A new report on the recovery of the payments industry suggests the global payments industry demonstrated its resilience again in 2021, more than recouping the revenue erosion experienced in 2020, which was the sector’s first decline since the 2008–09 financial crisis.
McKinsey’s Payments Practice now says the five-year revenue outlook exceeds prepandemic expectations, topping $3 trillion by 2026. The factors fuelling this expected growth have shifted in unexpected ways.
Payments industry revenues rebounded strongly in 2021, growing at an 11% rate—more robust than we forecast last year and reaching a new high of $2.1 trillion globally.
Growth was strong across all regions, with both Asia–Pacific (APAC) and Europe, the Middle East, and Africa (EMEA) registering double-digit gains. Fee-based revenue continues to increase at a faster rate than net interest income and comprises more than half of the total (although this trend may soon reverse, as we will discuss).
Looking forward, a confluence of events is reshaping the payments landscape.
After more than a decade of low inflation and interest rates, many central banks—particularly in Europe and North America—have shifted their policies, leading to rapidly rising interest rates.
Geopolitical factors, capital market resets, commerce expectations, technology advancements, and societal responsibilities are creating more pronounced sector and regional dynamics as well.
This rapidly evolving landscape will create new opportunities for incumbents and disruptors alike to win customers, develop new solutions, and claim market share, reshaping the competitive chessboard.
A look at 2021
Payments revenues recovered rapidly from 2020’s nominal contraction: Global revenue growth exceeded expectations by not only recouping 2020’s pandemic-driven 5% decline but also registering a new high of $2.1 trillion.
Including 2021’s 11% increase, revenue growth over the past two years has averaged 3% – below the long-term trend but well above the outcome feared by many.
Demonstrating the resilience of the payments industry, overall electronic payment transactions grew at a 19% rate in 2021—in line with prepandemic growth rates.
Global e-commerce registered growth of roughly 17%, primarily driven by China, which now accounts for roughly half of global retail e-commerce sales. The most dramatic COVID-19 impact can be seen in cash usage, which plummeted by 15% in 2020.
As physical stores reopened in 2021, the cash rebound some expected did not materialise. The slight 1% uptick in usage indicates that the vast majority of transactions that migrated to electronic channels in 2020 have remained electronic.
Within the European Union, for instance, Greece and the Czech Republic had the sharpest reductions in cash usage from 2019 to 2021—15 percentage points and 12 percentage points, respectively.
Asia-Pacific drives growth
Revenue growth was strong across all regions in 2021, surging to 13% in both Asia–Pacific and EMEA.
The robust performance of Asia–Pacific, the largest regional revenue pool, accounted for 57% of global revenue growth, and China accounted for 88% of Asia–Pacific’s growth, largely centred on account-to-account (A2A) activity.
EMEA’s increase reflected more broad-based growth in electronic transactions. Latin America and North America each grew at a still-robust 7% but were limited by credit card economic headwinds.
US banks also struggled to deploy a surge in deposits driven by pandemic stimulus, leading to compressed net interest margins on transaction account balances.
In Latin America, balances were flat in contrast to historically strong growth, and interest margins similarly tightened.
A2A transaction revenues continued to increase their contribution in most geographies, in total accounting for roughly 29% of 2021’s rise in global revenue.
The expansion of applications built on instant-payment use cases—such as bill payment, point of sale (POS), and e-commerce—fuelled the volume increase.
Growth varies by country, with Hong Kong, Colombia, and Peru registering increases of roughly 50% and a tier of countries including Nigeria growing in the 30–40% range.
Many European countries continued to grow at rates well into double digits, even from well-established bases. In the US, growth rates for instant payments surpassed 60%, albeit off a relatively small base.
At this stage of maturity, there remains room for a breakthrough that sparks an even higher US growth rate.
In Asia, pricing was a bigger revenue factor than volume growth. In 2021, China rolled back much of the corporate rate concessions implemented during the pandemic; prices moved from approximately $0.79 per transaction in 2019 to about $0.62 in 2020, returning to about $0.77 in 2021.
Overall, the report projects global growth of instant payments to continue at double-digit rates, even faster than the healthy 10% growth rates for cards over the past two years.
Debit and credit card transactions continued to grow at rates comparable to those before the pandemic (20% and 18%, respectively, between 2020 and 2021), as A2A growth mainly cannibalised cash and, to a lesser extent, checks, rather than card transactions.
Credit cards’ volume growth overturned expectations that 2020’s slowdown in card usage and ongoing pressure on interchange revenue was a sign of a longer-term trend. However, debit cards have extended their lead as the most used card product, with 94 transactions per capita globally, versus 49 for credit.
The share of debit card among overall electronic transactions is highest in Russia (84%), followed by Norway, Ireland, and Romania (each roughly two-thirds).
There remains significant country-level dispersion in revenue per transaction, driven by a variety of factors, including transaction pricing dynamics and payment instrument mix.
The analysis of payments revenue per capita shows that this metric tends to be lower in developing economies, implying ongoing revenue opportunity as these countries’ payment systems continue to mature.
In addition, global revenue per non-cash transaction has gradually declined—from $1.88 in 2016 to $1.30 in 2021—as the pool of electronic transactions has grown faster than absolute revenue.
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