McKinsey on Payments - McKinsey & Company

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The <strong>McKinsey</strong> Global Payments Map3Global perspective on payments:The <strong>McKinsey</strong> Global Payments MapPayments services generate worldwide revenues of more than $900 billioneach year. Representing roughly 25 to 30 percent of total bank revenues,payments services provide a steady income stream in these troubled timesas well as daily opportunities for banks to serve consumer and businesscustomers and to reinforce their brand. At the same time, payments systemspose a heavy burden on overall bank operations costs, making them evenmore worthy of focus.Olivier DeneckerGlen SarvadyAnna Yip<strong>McKinsey</strong>’s Global Payments Map marks anew analytical framework for understandingthe payments business, offering a distinctivelycomparative approach inevaluating regional payments dynamics andrevenue trends around the world. In separatearticles in the current edition of <strong>McKinsey</strong>on Payments, we focus on recentdevelopments in the U.S. and Europeanpayments markets; in forthcoming issueswe will examine trends in Asia and LatinAmerica. <strong>McKinsey</strong>’s Global PaymentsMap, built over several years with quantitativedata from a broad range of sources, revealspatterns in the evolution of paymentsbehaviors over time. This market typologybears important implications for bank liquidityand revenue, and the <strong>McKinsey</strong>Global Payments Map will help banks toanticipate local market changes throughcomparison with markets that display similarpatterns of change.As payments is an increasingly globalizedbusiness, banks need to articulate localstrategies to address global competitivethreats, applying lessons from around theworld to enhance the longevity and profitabilityof each customer relationship. Ashighlighted in previous papers, the interdependencyof transactions and liquidities is aglobal characteristic of the payments business.(See “The hidden side of payments:Harnessing the value of liquidity,” <strong>McKinsey</strong>on Payments, November 2008.) Transactionservices attract customer depositsand loans and offer banks a lever to expandtheir franchise into new geographies, marketsegments and product groups. Past ex-
4 <strong>McKinsey</strong> on Payments April 2009Exhibit 1Payments representone-quarter of totalbanking revenues orU.S.$900 billionTotal 2007 bankingrevenues breakdownPercent100% = U.S.$3,400 billion2007 payments revenuesdecompositionU.S.$ billionsU.S.282Europe2757327AsiaPacific237LatinAmerica*60Non-paymentsPaymentsRest ofWorld60* Latin America data is for 2006Source: <strong>McKinsey</strong> Global Payments MapTotal914perience has shown, however, that “one sizefits all” solutions (e.g., U.S.-style revolvingcard solutions in Europe) face major hurdles.Understanding the differences in theglobal payments landscape, therefore, enablesbankers to rethink enterprise strategiesto compete locally.In order to understand the differencesamong the world’s major payments markets,we return to the basics: how customersmake payments, how they fund these transactionsand how banks charge them for theservices rendered. Determining how to balancethese three aspects of the paymentsbusiness into a profitable mix is the keychallenge for banks entering a new marketor dealing with changing economic fundamentals.A tour of the payments globe,guided by <strong>McKinsey</strong>’s Global PaymentsMap, provides valuable lessons for banksseeking to optimize income from balanceswhile also optimizing the cost and revenueof transaction services.Global perspective on paymentsrevenuesWhen looking at the Global Payments Map,the three largest regional markets by revenueare the U.S., Europe and the Asia-Pacificregion. Together with Latin America,these regions represent more than 90 percentof banks’ global payments revenues(Exhibit 1). Overall, fees and net interest incomeon payments-related accounts representabout 50 percent each of the revenuebase, reinforcing the notion that paymentsis a “hybrid business”: transaction servicesare fundamental to persuading customers eitherto carry loan balances (credit card oroverdraft) or to increase their deposits.Upon closer examination, however, paymentsrevenue models vary significantlyfrom one region to another. In the UnitedStates fees account for more than half oftotal payments revenues. By contrast, in Europeand Asia-Pacific most payments-relatedrevenues are derived from current
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McKinsey on Payments - McKinsey & Company

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