Global payments revenues decline by 5%, but show signs of recovery
Revenues in 2020 were hit by Covid-19, but not as severely as anticipated and are already showing signs of a bounceback. Marie Kemplay reports.
Global payments revenues declined by $100bn in 2020 — a decrease of 5% compared to 2019, according to the 2021 McKinsey Global Payments Report. The fall was driven by the Covid-19 pandemic and was the first global payments revenue drop in 11 years.
The decline was driven by decreases across the regions. Asia-Pacific, by far the biggest contributor to the global payments revenue pool, saw a 6% decline in 2020, while Latin America saw the steepest decline of 8%. Europe, the Middle East and Africa (EMEA) and North America experienced revenue declines of 3% and 5%, respectively.
However, the report highlights that this fall was less severe than the 7% predicted in the 2020 edition of the report, with the payments industry remaining remarkably resilient considering the level of economic disruption. Data for the first three quarters of the year point to a recovery for 2021, with full-year revenues expected to hit the same levels as 2019. Full-year global revenues for 2020 were $1.9tn, slightly down from $2tn in 2019.
In 2020, Asia-Pacific accounted for $900bn of global payments revenues, while North America accounted for $485bn, EMEA for $335bn and Latin America for $155bn. Payments revenue sources also varied considerably by region. In Asia-Pacific, account-related liquidity and domestic transactions, in both cases for commercial clients, accounted for 30% and 19% of revenues, respectively; this compares to North America where credit card transactions and domestic transactions, in both cases for consumers, were the two biggest contributors at 33% and 18%, respectively.
The situation is relatively similar in Latin America where consumer credit card and domestic transactions were the two largest contributors at 34% and 17%. This contrasts relatively significantly with EMEA where commercial domestic transactions and consumer domestic transactions accounted for 24% and 22% of regional payments revenue.
McKinsey also forecasts that payment revenues will return to their 6–7% annual growth rate, to hit $2.5tn by 2025. The report expects positive drivers for the industry in the coming years to include the continued decline of cash usage, the ongoing move from in-store to online purchasing, and the growth of instant payment services — all of which will increase the number of electronic transactions.
On the other hand, due to the continuing low interest-rate environment globally, interest margins are likely to remain suppressed. Over the past year, a 31-basis-point (bps) contraction in global interest margins — compared to a decline of 25 bps predicted last October — reduced payments revenue by $66bn. This persisting challenge is expected to incentivise payments companies to pursue new fee-driven revenue sources and expand their focus to new areas outside of payments, such as identity services.
