The global payments industry saw its first contraction in 11 years in 2020, but is poised to quickly return to its long-term growth path, according to the annual sector report by management consulting firm McKinsey & Company.
Industry revenues fell 5% a year last year to $ 1.9 trillion as the pandemic-induced global economic slowdown took a heavy toll on the industry.
However, the 2020 losses will be recouped this year, bringing income back within the range of the 2019 record, McKinsey said in the report. Revenues are expected to reach around $ 2.5 billion by 2025, aided by the digitization of business and consumer transactions, he added.
“The relatively low figures for 2020, however, mask some important offsetting effects, which are poised to redefine the scale of opportunities for payments players for years to come. The pandemic has accelerated the continued decline in cash use. and the adoption of electronics and e-business transaction methods, ”McKinsey said.
The global payments industry was among the sectors that experienced rapid change amid the pandemic, as consumers increasingly embraced digital platforms to shop, study and work online.
The digital shift has created new opportunities for payment players. However, it is not known which changes are permanent and which are likely to revert, at least partially, to previous trajectories as economies reopen, McKinsey said.
Nonetheless, the continued movement of liquidity and the return to growth of the global economy will be among the main drivers of accelerating existing upward trends in electronic transactions, the consultancy said.
However, interest margins are likely to remain low, further pushing players in the payments industry to seek new fee-based revenue streams and expand beyond their traditional focus areas.
Latin America recorded the largest decline in payments revenue, down 8%. Meanwhile, Asia-Pacific, North America and Europe, the Middle East and North Africa fell by 6%, 5% and 3% respectively.
The Asia-Pacific region – which has been the largest and fastest growing payments region in recent years – presents a major opportunity for service providers, McKinsey said. The region achieved a total turnover of $ 210 billion, about 35% more than that of Latin America, and this figure is expected to increase further due to the rapid expansion of business-to-business activities and the explosion of digital wallets.
The pandemic has also dramatically reduced the use of cash payments in Asia-Pacific, especially in key markets such as Thailand and Indonesia. Although some transactions will revert to the reopening of storefronts, a “solid majority” is likely to have moved on to digital platforms for good.
“The pandemic has prompted businesses to reorient their payment operations and interactions with customers. Small and medium-sized businesses are increasingly aware of the payment solutions available to them and are motivated to encourage the use of those that best meet their needs and those of their customers. “McKinsey said.
Stabilize the cryptocurrency market
Meanwhile, the rise of stablecoins, a type of cryptocurrency that attempts to offer price stability and is backed by a reserve asset such as gold, and central bank digital currencies, the Online form of fiat currency from a particular country or region, should provide common ground for the highly volatile cryptocurrency market. However, their coexistence and implementation raise questions.
“Cryptocurrency has been touted for its potential to usher in a new era of financial inclusion and streamlined financial services infrastructure globally. To this day, however, its great notoriety stems more from its status as a potential store of value than as a means of financial financing. exchange, ”McKinsey said.
“This disconnect is now evolving rapidly, with monetary authorities and private institutions issuing stabilized cryptocurrencies as viable and mainstream means of payment.”
The price volatility of traditional cryptocurrencies – with a market cap of over $ 2.34 billion on Sunday – hampered their usefulness as a convenient means of trading value. Bitcoin, the largest and most popular cryptocurrency, has a market cap of around $ 1.04 billion on its own.
Stablecoins aim to fill the gaps in cryptocurrencies by setting their value at one unit of an underlying asset. They are also often issued on faster blockchains and backed by government-issued tenders such as the dollar, pound sterling, euro, and highly liquid reserves including government treasuries or commodities. such as precious metals.
In the first half of 2021 alone, around $ 3 billion in stablecoins were traded, including USD Coin and Gold-backed Tether, which is currently the largest stable coin.
“Many see the current development of CBDCs as a response to the challenge that private sector stablecoins may pose to central bank prerogatives and as evidence of institutions’ desire to achieve long-term goals such as system efficiency. payment and financial inclusion, ”McKinsey said. .
The most notable examples of CBDC include the Chinese digital yuan, which is in the pilot phase, and the European Central Bank’s digital euro project which is currently under development.
However, a number of major central banks – including the ECB – have said government-backed digital currencies could dramatically reduce commercial deposits and jeopardize funding for the sector.
The Bank for International Settlements has called for more adequate regulation to avoid problems such as fraud, noting that the market capitalization of stablecoins has more than doubled since the start of the pandemic.
Updated: October 10, 2021, 10:03 PM