Payments’ revenue to grow by $700b in the next five years

APAC accounted for $1.1t of payments revenue as of 2023.

The global payments market is expected to hit a revenue of $3.1t by the end of 2028— a $700b growth over the next five years, and equal to 35% of the total banking revenue pool, according to estimates by McKinsey & Company.

In 2023, payments generated $2.4t in revenue, an all-time high. Of this, nearly half or $1.1t of revenue came from the Asia Pacific region. America ($0.7t), EMEA ($0.5t) and Latin America ($0.2t) made up the remainder of the revenues.

These numbers, and the fact that it will make up a third of the total banking revenue pool in 5 years, underscore the need for banks to continue investing in payments, said McKinsey.

Over the past 10 years, the combined market capitalization of specialist payments companies have risen to $1.4t.

Fintech unicorns have also exploded in popularity, with 384 fintechs now having a valuation of $1t in 2023, versus just 39 unicorns just five years earlier.

Against this backdrop, McKinsey outlined six trends that it believes will define payments in the next five years.

Cash usage will continue to decline, and with cash payments making up $26t of payments, there is a massive opportunity for digitization.

Instant payments is expected to displace other payment methods, although it will have difficulty displacing cards in card-entrenched markets such as the UK and the USA.

In cash-heavy markets like Brazil, India, and Thailand, instant payments will thrive in point-of-sale (POS) and bill-pay transactions, driven by government support.

McKinsey also sees a broader rollout of digital public infrastructure (DPI) initiatives in emerging markets, which it says will catalyze digital payments.

Intermediaries are expected to continue to take share from incumbents. Already, platforms such as Shopify, Square, and Toast, and even marketplaces like Amazon, eBay, and Etsy, now process 30% of global consumer purchases as of 2023.

“These platforms and marketplaces increasingly outsource processing to merchant acquirers such as Fiserv and Global Payments at wholesale prices while controlling the customer experience and earning higher margins on value-added services,” McKinsey said.

Transaction banking, which has become a “differentiator and rich source of fee income” for leading institutions, will see increasing competition. Commercial customers are expected to demand and receive intuitive interfaces that are personalized to their tastes.

Finally, McKinsey noted the rise of central bank digital currencies (CBDCs), which it said will “set the baseline for digital currencies.”

More than 90% of central banks are pursuing or considering CBDC projects, with over 30 rolling out pilots.

Whilst excitement has waned, CBDCs will still play a role in defining digital currencies, McKinsey said.

“we foresee CBDCs playing three roles in payments: First, they will set the minimum base level of functionality, cost, and services that users can expect from a digital currency. They also will provide an alternative to help keep the price of commercial offerings in check,” the management consulting firm said in a report on global payments published in October 2024.

“And finally, they will serve as an alternative to large but often opaque private-sector stablecoins. The importance of these roles may ensure a long-term, if unglamorous, future for CBDCs,” it added.