Daily Times

The global payments industry posted its first contraction in 11 years in 2020 but is poised to quickly return to its long-term growth trajectory, said a report.

According to management consultant company McKinsey and Company’s annual sector report, the sector’s revenue fell 5 percent annually last year to $1.9 trillion, as the pandemic-induced global economic slowdown weighed heavily on the industry. However, 2020’s losses will be recouped this year, bringing revenue back into the range of 2019’s record high, McKinsey said in the report. Revenues are expected to hit about $2.5tn by 2025, helped by the digitisation of consumer and commercial transactions, it added.

“The relatively muted 2020 top-line numbers mask some important countervailing effects, however, which are poised to re-set the scale of opportunity for payments players for years to come. The pandemic accelerated ongoing declines in cash usage and adoption of electronic and e-commerce transaction methods,” McKinsey said.

The global payments industry was among the sectors that witnessed fast-paced changes amid the pandemic, as consumers increasingly adopted digital platforms to shop, study and work online.

The digital shift created new opportunities for payments players. However, it is unclear which changes are permanent and which ones are likely to revert, at least partially, to prior trajectories as economies re-open, McKinsey said.

Nonetheless, continued cash displacement and the global economy’s return to growth will be among the primary drivers accelerating the existing upward trends in electronic transactions, the consultancy said.

However, interest margins are likely to remain muted and this will create a greater incentive for players in the payments sector to pursue new fee-driven revenue sources and to expand beyond their traditional focus areas.

Latin America posted the biggest decline in payments revenues, down 8 percent. Meanwhile, the Asia-Pacific, North America and Europe, the Middle East and North Africa dropped 6 percent, 5 percent and 3 percent, respectively.

The Asia-Pacific region – which has been the largest and fastest-growing payments region for the past several years – presents a major opportunity for service providers, McKinsey said. The region had a total revenue of $210 billion, about 35 per cent higher than Latin America’s, and this is expected to grow further because of rapidly expanding business-to-business activities and an explosion in digital wallets.

The pandemic also significantly reduced the use of cash payments in Asia-Pacific, most notably in key markets such as Thailand and Indonesia. Although some transactions will return as storefronts reopen, a “solid majority” are likely to have permanently moved on to digital platforms.

“The pandemic has pushed businesses to reorient their payments operations and customer interactions. Small and medium-sized enterprises are increasingly aware of the payment solutions available to them and are motivated to encourage the use of those that best serve their needs and those of their customers,” McKinsey said.