Although there are signs of recovery, BCG argues that banks now need to decide whether their current business models (target customer segments, product portfolios, regions, and channels) and operating models (processes, IT, sourcing, and organisation) are suited to the changing landscape.

Niclas Storz, partner, BCG, says: "The size of the prize is too large not to take action. We estimate that by 2020, the global payments market will be worth $782 trillion in non-cash transaction values and $492 billion in transaction revenues."

European retail payments revenues fell from $173 billion in 2008 to $136 billion in 2010, according to the report. To help foster a rebound, banks must exploit the structural differences in payments markets throughout the continent. In Western Europe, given its highly evolved infrastructure, the focus will be on refining operating models but in Central and Eastern Europe, the key will be forging winning business models, says BCG.

Over in the US there has been considerable disruption in retail payments. From the end of 2008 through 2010, total payments revenues fell at a compound annual rate of four per cent and although there is expected to be growth this year, the figures will still be six per cent below their 2007 peak.

Moreover, the rash of new regulations, such as the Credit Card Accountability, Responsibility, and Disclosure Act, modifications to Regulation E, and the Durbin Amendment will have a dramatic effect on the US payments businesses for years to come.

"As much as $25 billion in annual retail-transaction revenues will be regulated away from US financial institutions as the new guidelines take effect," says Carl Rutstein, senior partner, BCG. "To get back on track, banks in the US need to transform their credit-card businesses, move beyond the checking account to deepen client relationships, and make sure they stay smart and nimble in the digital financial-services game."

In Asia Pacific, the outlook is bright, with retail payments primed for growth, says the report, mainly through the emergence of a digital generation and larger urban populations in developing countries.

Meanwhile, wholesale transaction banking offers financial institutions a big opportunity, with volume expected to grow at a compound annual rate of nine per cent globally from year-end 2010 through 2020, and total revenues predicted to increase from $64 billion to $119 billion.

However, there are hurdles to overcome as banks bid to get different silos - such as the corporate-banking sales force, cash-management and trade-service specialists, and operations and IT groups - to align around making transaction banking a top priority.