Payments revenues setting records

Despite economic uncertainties across the globe, payments, especially electronic payments, remains a dynamic business. A new report from the McKinsey & Co. revealed that global payments revenues grew by double digits in 2022, marking the second straight year of double-digit growth.

"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," researchers wrote. The McKinsey report, On the cusp of the next payments era: Future opportunities for banks, offers an analysis based on the firm's global payments map, covering more than 25 payment products in 47 countries, accounting for 90 percent of global GDP.

Further report highlights

Additional key findings follow:

• Payments revenues grew by 11 percent in 2022 and exceeded $2.2 trillion, according to McKinsey analysts; by 2027 it should total over $3 trillion.

• Revenue growth was distributed somewhat broadly last year. Payments revenues across North America, Latin America, and Europe, the Middle East and Africa (EMEA) all grew at double-digit rates.

• Revenue growth was 4 percent in the the Asia-Pacific region, making it the lone outlier. However, when payments revenues for China, which grew at just 3 percent, are excluded, payments revenues for the region were up 25 percent. In all, Asia-Pacific accounts for 47 percent of global payments revenues.

"Broadly speaking, the economies with the largest payments revenue pools delivered growth at or above the mean, contributing to 2022's strong result," McKinsey reported. That list includes the United States, Brazil, India and Japan; all four posted "solid results" both in terms of interest and fee-driven revenues, researchers noted.

In many markets, about half the growth came from rising interest rates, reversing a long-standing trend where fees were the main source of revenue growth.

Another notable change: revenues from commercial payments are beginning to outstrip retail payments revenues in most markets. "Consumers still generate the majority in North America (63 percent) and Latin America (54 percent), where markets remain mostly card driven," the report stated.

Future growth from instant-payment schemes

McKinsey's analysis suggests much of the future revenue growth for payments services worldwide will be stimulated by instant-payment innovations and accompanied by ongoing cash displacement.

Cash usage fell by nearly 4 percent in 2022, according to McKinsey. "Worldwide, the decline in cash usage during the pandemic shows no evidence of being reversed, or led downward by the cash-reliant economies of India and Brazil, where the share of cash transactions fell by seven to 10 percentage points," analysts wrote. "Brazil's cash declines are concurrent with the rapid uptake of the country's Pix instant-payments network."

Instant payments systems (sometimes referred to as real-time payment systems) operate 24/7/365 and make funds available to recipients almost instantaneously. This is the case with FedNow, an instant-payment network launched in July by the Federal Reserve.

The largest concentration of these faster payments initiatives is in Europe and Central Asia, followed by East Asia and the Pacific, according to the World Bank.

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