Global payment revenues are projected to remain strong over the next five years, with an anticipated increase of an additional $700 billion by 2028, as highlighted in a recent McKinsey report.
While the growth of global payment revenues continues to be significant, the pace is expected to slow, achieving approximately five percent growth annually compared to seven percent from 2018 to 2023, according to McKinsey’s latest forecast. Several factors contribute to this deceleration, including falling interest rates, the rise of instant payment solutions, increased fragmentation within the payment value chain, and the rising costs associated with fraud.
Despite these challenges, McKinsey predicts that the payments sector could generate an extra $700 billion, bringing the total revenue to $3.1 trillion by 2028. The report outlines six pivotal trends shaping the future of payments:
1. The decline of cash usage will continue, albeit unevenly across different regions.
2. Instant payment methods will increasingly replace traditional payment options.
3. The growing implementation of digital public infrastructures will stimulate digital payment adoption.
4. Intermediaries will increasingly capture market share from established players.
5. Transaction banking experiences will evolve to mirror consumer-centric models.
6. Central Bank Digital Currencies (CBDCs) will establish standards for digital currencies.
Currently, global cash usage is at 80% of its pre-pandemic levels, declining steadily at a rate of four percent each year. In countries with lower credit card penetration, such as India and Malaysia, instant payment options are reducing reliance on cash more rapidly. Conversely, in card-heavy markets like the US, the decline in cash usage is expected to be more gradual from a higher starting point.
Instant payment solutions are set to thrive in nations like India and Brazil. In the US, their influence will primarily manifest in the bill payment sector, while in Europe, upcoming regulations aimed at achieving cost parity are predicted to increase the number of instant payment transactions from around three billion today to nearly 30 billion by 2028.
Although excitement around CBDCs has diminished, McKinsey believes they will play three critical roles in the payments ecosystem. First, they will establish baseline expectations regarding functionality, cost, and services for digital currencies. Second, they will provide competitive alternatives that maintain pressure on pricing for commercial offerings. Lastly, CBDCs will serve as a viable option against the backdrop of often opaque private-sector stablecoins.
In summary, the report indicates that rising system complexity and regulatory scrutiny will drive three main trends in the payments sector: increased market consolidation as companies seek to lower costs by adopting more efficient digital payment methods; enhanced payment orchestration to simplify interactions for merchants and consumers; and greater regulatory initiatives aimed at reducing costs, combating financial crimes, and enhancing consumer protections.
While global payments still face challenges related to safety, simplicity, speed, and affordability, the industry is making progress on multiple fronts.