the second half but
ended 2021 with a decline relative to 2020, while
net interest margins simultaneously contracted. US
banks also struggled to deploy a surge in deposits
driven by pandemic stimulus, leading to compressed
net interest margins on transaction account
balances. In Latin America, balances were flat in
contrast to historically strong growth, and interest
margins similarly tightened.
A2A transaction revenues continued to increase
their contribution in most geographies, in total
accounting for roughly 29 percent of 2021’s rise
in global revenue. The expansion of applications
built on instant-payment use cases—such as bill
payment, point of sale (POS), and e-commerce—
fueled the volume increase. Growth varies by
country, with Hong Kong, Colombia, and Peru
registering increases of roughly 50 percent and a
tier of countries including Nigeria growing in the
30–40 percent range. Many European countries
continued to grow at rates well into double digits,
even from well-established bases. In the US, growth
rates for instant payments surpassed 60 percent,
albeit off a relatively small base. At this stage of
maturity, there remains room for a breakthrough
that sparks an even higher US growth rate. In Asia,
pricing was a bigger revenue factor than volume
growth. In 2021, China rolled back much of the
corporate rate concessions implemented during the
pandemic; prices moved from approximately $0.79
per transaction in 2019 to about $0.62 in 2020,
returning to about $0.77 in 2021. Overall, we project
global growth of instant payments to continue at
double-digit rates, even faster than the healthy 10
percent growth rates for cards over the past two
years.
Debit and credit card transactions continued to
grow at rates comparable to those before the
pandemic (20 percent and 18 percent, respectively,
between 2020 and 2021), as A2A growth mainly
cannibalized cash and, to a lesser extent, checks,
rather than card transactions. Credit cards’ volume

2

4

growth overturned expectations that 2020’s
slowdown in card usage and ongoing pressure
on interchange revenue was a sign of a longerterm trend. However, debit cards have extended
their lead as the most used card product, with
94 transactions per capita globally, versus 49
for credit. The share of debit card among overall
electronic transactions is highest in Russia (84
percent), followed by Norway, Ireland, and Romania
(each roughly two-thirds).
There remains significant country-level dispersion
in revenue per transaction, driven by a variety of
factors, including transaction pricing dynamics
and payment instrument mix (Exhibit 3). Our
analysis of payments revenue per capita shows
that this metric tends to be lower in developing
economies, implying ongoing revenue opportunity
as these countries’ payment systems continue to
mature. In addition, global revenue per non-cash
transaction has gradually declined—from $1.88 in
2016 to $1.30 in 2021—as the pool of electronic
transactions has grown faster than absolute
revenue.
Global trade flows recovered in 2021, growing by
27 percent and exceeding 2019’s prepandemic
levels.² Increasing commodity prices were the
biggest factor, along with the release of pentup demand. Emerging markets generated the
greatest trade flow increases in 2021, led by Africa
(43 percent), Latin America (38 percent), and
Asia–Pacific (26 percent), with developed markets
growing in the 20 percent range. Following this
rebound, however, we expect trade flow growth to
slow to 1–2 percent annually through 2026 due to
muted global economic forecasts. The developing
global macroeconomic context might further
reduce this expectation. For instance, geopolitical
headwinds will reduce Eastern European flows by
a projected 4 percent in 2022.
Our five-year revenue outlook anticipates average
annual growth of 9 percent over the period—well
above the historical long-term trend of 6 to
7 percent. Much of the incremental gains are

Data for the 46 countries covered by the McKinsey Global Payments Map.

The chessboard rearranged: Rethinking the next moves in global payments

Exhibit 3

Payments revenues per capita and per transaction vary markedly by country.

Payments revenues per capita and per transaction vary markedly by country.
Payments revenues,¹ 2021, revenues per capita, $
1,350
1,300
United States

1,250
1,200

Singapore

1,150
1,100
1,050
1,000
950
900
850

Canada

800
750

Switzerland

700

Denmark

650
600

Korea

550

United Kingdom

Norway

Spain

500
Finland

450

Greece

Japan
Portugal

Brazil
Czech Republic
Slovakia
Slovenia
Netherlands
Hungary
Germany
Russia
Taiwan
South Africa
Malaysia
Poland
Romania
Mexico
Thailand
Nigeria
Vietnam
India

350
300
250
200
150
100
50
0

Austria

Belgium
France

Australia
Ireland
Sweden
Chile

400

0

0.5

1.0

Italy

China

1.5

2.0

Peru

Argentina

Indonesia

2.5

3.0

3.5

4.0

4.5

5.0

Revenues per transaction²
Domestic payments revenues excl. revenues for cash withdrawals and deposits. In addition to the countries on the chart, McKinsey Global Payments Map has
detailed payments data for Hong Kong, Colombia, Morocco, and Pakistan. In 2021, these countries had payments revenues per capita of ~$2,300 (Hong Kong),
~$235 (Colombia), ~$125 (Morocco), and $25 (Pakistan).
2
Noncash transactions only.
Source: McKinsey Global Payments Map
1

The chessboard rearranged: Rethinking the next moves in global payments

5

fueled by interest-related income, a by-product of
inflationary pressures and a rate environment many
regions have not experienced for decades (Exhibit
4). Although interest rates are notoriously difficult
to forecast, we consider the payments sector to
be well positioned to exceed the $3 trillion mark
by 2026 or sooner. These macroeconomic factors
are among several rearranging the chessboard and
calling for a renewed strategic focus.

Looking ahead: Six forces reshaping
the landscape
At a top-line level, our outlook for global payments
through 2026 is remarkably favorable, with
projected average annual revenue growth of 9
percent. These gains will be distributed quite
differently than in the past, however. Which players
will capture the future revenues will depend on
actions they take to capitalize on the opportunities
created by six forces reshaping the landscape:
1. Macroeconomic environment. In many regions
of the world, inflation is at its highest level in
decades, potentially calling for changes in the

business models of payments providers and other
financial services firms alike. In this context, a
central bank response to inflation may serve to
expand interest margins, generating more income
from this side of the payments equation, primarily
for deposit-holding parties such as banks. The
combination of inflation and interest margins, in
turn, will require changes in the cash management
strategies of businesses and consumers. At the
same time, factors like the global energy and
commodities environment create economicgrowth uncertainties and increase the likelihood of
recession, differing by region. This, in turn, will have
impact on the liquidity and investment strategies
of many companies and households, altering
payments economics on both the demand and
supply sides.
2. Geopolitical environment. Geopolitical
disruptions are altering the long-standing
trend toward globalization, prompting moves to
greater payments regionalization and localization.
Instances of regional and domestic networks
with local control over key infrastructure are
proliferating, challenging the standardization of

Web 2022
Exhibit
4
Emerging cautiously: Australian Consumers in 2022

Exhibit 2 of 10 growth is dominated by credit cards in the Americas and by
Revenue
Revenue growthrevenues
is dominated
by credit cards
in the Americas and by
account-related
in Asia–Pacific
and EMEA.
account-related revenues in Asia–Pacific and EMEA.

Composition of growth in regional payments revenues, 2021–26F, %
100 =

$674 billion

$224 billion

$207 billion
5

50

43

17

Credit cards
Transactions¹
Account-related²

48
52

44
24
Asia–Pacific
1

6

42

39

26

2

$53 billion

North America

Change in fee revenues on domestic and cross-border payment transactions, excluding credit cards.
Change in income on current accounts and overdrafts.
Source: McKinsey Global Payments Map

The chessboard rearranged: Rethinking the next moves in global payments

10
EMEA

Latin America

solutions across geographies. An increasing number
of countries are looking to ensure local instances
of payment services and key infrastructures, likely
leading to increased complexity in local regulations
and requirements.
3. Capital markets reset. While “attacker”
payments companies significantly outperformed
both the broader market and “incumbent” payments
players over the last few years in the capital
markets, 2022 saw a significant reset in valuations.
In the 12 months ending August 2022, these
same attackers delivered a negative 70 percent
return to shareholders, compared to negative
26 percent for incumbents. This valuation reset
creates opportunities across the landscape as
incumbent companies consider acquisitions and
attackers focus on sustainable growth and a path to
profitability.

pressure on providers to modernize their payments
infrastructure.
6. Social responsibility. The overall momentum
for social responsibility in business—often
characterized under the environmental, social,
and governance (ESG) banner—also is changing
the context for payments. Governance covers
the need for banks to act as gatekeepers against
money laundering, fraud, and other unauthorized
access to payment systems, and it is a major driver
of investment and operational change across the
industry. Inclusion and customer protection also are
increasingly central to the missions of payments
players.
In the following exploration of these six forces, we
will assess their projected impact on payments
revenue and offer ideas of how players across
the ecosystem can adjust to and thrive in the new
landscape.

4. Commerce expectations. A main driver of the
past high valuations of fintechs and attackers
was the expectation of revenue growth through
expanding customer relationships. This opportunity
persists as payments increasingly serve an
integrated, value-added commerce role rather than
merely executing a stand-alone financial or money
movement transaction. The most common current
embodiment of this trend is commerce facilitation,
extending beyond checkout and payment to
enhance the commerce journey. The most promising
for the future is embedded finance, or integrating
finance products into nonfinance ecosystems.
Players that can monetize services and data are
poised to capture a larger share of revenue pools.

Just as the primary drivers of payments revenue
differ across the four major geographic regions, the
impact of inflation and interest rates on revenue will
vary geographically as well. In most regions, interest
rate increases are expected, which will benefit
markets more dependent on deposit balances,
such as Europe and Asia. However, China, which
accounts for roughly three-quarters of Asia–Pacific
payments revenues, is reducing its interest rates as
of this writing.

5. Technology modernization. After a long period
of mostly incremental upgrades to networks, and
to bank and business payment systems, companies
are now making more structural as well as de novo
infrastructure improvements. For instance, banks
are aggressively modernizing their core systems
to real-time, third-generation cores and updating
their payments infrastructures, largely in response
to the continued rise of instant payments, openbanking requirements, and cloud technology. We
forecast that several regions will enter the next
S-curve on instant-payment transaction growth. In
addition, with the continued growth of embedded
finance, digital natives’ expectations for how
those services are delivered will continue to exert

Higher rates typically correlate with larger net
interest margins on transaction account balances,
which, in turn, generate liquidity-related revenue.
These effects tend to materialize gradually, partly
because of the rolling averages and maturity
matching applied to calculate revenues. At the same
time, offsetting effects may come from consumers
and businesses shifting balances away from
transaction accounts to other deposit vehicles in
pursuit of higher rates—and from banks responding
by paying higher rates to retain deposits. One
example is the expected near-term elimination of
negative interest rates on client deposits, which
creates an immediate negative impact on bank
revenues.

The macroeconomic environment:
Higher interest rates and inflation

The chessboard rearranged: Rethinking the next moves in global payments

7

Inflation, in contrast, will create an organic
uplift for the transactional components of
payments revenue priced as a percentage of
value, such as credit card interchange. Fixed
transaction-based fee components might remain
unchanged, potentially creating a drag on profits
as related costs are rising under influence of
the same inflation. Consequently, inflation could
disproportionately hurt business models relying
on per-transaction pricing (such as processing
or most A2A services) while leaving volumebased revenue models (like credit card merchant
acquiring) unscathed.
Many current payments leaders have not yet
navigated a high-interest-rate, high-inflation
environment, and some emerging payment
products and models—for example, buy now, pay
later (BNPL)—are similarly untested under such
conditions. Assuming the credit challenges of a
potential downturn can be managed, traditional
players like banks and card issuers could be well
positioned for this macro environment, given that
liquidity primarily accrues to account-holding
institutions. Higher interest rates can partially
soften profitability pressure on banks and may
provide headroom to invest in strategic initiatives,
such as payments and digital. However, an
economic downturn, the potential for which varies
by region, would alter this equation.

Geopolitical environment: Payments
regionalization and localization
Recent geopolitical events in 2022 have
reinforced a growing trend of electronic payments
infrastructure taking on heightened importance for
national and regional governments. As discussed
in prior Global Payments Reports, many countries
have invested in modern instant-payment systems
and are championing the use of these domestic
schemes compared with nonnative alternatives.
The focus is shifting to building applications and
value-added services (such as functions that issue
requests for payment) that leverage these rails to
boost uptake and usage after sometimes-slow
adoption starts.
In addition to instant payments, local networks
are being established to reduce dependency
on international providers or to support local

8

policy agendas. Deployment of POS and online
applications of local payment solutions, using
economic models and access rules that differ
from those of international solutions, allow
countries to boost inclusion and grow local
e-commerce—for example, Pix in Brazil, UPI in
India.
A by-product of the focus on regional and
national payments infrastructures will be the
increased complexity of regulations across
markets. Fragmentation and the need to localize
will likely create continued disconnections across
compliance and security requirements, despite
ongoing international dialogue to standardize.
This creates opportunities for payments providers
that can simplify cross-border payments for
customers or create turnkey solutions for related
services—say, know your customer (KYC) as a
service, digital ID, and security.
Geopolitical events and sanctions have also had
an impact on trade and treasury international
payments, strengthening regional bonds and
creating shifts in segments and geo-corridors.
The trend toward reshoring and nearshoring that
emerged in 2020 continues to develop. What
was initially believed to be a temporary strain on
global supply chains has proven to be a persistent
issue, with disruption affecting several sectors,
including automotive and electronics. Ongoing
logistic disruptions, elevated shipping costs, and
stress on global supply chains are prompting
initiatives to diversify suppliers and simplify
shipping requirements. The trade corridor mix
may shift as a result, although such transitions
develop over years rather than months. For
example, a number of the world’s largest tech
manufacturers have recently shifted a significant
share of their production of hardware peripherals
and small electronic devices to different
countries.
In this environment, banks active in the arenas
of trade finance and supply chain finance need
to consider how to reposition their strategies. As
companies reconsider their supply chains, what
is the best way to capture this reshoring trend?
Which products and what differentiation can help
maintain or increase relevance in a complex trade
finance environment?

The chessboard rearranged: Rethinking the next moves in global payments

Capital markets reset: Turning
unicorns into workhorses
Although payments companies’ return to
shareholders has markedly exceeded that of
financial institutions over the past decade, the
story over the most recent year has been quite
different. Many payments companies have
been greatly affected by changes in investor
expectations and macroeconomic conditions,
as evidenced by an average 38 percent decline
in total shareholder returns (TSR) in the 12
months spanning August 2021 through August
2022—significantly greater than the decreases
experienced in the banking sector (10 percent), the
overall market (13 percent), and among technology
companies (26 percent). Market environment
changes have had a particularly strong impact on
attacker payments companies, which generated
negative 70 percent TSR over the same 12 months
(versus 26 percent for incumbent payments
companies) and experienced sharp reductions in

EBITDA multiples³: from approximately 80 times in
August 2021 to 29 times in August 2022 (Exhibit 5).⁴
One cause of the change in valuations is a stark
moderation in growth expectations: After attackers
grew revenues 68 percent per year from 2019
to 2021, consensus analyst growth estimates for
2021 to 2023 have receded to 19 percent annually.
Meanwhile, analysts expect the revenue growth
rates of incumbent payments companies to remain
relatively unchanged at 10 percent, compared with
11 percent from 2019 to 2021. In essence, attacker
firms relinquished the disproportionate shareholder
returns realized since early 2020 and are now
performing roughly on par with incumbent payments
firms over a two-and-a-half-year horizon.
Within payments, some segments have shown
greater resilience than others. In particular,
“payments scheme” operators have felt the least
impact from changes in investor expectations and

Web 2022

Exhibit
Emerging5cautiously: Australian Consumers in 2022

Exhibit 2 of 10
‘Attacker’
payments companies have given back their shareholder gains of the
‘Attacker’ payments companies have given back their shareholder gains of the
prior two years.
prior two years.

Total shareholder returns (TSR), Index (Jan 1, 2020 = 100)
Market¹

400

Attacker²

Incumbent³

350
300
250
200
150
100
50
0
2020

2021

2022

Top 5000 companies globally by market capitalization.
Attacker payments players defined as businesses established less than 15 years ago and with a business and operating model characterized by “disruptive”
characteristics either in terms of products (eg, e-commerce acquiring only, issuing of non-physical cards, payments-as-a-service), distribution channels
(eg, partnerships with e-commerce/tech players), or technological infrastructure (eg, cloud-based data centers). Six companies included sample.
3
Incumbent payments players defined as businesses established more than 15 years ago and with a business and operating model based on “traditional” payments products (eg, physical card issuing, in-store merchant acquiring, payments schemes), distribution channels (eg, direct distribution, partnerships with
other financial services companies), or technological infrastructure (eg, on-premise data center based on legacy technology). Twenty companies included in
sample.
Source: S&P Global, Corporate Performance Analytics by McKinsey
1

2

3
4

Enterprise value divided by EBITDA.
Excluding outliers. EBITDA multiples including outliers fell from about 111 times to about 41 times.

The chessboard rearranged: Rethinking the next moves in global payments

9

appetite, with a TSR decrease of 9 percent over the
past 12 months and a relatively limited reduction in
multiples, from 27 times EBITDA in August 2021 to
21 times in August 2022. This could be due to the
more balanced business models and strong market
positioning enjoyed by traditional leaders in the
sectors, which better insulates these companies
from macroeconomic disruptions and changes in
interest rates and inflation. In contrast, incumbent
payments technology providers (for example,
processors, merchant acquirers) fared worst of
the subgroups, with a TSR decrease in 2022 of 44
percent and EBITDA multiples decreasing from 32
times in August 2021 to 15 times in August 2022, in
response to radically revised growth expectations
(26 percent for 2019–21, versus 11 percent for
2021–23), notwithstanding their traditionally high
margins.
This decrease in many payments companies’
valuations could provide a catalyst for consolidation by incumbent payments companies and
tech company entrants, given the lower multiples
and reduced feasibility of IPOs as an exit strategy
for private firms. Attackers might, in turn, shift
their strategic approach, moving from “growth at
all costs” to a fundamentals-focused and costconscious operating model with renewed focus on
profitable customer and account growth, cash flow,
and operating performance. These companies
will likely revisit monetization opportunities—for
example, partnerships with incumbent payments
companies and companies in other sectors—
while maximizing the efficiency of their existing
operating models. When the going gets tough,
adept unicorns can quickly pivot into workhorse
roles.

Commerce expectations: From
payments to commerce facilitation
High valuations for payments attackers were
based in part on the promise of converting
the frequency of customer touchpoints and
engagement into monetization across both
consumer and commercial customer journeys.
This would require tapping into paymentsadjacent revenue pools such as marketing and
personalization through payments data, commerce
enablement optimizing the shopping journey
beyond the payments experience, and software

10

and services surrounding the payment. Such
initiatives have been under way for several years.
The reset in valuations reflects, in part, a recognition
that not all payments specialists will succeed in
expanding their market reach beyond payments.
Business models, such as neobanks employing
debit and prepaid card products to acquire
customers, will increasingly resemble traditional
financial institutions if they cannot succeed in
building customer ecosystems. Business models
like small-business merchant services have proven
more successful at creating platforms combining
software and services that enable commerce for
merchants. Our 2022 survey of US merchants
shows the average spending on value-added
services ranges from $11,306 for a small merchant
to $112,067 for a large merchant, with the most
common services for small merchants by spend
including insurance, marketing, and customer
relationship management (CRM).
Players in the landscape that can monetize services
and data are poised to capture an outsize share of
revenue pools. Nonbanks and technology players
with a large captive audience are increasingly using
embedded finance to enhance their role in the
commerce experience, increase their engagement
with end users, and gather additional customer
data. Providers using embedded finance may
continue to have the competitive edge, given the
relationship with the customer and their larger
ecosystem of services beyond financial services and
payments. Extending into payments revenue pools
may ultimately be easier than extending outside
payments revenue pools. Meanwhile, opportunities
are created for traditional financial services
providers to provide the infrastructure enabling
embedded finance, albeit without the customer
relationship.

Technology modernization: From
incremental to structural
Payments providers have always required regular
investments in infrastructure and systems
technology. However, the high relative cost of
changing complex and entrenched systems that
have proven resilient has led many participants
to limit investing to a long period of incremental
improvements.

The chessboard rearranged: Rethinking the next moves in global payments

This is changing. Payments infrastructures are
now undergoing full redesigns, and banks are
making fundamental adjustments to their core
payment systems. According to McKinsey’s 2021
Cloud Survey, the share of IT spending by banks on
legacy infrastructure is expected to decrease from
roughly 50 percent in 2021 to about 10 percent
in 2024, thanks to private cloud and true multicloud solutions. This step change in infrastructure
modernization is a result of increasing pressure to
support the transition to instant, open, integrated,
and cloud-based solutions to meet continuously
rising customer experience expectations across the
commerce journey.
Instant-payments volumes are increasing 40 to 60
percent globally and showing signs of reaching an
inflection point on the S-curve. Instant-payments
usage continues to nearly double annually in India,
Spain, and Thailand, among other countries, and
it is increasing by roughly 50 percent per year in
Australia and Singapore. Even in China and the
United Kingdom, where the technology has already
achieved broad adoption, growth continues at
double-digit rates.
Continued open-data requirements from
regulations (Europe) and market pressures (US)
are forcing financial services providers to enable
API-based access to payments data. Digital natives
expect the benefits and efficiency of an API-based
integration, so financial services providers that want
to participate must create an orchestration layer on
top of legacy systems. Retailers moving to the cloud
are demanding payments networks and acquirers to
support this shift with commensurate infrastructure
upgrades of their own. Further, innovative
infrastructure providers (for example, Cross River
Bank and ClearBank) are delivering new capabilities
through de novo payments infrastructures, raising
the competitive bar even higher.
These forces are accelerating the potential
decoupling of payments from the large legacy
providers as payments increasingly shifts to
outsourcing and software-as-a-service (SaaS)
models. Providers that make the technology
investments to offer payments as a service could

5

benefit while legacy providers grapple with the
changing economics of their frontline business.
Meanwhile central banks and national payments
communities are likely to continue to consider
modernizing their national payments infrastructures
even beyond instant payments for a range of reasons,
including financial inclusion, global trade and
competitiveness, and currency considerations. The
exploration of central bank digital currencies (CBDCs)
will continue to progress, albeit at an evolutionary
rather than revolutionary pace.

Social responsibility: Heightened
expectations
As noted in our Global Banking Annual Review
of 2021,⁵ that year saw increasing pressure from
governments, investors, regulators, and consumers
to address climate risk and sustainability issues. The
impact of ESG will extend to nonbank payments
providers as well.
Environment will greatly influence the area of trade,
where support to polluting commodities or industries
comes under scrutiny. Relatively emission-heavy
payments products, such as cash and checks, may
face revision in the quest for carbon-neutral systems.
At the same time, consumers are looking to their
merchants and payments providers to understand
the environmental impact of their purchases.
Social responsibilities also affect payments,
particularly given the role of payments in financial
inclusion and data privacy. Digital payments and
wallets in emerging markets have played a key role
in bringing financial services to the underserved
in cash-based economies. In developed markets,
scrutiny of the role of payments in emerging verticals,
such as gaming and cannabis, will likely continue in
parallel with increasing consumer demand.
On governance, payments companies play a key
role, given their obligation to contribute to the
stability, security, compliance, and resilience
of economic systems. Investments required to
support this gatekeeper role for the transactional
system—through KYC and anti–money laundering,

The great divergence: McKinsey Global Banking Annual Review 2021, December 2021.

The chessboard rearranged: Rethinking the next moves in global payments

11

for instance—impose growing costs and
challenges. Though historically more of a factor for
international payments, the ESG role increasingly
weighs on domestic providers of payment services
as well.

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We believe that over the next five years, ESG
concerns will be at the core of strategies for
payments providers, banks, and other firms in
financial services and that these companies need
to be clear about their efforts to meet consumer
and business expectations. We explore examples
of this further in our chapter on sustainable global
transaction banking.

The payments industry is poised for significant
growth over the coming five years; we expect an
average annual revenue growth rate of 9 percent,
exceeding the already-healthy prepandemic
long-term trajectory of 6 to 7 percent. This
growth will partly be in response to the changing
interest rate environment, and partly to increasing
dollar volumes resulting from inflation. In some
regions, however, there is a greater chance that
payments providers will face the headwinds of an
economic contraction. Changes in the composition
of revenue growth, along with other new sector
dynamics, should prompt players across all regions
and categories to revisit strategies and adjust
courses of action.

The rare confluence of dynamics presents
an opportunity for competitors to reposition
themselves on the payments chessboard for longterm advantage. For instance, players that can
adapt their revenue and risk models and capabilities
to macroeconomic factors like higher inflation
and interest rates will emerge better positioned,
protecting margins from higher operating costs
while creating the right balance in revenue sources.
Incumbents may enjoy the balance sheet flexibility
to make strategic acquisitions and significant
technology modernization investments that position
the company to capture future revenue pools.
Conversely, attacker payments companies will
need to adapt rapidly to new market realities. All
players will need to reassess their business models
and value propositions to capture opportunities
emerging from payments regionalization, embedded
finance, and the rising importance of sustainability.
The payments providers that adjust their operating
models and platforms in a timely way to be both
global and local will stand to benefit from the
resulting scale and flexibility. They will also be
well positioned to help customers navigate the
growing complexity of the payments and commerce
landscape, both cross-border and domestic. Those
establishing early leadership in purpose, mission,
and social impact will have the opportunity to win
with consumers and mitigate reputational risk—and
to monetize these value-added capabilities.