APAC Drives Record Growth in Global Payments Revenues as Cash Declines — McKinseyby Johanan Devanesan October 27, 2023
The 2023 McKinsey Global Payments Report has recently illuminated the extraordinary performance of the payments industry in 2022. The APAC region, synonymous with innovation and economic dynamism, remains a focal point of this progress, providing a wealth of opportunities to generate payments revenues that span across both geographies and products.
Understanding APAC’s Role
The overarching narrative is positive. For two consecutive years, global payments revenues have surged by an impressive 11%, reaching a zenith at over US$2.2 trillion. While regions such as North America, Latin America, Europe, the Middle East, and Africa experienced robust growth, the payments revenues uptick of APAC was more muted at 4%.
However, it is vital to underscore that in the recent past, APAC has been responsible for a staggering 47% of global payments revenues, thereby being the linchpin of the industry’s expansion.
However, McKinsey figures illustrate that this isn’t the complete picture. This was due to a noticeable 3% downturn in China’s payment revenues. Once China is excluded from the equation, the Asia Pacific numbers tell a different story, with growth soaring at 25%, outpacing the previous year’s rate.
Deciphering China’s Numbers
A central reason behind China’s subdued figures was a 5% drop in transactional fee revenue, which settled at US$255 billion. The culprits were smaller card transaction sizes and strategic fee waivers by payment providers.
These concessions aimed to rejuvenate SME operations and cushion the adverse effects of the COVID-19-induced economic downturn.
Global Revenue Growth Dynamics
A pivotal revelation was that a significant portion of the revenue growth in 2022, approximately half, was propelled by escalating interest rates. This challenges the long-established growth trend where fees played the protagonist.
Delving deeper, the commercial and consumer segments of the industry exhibited variances in revenues based on region. Commercial revenues have traditionally been dominant in APAC and EMEA, whereas consumer-driven revenues continue to be predominant in regions like North America and Latin America.
The Momentum of Cross-border Payments
Cross-border payment activities showed remarkable vigour. The value of such flows touched US$150 trillion in 2022, marking a 13% annual growth. This, in turn, fuelled an even higher growth in associated revenues, with a 17% increase to US$240 billion.
Future Trajectories and Innovations
McKinsey’s insightful analysis suggests that upcoming revenue growth is poised to benefit from innovations in instant payments and the burgeoning presence of digital wallets in specific regions. The shift from cash to electronic transactions continues its upward trajectory, outstripping revenue growth in the process.
This shift is evident in the dwindling usage of cash, which dipped globally by nearly four percentage points in 2022, with countries like India and Brazil, traditionally reliant on cash, leading this decline.
Instant payments are central to this cash-to-digital transformation. For instance, Brazil anticipates that almost half of its transactional revenue growth till 2027 will be fuelled by instant payments. India, despite its significant digital payments growth, expects a modest contribution from instant payments to future revenue growth due to the absence of fees on its Unified Payments Interface (UPI) system.
A Look Ahead to 2027
By 2027, it’s anticipated that developing nations with a cash-centric economy will witness a paradigm shift towards instant payments, which could constitute around half of all payment transactions. This is a massive leap from the 2022 figures. In contrast, mature markets like the US and the UK are expected to experience only a minimal impact.
India, in particular, has seen a tenfold surge in digital payments over the past five years, and this trend is predicted to continue growing at approximately 35% annually for the next half-decade. The UPI network in India has been instrumental, capturing a market share that has risen from 8% in 2017 to an overwhelming 75% in 2022.
In conclusion, the payments industry’s impressive revenue and valuation growth in 2022 echo an optimism that pervades the sector. McKinsey remains bullish about the future, forecasting a sturdy revenue growth rate of 6% to 8% over the next five years.
By 2027, the payments industry is set to cross a significant milestone, possibly exceeding US$3 trillion in revenues, with APAC (excluding China) leading this march.