Tag Archives: Payments

Updates from McKinsey

The 2021 McKinsey Global Payments Report
By Alessio Botta, Philip Bruno and Jeff Galvin – Last October, when we published McKinsey’s 2020 Global Payments Report, it was already clear that the pandemic’s economic impact would lead to the first decline in global payments revenues in 11 years.

One year later, the picture is unexpectedly positive—on the payments front—despite challenges. Payments revenue did indeed decline—to $1.9 trillion globally—but by less than we anticipated last fall. Indicators point to a nominal but geographically uneven rebound in 2021, bringing revenue back into the range of 2019’s record high. From there, McKinsey projects a return to historical mid-single-digit growth rates, generating 2025 global payments revenue of roughly $2.5 trillion.

The relatively muted 2020 topline numbers mask some important countervailing effects, however, which are poised to reset 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. Revenue gains in these areas were offset by tightening of net interest margins earned on deposit balances. All these trends are expected to outlast the pandemic. The contraction of net interest income—combined with technology breakthroughs and the impact of open banking and fintech innovation—has spurred the creation of revenue models that within five years will offer adjacent opportunities as large as the core payments revenue pool. more>

Updates from McKinsey

How payments can adjust to the coronavirus pandemic—and help the world adapt
The challenges are immediate, with long-term implications for global, regional, and local economies—and for the payments industry itself. Here’s what to expect.
By Philip Bruno, Reet Chaudhuri, Olivier Denecker, Tobias Lundberg, and Marc Niederkorn – As the catastrophic human costs of the coronavirus come into clearer focus, so too do the consequences for people’s well-being beyond the immediate imperative to safeguard lives. Taking care of our families and friends, our neighbors and communities, our employees and coworkers comes first. For that reason, companies across industries and geographies have scrambled to establish remote-working conditions—and continue to improve them as the health crisis continues. Those that can, including most banks and financial-services companies, have taken swift action to protect both their customers and their employees.

The next focus of all the professionals involved with the transactions infrastructure must be the stability of systems, for both payments and securities. At this writing, despite the scale of the emergency measures underway, no major outages of core infrastructure have been reported. Payments systems have proved resilient and reliable, as they have in earlier crises. Payments systems and providers, which enable companies and their customers to transfer funds in return for goods and services, continue to enjoy a high level of trust from the general public.

At the same time, we all realize that the economic disruption will be profound and the short-term drop in activity for economies under lockdown will be severe. Quarterly GDP in the second quarter of 2020 could decline by as much as 35 to 40 percent—and the payments industry’s financial outlook reflects that uncertainty in the short term. But the industry’s stability will play an invaluable role in rebooting the global economy, and the potential for innovation can support functioning economies as a “new normal” emerges. Below, we observe how the payments industry can adapt now—and suggest ten fundamental changes to the payments ecosystem that will help all of us find a new normal.

How will the coronavirus crisis affect payments economics?
There is no definitive answer. Much depends on the complex interplay between economic activity, the interest-rate landscape and associated liquidity patterns, and the evolution of individual and collective behavior. Taking these factors into account, we expect revenue growth in global payments to turn negative.

Instead of growing by 6 percent, as projected by our 2019 global payments report, activity could drop by as much as 8 to 10 percent of total revenues, or a reduction of $165 billion to $210 billion—comparable to the 10 to 11 percent revenue reduction in the wake of the global financial crisis in 2008–09. more>

Related>

In praise of cash

BOOK REVIEW

The Heretic’s Guide to Global Finance, Author: Brett Scott.
The Curse of Cash, Author: Kenneth Rogoff.

By Brett Scott – So here I am, the tired individual rationally seeking sugar. The market is before me, fizzy drinks stacked on a shelf, presided over by a vending machine acting on behalf of the cola seller. It’s an obedient mechanical apparatus that is supposed to abide by a simple market contract: If you give money to my owner, I will give you a Coke. So why won’t this goddamn machine enter into this contract with me?

This is market failure.

To understand this failure, we must first understand that we live with two modes of money. ‘Cash’ is the name given to our system of physical tokens that are manually passed on to complete transactions. This first mode of money is public. We might call it ‘state money’. Indeed, we experience cash like a public utility that is ‘just there’.

This second mode of money is essentially private, running off an infrastructure collectively controlled by profit-seeking commercial banks and a host of private payment intermediaries – like Visa and Mastercard – that work with them. The data inscriptions in your bank account are not state money.

Rather, your bank account records private promises issued to you by your bank, promising you access to state money should you wish. Having ‘£500’ in your Barclays account actually means ‘Barclays PLC promises you access to £500’. The ATM network is the main way by which you convert these private bank promises – ‘deposits’ – into the state cash that has been promised to you. The digital payments system, on the other hand, is a way to transfer – or reassign – those bank promises between ourselves.

The cashless society – which more accurately should be called the bank-payments society – is often presented as an inevitability, an outcome of ‘natural progress’. This claim is either naïve or disingenuous. Any future cashless bank-payments society will be the outcome of a deliberate war on cash waged by an alliance of three elite groups with deep interests in seeing it emerge. more> https://goo.gl/KRlMGW