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The economic realities of the global payments industry

McKinsey&Company have been carrying out their annual review of the global payments industry for many years. The latest report reveals, yet again, that the three biggest income streams for the global payments industry are (and will continue to be) income from: account-related liquidity, cross-border payments and credit cards, as the figure below shows.

APAC and account-related liquidity revenues will continue to lead revenue growth 

Source & Copyright©2019 – McKinsey Payments Practice 

Preparing for the next wave of payments consolidation 

McKinsey are predicting that the consolidation in the payments industry - the cross-border consolidation and the general move from banks to the specialists – will continue and is now being supported by equity funds. The question remains whether the banks can catch up with the specialists.

The evolutionary pressures point to consolidation with four dynamics shaping the consolidation:

  • growth in non-traditional areas
  • demand for integrated solutions
  • the significance of scale and efficiency
  • the evolution of the trust equation.

They conclude, “the likely endgame following this next wave of consolidation will be a selected cluster of larger-scale payments players offering broader geographic coverage, greater processing efficiency, and a wider selection of services.” I.E. Your small/medium-sized processor (bank and or non-bank) are likely to disappear.

They also speculate that, “some would argue that traditional B2B payments with high scale and high level of fragmentation might be next.” But they caution that this might not happen if there is a recession.


McKinsey analysis of the new opportunity from the new Banking As A Service integrated solutions, see figure below, predicts.

Source & Copyright©2019 – McKinsey Payments Practice 

In these new services no longer will – 85% of payments revenues have been earned by players at the endpoints of the value chain—by virtue of either “owning” the customer – instead a new value creation point has emerged in the payments industry: the role of “platform integrators.” McKinsey believes “This new industry role, enhanced by the growth of PaaS, exists for all constituencies in the ecosystem, including financial institutions, merchants, billers, SMEs, B2B corporates, and even consumers.”

They speculate that “In the future, we might even see several payments services being offered as either a free value-add (in the case of nonfinancial companies) or a loss leader (in the case of payments-driven attachment integrators). Niche players with a compelling offer for a specific vertical—encompassing payments and likely beyond—also stand to disrupt the banking market.”

CTMfile take: Quietly and elegantly McKinsey&Company is predicting a revolution in which large players will “leverage huge scale advantages based on incumbency, a strong balance sheet, and access to massive amounts of data.” to dominate the market. Can this trend be stopped?

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