The expansive report covers four key areas: CBDC and stablecoins: early coexistence on an uncertain road, the evolution of global transaction banking, how transaction banks are reinventing treasury services, merchant acquiring and the $100 billion opportunity in small business.

The report’s CBDC chapter explains that the co-evolution of stablecoins and CBDCs will bear a direct impact on society, and that its progress is now well underway following a recent shift in thinking around cryptocurrency from being a potential store of value, toward a means of financial exchange.
This disconnect is shrinking quickly as a result of both private firms and monetary authorities beginning to issue stabilised cryptocurrencies in a more mainstream fashion.

Referencing the pullback of cash payments throughout 2020, the report explains that regulators in countries with dramatic reductions in cash usage are preparing strategies to ensure continued availability of central bank currency, driving increased attention toward the use of CBDCs.

While stating that the market is far too nascent to confidently predict outcomes, it notes that there will likely be some form of coexistence between CBDCs and stablecoins.

“Within this continuum, we may see flavours determined by geography (for example, central banks such as China’s exerting greater influence through direct control of monetary policy), by market incumbency among private institutions (for example, e-commerce or social media giants in the United States with potential to migrate some user transactions to stablecoins), or by sector (for example, use-based loyalty stablecoins).”

McKinsey encourages various players across the payments landscape to heed this building momentum and position themselves for “inevitable changes on the horizon”:

• Financial services infrastructure providers: monitor the suitability of their design choices for future interoperability with digital currencies;
• Retail banks, merchants and payment service providers: consider how much infrastructure investment is needed for implementation of multiple CBDC and stablecoin networks;
• Private-sector banks: consider the best pace for introduction of CBDCs, as fast adoption could impact the flow of funds into bank deposits - limiting their ability to generate fee income;
• Chief risk and financial officers: evaluate the broad impact of digital currencies on bank liquidity and capital requirements given potential policy changes;
• Government, central banks regulators: balance countervailing factors such as overregulation vs. measured regulation in their assessment of the impact of private currency on the efficacy of monetary policy;
• Investors: anticipate the impact of CBDCs on their assets.

Other key findings in the report include:

• With revenues totalling $1.9 trillion during 2020, the payments industry experienced a 5% decline from 2019. Despite this, the report states that the payments industry proved remarkably resilient to drastic economic changes, even as many economies spent significant portions of the year in lockdown.
• McKinsey expects global payments revenue to not only return to their 6-7% growth trajectory, but recoup 2020’s declines during 2021.
• The overall 5% decline was witnessed at slightly different rates depending on the global region: APAC saw 6% pullback, LATAM saw 8% pullback, while EMEA registered at 3% and North America at 5%.
• APAC holds a $210 billion payments revenue opportunity: a result of China’s consistent growth, reductions in cash usage, expanding B2B activity, and increased uptake and availability in digital wallets, among other reasons.
• Cash payments declined 16% globally during 2020, but are expected to partially rebound during 2021. Evidence indicates that roughly two-thirds of the decrease is permanent.
• The report observes that the process of re-examining long-standing payments value propositions is underway: while both scale and ‘owning’ the customer relationship remain important, these alone no longer guarantee success.