The 2021 McKinsey Global Payments Report takes the pulse of the industry as it recovers from the impact of the Covid-19 pandemic.

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While the Covid-19 pandemic negatively impacted global payment revenues, they contracted by just 5% to $1.9tn in 2020, according to the 2021 McKinsey Global Payments Report, published in October. Importantly, the report’s authors expect global payments revenues to bounce back to their long-term yearly growth of 6-7%, generating around $2.5tn by 2025.

The decline was worldwide, with all regions experiencing revenue falls. Asia-Pacific, which dominates the global payments revenue pool, registered a 6% pullback in 2020, while Latin America’s 8% decline was the steepest of all regions. Europe, the Middle East and Africa (EMEA) and North America experienced revenue drops of 3% and 5%, respectively, mostly driven by continued reduction of net interest margins in EMEA and contracting credit card balances in North America, according to the report.

The pandemic reinforced ongoing global payments trends: declining cash usage, growing e-commerce and the adoption of instant payments. Cash payments declined by 16% globally in 2020, performing in line with the projections McKinsey analysts made in the previous Global Payments Report for most large countries (Brazil declined by 26%, the US by 24% and the UK by 8%). While evidence indicates that roughly two-thirds of the decrease in cash usage is permanent, the report’s authors predict cash usage to rebound to some extent in 2021, “due to a partial return to past behaviours, fewer lockdowns and a broader economic recovery”.

Interestingly, the waning in cash demand has prompted banks to review their ATM footprints and rethink their cash cycle management, leading to greater ATM sharing between banks and increased ATM services outsourcing to specialist providers.

Globally, the number of non-cash transactions grew by 6% from 2019 to 2020, according to the report, citing a surge in digital wallets. Real-time payment transactions grew by 41% in 2020 with Singapore experiencing a 58% increase in instant payments. Fifty-six countries now have active real-time payment rails, a fourfold increase from just six years ago.

Cross-border payments remain a growth area, with cross-border e-commerce transactions growing 17% in 2020, while revenues increased by more than 15% between 2019-2020. Key drivers include changed customer preferences post-lockdown and slight uptick in margins due to a rise in value-added services. However, non-e-commerce cross-border payments revenue plummeted by more than 55%.

The report identifies three areas that could offer banks attractive natural extensions to their payment businesses: payments and banking-adjacent software, infrastructure and services, including payments-as-a-service and know-your-customer-as-a-service; commerce, sales and trade enablement, such as automating the onboarding process and improving the seller experience; and balance sheet-based offerings, for example buy now, pay later solutions.

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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