McKinsey forecasting big changes and growth in payments

One of the best sessions at Sibos today came from McKinsey, who for the third year in a row fielded Philip Bruno and Marc Niederkorn to forecast what’s likely to happen to payments over the next few years.  It was pretty upbeat stuff on the whole.  They believe that payments revenues will grow about 7% a year, adding around half a trillion dollars to bank revenues by 2017 (from $1.3 trillion to $1.8 trillion), and that profits will see double-digit growth, getting back to pre-crisis levels.  Payments is pretty much a fixed-cost business, so if you can pump more volume and value through the same pipes then your profits will bounce, so their forecast makes a lot of sense.

Unsurprisingly the main growth engine will be Asia contributing half of the global revenue rise, with China responsible for about two thirds of the increase in the region.  A great deal of that growth is expected to come from account balances although electronic transactions will become increasingly important.  In the global war on cash, all corners of the globe are forecast to see improvements in the average number of electronic transactions per person, but in Asia they expect that the number will double by 2017.  Even accounting for strong economic growth that’s a lot of displaced cash transactions so it’s hardly surprising that the guys at McKinsey see huge opportunities in the region.

Interestingly they also forecast that whilst banks will enjoy increasing deposit balances (which is a good thing as it provides much-needed liquidity) they don’t see any improvement in net interest margin.  They believe that it will remain broadly flat in Europe, increase a little in North America but fall back significantly in Asia and Latin America.  You could spend a whole day discussing that with a room full of economists, but mercifully they pressed on with the show.

There were also some really interesting views based on research interviews with SMEs and consumers.  Much of it was to be expected and reinforced other research, but two pieces really stood out.

Firstly, the thing that most excited SMEs was ‘making purchases convenient’ and by far the least important was ‘integrating with a digital wallet’.  Not good news for some in the markets, and possibly the result of the sheer number of offerings out there.

The other thing was that consumers get most excited by offers and deals, and least excited by the prospect of leaving their wallet at home (presumably on the basis that it is currently stuffed with loyalty cards).

Put both of those pieces together and it appears that the recipe for success is a proposition that makes transactions absolutely frictionless whilst integrating loyalty programmes and building repeat business through targeted offers.

All in all a really useful session, and a great deal of food for thought.