Banks can capitalize on new dynamics in a changing industry, study shows

By Puja Sharma

The 2023 McKinsey Global Payments Report shines a light on a changing industry and explains how banks and others can capitalize on new dynamics. The analysis is based on McKinsey’s Global Payments Map, covering more than 25 payment products in 47 countries, accounting for 90% of global GDP. We begin by assessing the state of the industry.

A close look at the industry’s revenues highlights emerging changes in geographies and products, as well as developments in instant payments and digital wallets. Among this year’s findings are the following: — Global payments revenue grew by double digits for the second year in a row.

— Sustained growth in India, fueled by cash displacement, moved it into the top five countries for payments revenues. — For the first time in several years, interest-based revenue contributed nearly half of revenue growth. — Cash usage declined by nearly four percentage points globally in 2022. Over the past five years, the growth rate for electronic transactions has been nearly triple the overall growth in payments revenue.

A historical view provides a picture of the progress the industry has made. From its early days to the present, the payments sector has already been through three distinct eras. The evidence suggests the industry may be on the verge of a fourth era, which we interpret as an era of “de-coupling.” The industry’s transition from the Account Era to the Decoupled Era presents concrete opportunities for banks and other payments players to differentiate.

In our final section, we offer perspectives on two distinct paths that banks and payments players more broadly can follow to solidify their competitive position in the payments industry: finding new opportunities to scale business impact and doubling down on improvements to productivity and risk management.

State of the industry

The payments industry’s 2022 performance, in terms of revenues and valuations, shows ongoing change with opportunities for growth and margin improvement across geographies and products.

A close look at revenues uncovers some structural changes, including new developments in instant payments and digital wallets. Also, recent public company returns suggest investors may be regaining confidence following the volatility of 2020–22. Revenue results highlight the industry’s resilience and future direction Globally, payments revenues proved remarkably resilient, overcoming a variety of regional headwinds to grow at rates well above the established long-term trend.

Payments revenues grew at 11% in 2022—a double-digit rate for the second consecutive year—reaching more than $2.2 trillion, an all-time high. Revenues by geography: Broad-based gains Revenue growth was broadly distributed geographically, with three of the four regions posting their strongest increases in a decade.

North America; Latin America; and Europe, the Middle East, and Africa (EMEA) all grew at double-digit rates. The exception to this trend is Asia–Pacific. In recent years, this region, which accounts for 47% of global payments revenues, has served as the primary growth vector. But in 2022, regional revenues rose just 4%.

Entering a new payments era

During the past few decades, the payments industry has rapidly embraced new technologies, in the process opening new avenues to serve customers. The industry has already been through three distinct eras dominated, in turn, by paper, plastic, and account transactions. Signs point to a fourth era starting in the present decade: we call it the Decoupled Era.

The $3.2 trillion in revenue that McKinsey Global Payments Map projects for 2027 is aligned with the projection we made in last year’s edition of this report ($3.0 trillion in 2026). However, the mix of revenue sources is evolving.

Cash usage has been declining rapidly, losing 20% points in the share of global payments over the past five years. Net interest margin is driving a greater share of growth, and companies are moving into less penetrated areas of the payments value chain—for instance, low-value cross-border payments, business payments, and instant domestic transfers.

Emerging opportunities for banks

The transition from the Account Era presents concrete opportunities for banks to differentiate. These fall into two distinct categories in which banks can solidify their competitive position in the payments industry. The first involves finding new opportunities to scale business impact, including new digital businesses and the opportunity in deposits.

The second concerns ways that banks can double down on productivity through generative AI, the modernization of technology, and the ongoing battle to prevent financial crime. Building new digital businesses Given that payments has become a technology business, building new digital businesses is a logical path to growth for incumbents and new entrants alike.