The 2022 Mckinsey Global Payments Report

Global Banking Practice
The 2022 McKinsey

Global Payments Report
October 2022
© Getty Images
Global Banking Practice
The 2022 McKinsey

Global Payments Report
October 2022
Contents
2 Foreword
4 The chessboard rearranged: Rethinking the

next moves in global payments
16 Embedded finance: Who will lead the next

payments revolution?
22 Sustainability in global transaction banking: A

market imperative
33 Central bank digital currencies: An active role

for commercial banks
42 Sustaining digital payments growth: Winning

models in emerging markets
Foreword
In a period of ongoing macroeconomic and The McKinsey 2022 Global Payments Report
geopolitical upheaval, the global payments presents a detailed analysis of the 2021 results
ecosystem is once again demonstrating resilience. and the insights they reveal, including regional and
In the previous McKinsey Global Payments Report, country-level nuances. The report’s later chapters
we described an annual decline in revenues for offer perspectives on areas where payments
2020, the first since 2009.¹ That decline, coming leaders’ actions will help determine market share
during the early stages of the pandemic, was less shifts and the role of payments in the broader
pronounced than anticipated. financial ecosystem.
At that time, we foresaw a nominal but First, we examine a rapidly growing payments
geographically uneven rebound on the near-term service: embedded finance, which involves the
horizon. As we describe in the lead chapter of this integration of a financial product into a broader
year’s report, actual results proved more robust: customer journey. Brick-and-mortar versions have
revenue growth in 2021 was 11 percent, the highest existed for decades in the form of auto loans at
since 2017, leading to a record $2.1 trillion globally, dealerships, sales financing at appliance retailers,
and growth was healthy across all regions. Our five- and private-label credit cards at retail chains.
year revenue outlook now exceeds prepandemic Software companies are now partnering with
expectations, topping $3 trillion by 2026. banks and technology (or banking-as-a-service)
providers to create similar seamless and convenient
As they often do, the drivers of growth are shifting, digital experiences. Leaders are already emerging
distributing gains in new ways and potentially to in the race to provide banking infrastructure for
new and nontraditional participants. Inflation and embedded finance, and this chapter describes how
interest rates are both reaching levels not seen for incumbents and new entrants still have time to claim
decades in many countries, altering consumer and a share of this market.
business behavior and, consequently, payments
dynamics. At the same time, capital market We then turn to sustainability, which has become a
assessments of many fintech firms are undergoing topic of crucial importance for many corporations,
recalibration—in some cases prompting companies including financial institutions. Sustainable global
to shift focus from pure growth to a profitability transaction banking remains in its early stages,
model. but its potential for growth is estimated at 15 to 20
percent annually for sustainable trade finance and
The changes in the global landscape are creating cash management products. Research indicates
new opportunities for incumbents and disruptors that demand for such products far exceeds supply,
alike to win customers, develop new solutions, with only 10 percent of demand currently being met.
and claim market share. In short, the payments Few banks currently embed sustainability into their
chessboard is being rearranged. transaction banking offerings, so there is a clear
1
“The 2021 McKinsey Global Payments Report,” October 2021, McKinsey.com.
2 The 2022 McKinsey Global Payments Report

chance for leaders to capture a disproportionate these areas, the pandemic accelerated shifts
share of the market. This chapter builds a to contactless payments and e-commerce, and
case that banks should act now to create a low banking penetration affords opportunities
sustainable payments value proposition. for payments providers to capture untapped
potential and reach underserved populations.
In the next chapter, we take a fresh look at Competition among banks, fintechs, telecom
the early-stage development of central-bank companies, and retailers has intensified as
digital currencies (CBDCs), which is occurring e-wallets proliferate, instant bank transfers
around the globe. Along with summarizing the take off, and industry players form partnerships
various models under consideration, this chapter to access capabilities and broaden their
outlines the risks, opportunities, and potential customer base. We explore which digital
paths forward for stakeholders and explains why payments models are best placed to gain
we believe that the most promising scenarios momentum in emerging markets, which
involve public-private partnerships in which monetization paths payments providers are
commercial banks play a material role. likely to pursue, and what innovations may lie on
the horizon.
In the final chapter, we examine how some of
the fastest growth in digital payments over the As always, we welcome the opportunity to
past two years has been in emerging markets discuss these essential payments topics with
in Africa, Latin America, and Southeast Asia. In you in greater detail.
Alessio Botta
Senior Partner, Milan
McKinsey & Company
Marie-Claude Nadeau
Senior Partner, San Francisco
McKinsey & Company
The authors wish to thank the following colleagues for their contributions to this report: Sukriti Bansal,
Luca Bionducci, Phil Bruno, Robert Byrne, Aaron Caraher, Reet Chaudhuri, Christopher Craddock, John
Crofoot, Olivier Denecker, Nunzio Digiacomo, Andy Dresner, Joseba Eceiza, Arnaud d’Estienne, Dick Fong,
Jeff Galvin, Amit Gandhi, Carolyne Gathinji, Pierre-Matthieu Gompertz, Helmut Heidegger, Reema Jain,
Grace Klopcic, Baanee Luthra, Francesco Mach di Palmstein, Beatrice Martin, Albion Murati, Roberto
Naccache, Marc Niederkorn, Brian Pike, Carmine Porcaro, Prakhar Porwal, Priyanka Ralhan, Markus
Röhrig, Glen Sarvady, Elia Sasia, Peter Stumpner, Tola Sunmonu-Balogun, Gustavo Tayar, Aparna Tekriwal,
Adolfo Tunon, Roshan Varadarajan, Jill Willder, Evan Williams, Adam Wos, and Jonathan Zell.
The 2022 McKinsey Global Payments Report 3

Global Banking & Securities
The chessboard rearranged:

Rethinking the next moves
in global payments
Shifts in the macro environment are creating opportunities and obstacles
for participants across the worldwide payments ecosystem.
This article was a collaborative effort by Sukriti Bansal, Luca Bionducci, Philip Bruno, Olivier Denecker,
and Grace Klopcic, representing views from McKinsey’s Payments Practice.
© Getty Images
October 2022
The global payments industry demonstrated than a decade of low inflation and interest
its resilience again in 2021, more than recouping rates, many central banks—particularly in
the revenue erosion experienced in 2020, which Europe and North America—have shifted
was the sector’s first decline since the 2008–09 their policies, leading to rapidly rising interest
financial crisis. Our five-year revenue outlook rates. Geopolitical factors, capital market
now exceeds prepandemic expectations, topping resets, commerce expectations, technology
$3 trillion by 2026. The factors fueling this advancements, and societal responsibilities
expected growth have shifted in unexpected are creating more pronounced sector
ways. and regional dynamics as well. This
rapidly evolving landscape will create new
Payments industry revenues rebounded strongly opportunities for incumbents and disruptors
in 2021, growing at an 11 percent rate—more alike to win customers, develop new solutions,
robust than we forecast last year and reaching and claim market share, reshaping the
a new high of $2.1 trillion globally. Growth was competitive chessboard.
strong across all regions, with both Asia–Pacific
(APAC) and Europe, the Middle East, and Africa
(EMEA) registering double-digit gains. Fee- A closer look at 2021
based revenue continues to increase at a faster Payments revenues recovered rapidly from
rate than net interest income and comprises 2020’s nominal contraction: Global revenue
more than half of the total (although this trend growth exceeded expectations by not only
may soon reverse, as we will discuss). recouping 2020’s pandemic-driven 5 percent
decline but also registering a new high of $2.1
Looking forward, a confluence of events is trillion (Exhibit 1). Including 2021’s 11 percent
reshaping the payments landscape. After more increase, revenue growth over the past two
Exhibit
Web 20221
Global payments revenues increased 11 percent globally in 2021.
Emerging cautiously: Australian Consumers in 2022
Exhibit 2 of 10
Global payments revenues increased 11 percent globally in 2021.
Global payments revenues, 2012–26F, $ trillion
Asia–Pacific North America EMEA¹ Latin America

CAGR, %
2016–21 2021–26
+9% 6 9
3.3
0.2 4 6
–5% +11% 0.6 4 9
+6%
2.0 2.1
1.9 0.8 4 7
0.2 0.2
0.2
1.6 0.3 0.4
0.1 0.3
1.3
0.1 0.3 0.5 0.5
0.5
0.3
0.5 1.7 8 10
0.3
1.0 0.9 1.0
0.6 0.7
Share of 2012 2016 2019 2020 2021 2026F

banking
revenues² 38% 38% 39% 37% 40%
1
Europe, Middle East, and Africa.
2
Total banking revenues excludes Capital Markets and Investment Banking (CMIB) revenues. Given the current macroeconomic volatility, payments share in
banking revenues for 2026 are not forecast.
Source: McKinsey Global Payments Map
5 The chessboard rearranged: Rethinking the next moves in global payments

years has averaged 3 percent—below the long-term channels in 2020 have remained electronic. Within
trend but well above the outcome feared by many. the European Union, for instance, Greece and the
Czech Republic had the sharpest reductions in cash
Demonstrating the resilience of the payments usage from 2019 to 2021—15 percentage points and
industry, overall electronic payment transactions 12 percentage points, respectively.
grew at a 19 percent rate in 2021—in line with
prepandemic growth rates. Global e-commerce Revenue growth was strong across all regions in
registered growth of roughly 17 percent, primarily 2021, surging to 13 percent in both Asia–Pacific and
driven by China, which now accounts for roughly EMEA. The robust performance of Asia–Pacific,
half of global retail e-commerce sales.¹ The most the largest regional revenue pool, accounted for
dramatic COVID-19 impact can be seen in cash 57 percent of global revenue growth, and China
usage, which plummeted by 15 percent in 2020. As accounted for 88 percent of Asia–Pacific’s growth,
physical stores reopened in 2021, the cash rebound largely centered on account-to-account (A2A)
some expected did not materialize. The slight 1 activity (Exhibit 2). EMEA’s increase reflected more
percent uptick in usage indicates that the vast broad-based growth in electronic transactions.
majority of transactions that migrated to electronic Latin America and North America each grew at a
Exhibit 2
Asia–Pacific
Web 2022
accounts
Emerging cautiously: Australian forin over
Consumers 2022 half of global payments revenues.
Exhibit 2 of 10
Asia–Pacific accounts for over half of global payments revenues.
Global payments revenues, 2021, %

$0.4 $0.1
100 = $1.1 trillion $0.5 trillion trillion trillion
7 7 5
Revenue per capita
15
Commercial 11 14
(53%)
Cross-border¹ 29 9
9
Account-related liquidity² 12
Domestic transactions³
12 4
Credit cards 1
27
13
2 9
Consumer 23
(47%) 3
3 16
Cross-border⁴ 17
4 10
Account-related liquidity² 1
Domestic transactions³
15
Credit cards 22
6 33 35
15 11
Latin
Asia–Pacific North America EMEA America
$286 $1,424 $399 $324
Cross-border payment services (B2B, B2C) and documentary trade finance.

1
2
Net interest income on current accounts and overdrafts.
3
Fee revenues on domestic payment transactions and account maintenance (excluding credit cards).
⁴Remittance services and C2B cross-border payment services.
1
Karin von Abrams, “These are the top global ecommerce markets,”Insider Intelligence, July 14, 2021, insiderintelligence.com.
The chessboard rearranged: Rethinking the next moves in global payments 6

still-robust 7 percent but were limited by credit card growth overturned expectations that 2020’s
economic headwinds. Average US revolving card slowdown in card usage and ongoing pressure
balances began to recover in the second half but on interchange revenue was a sign of a longer-
ended 2021 with a decline relative to 2020, while term trend. However, debit cards have extended
net interest margins simultaneously contracted. US their lead as the most used card product, with
banks also struggled to deploy a surge in deposits 94 transactions per capita globally, versus 49
driven by pandemic stimulus, leading to compressed for credit. The share of debit card among overall
net interest margins on transaction account electronic transactions is highest in Russia (84
balances. In Latin America, balances were flat in percent), followed by Norway, Ireland, and Romania
contrast to historically strong growth, and interest (each roughly two-thirds).
margins similarly tightened.
There remains significant country-level dispersion
A2A transaction revenues continued to increase in revenue per transaction, driven by a variety of
their contribution in most geographies, in total factors, including transaction pricing dynamics
accounting for roughly 29 percent of 2021’s rise and payment instrument mix (Exhibit 3). Our
in global revenue. The expansion of applications analysis of payments revenue per capita shows
built on instant-payment use cases—such as bill that this metric tends to be lower in developing
payment, point of sale (POS), and e-commerce— economies, implying ongoing revenue opportunity
fueled the volume increase. Growth varies by as these countries’ payment systems continue to
country, with Hong Kong, Colombia, and Peru mature. In addition, global revenue per non-cash
registering increases of roughly 50 percent and a transaction has gradually declined—from $1.88 in
tier of countries including Nigeria growing in the 2016 to $1.30 in 2021—as the pool of electronic
30–40 percent range. Many European countries transactions has grown faster than absolute
continued to grow at rates well into double digits, revenue.
even from well-established bases. In the US, growth
rates for instant payments surpassed 60 percent, Global trade flows recovered in 2021, growing by
albeit off a relatively small base. At this stage of 27 percent and exceeding 2019’s prepandemic
maturity, there remains room for a breakthrough levels.² Increasing commodity prices were the
that sparks an even higher US growth rate. In Asia, biggest factor, along with the release of pent-
pricing was a bigger revenue factor than volume up demand. Emerging markets generated the
growth. In 2021, China rolled back much of the greatest trade flow increases in 2021, led by Africa
corporate rate concessions implemented during the (43 percent), Latin America (38 percent), and
pandemic; prices moved from approximately $0.79 Asia–Pacific (26 percent), with developed markets
per transaction in 2019 to about $0.62 in 2020, growing in the 20 percent range. Following this
returning to about $0.77 in 2021. Overall, we project rebound, however, we expect trade flow growth to
global growth of instant payments to continue at slow to 1–2 percent annually through 2026 due to
double-digit rates, even faster than the healthy 10 muted global economic forecasts. The developing
percent growth rates for cards over the past two global macroeconomic context might further
years. reduce this expectation. For instance, geopolitical
headwinds will reduce Eastern European flows by
Debit and credit card transactions continued to a projected 4 percent in 2022.
grow at rates comparable to those before the
pandemic (20 percent and 18 percent, respectively, Our five-year revenue outlook anticipates average
between 2020 and 2021), as A2A growth mainly annual growth of 9 percent over the period—well
cannibalized cash and, to a lesser extent, checks, above the historical long-term trend of 6 to
rather than card transactions. Credit cards’ volume 7 percent. Much of the incremental gains are
2
Data for the 46 countries covered by the McKinsey Global Payments Map.

Exhibit 3
Payments revenues per capita and per transaction vary markedly by country.
Payments revenues per capita and per transaction vary markedly by country.
Payments revenues,¹ 2021, revenues per capita, $
1,350
1,300
1,250 United States
1,200
1,150 Singapore
1,100
1,050
1,000
950
900
850 Canada
800
750
Switzerland
700
Denmark
650 United Kingdom
Spain
600 Italy
Norway
Korea China
550
500
Austria Greece
Finland Belgium
450 Japan
France
400 Australia Portugal
Ireland Brazil
Sweden Czech Republic
350 Chile Slovakia
300 Slovenia
Netherlands Hungary
Germany Peru
250 Argentina
Russia
200 Taiwan South Africa
Malaysia
150 Poland
Romania Mexico
100 Thailand Indonesia
Nigeria
50 India Vietnam
0
0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0
Revenues per transaction²
1
Domestic payments revenues excl. revenues for cash withdrawals and deposits. In addition to the countries on the chart, McKinsey Global Payments Map has
detailed payments data for Hong Kong, Colombia, Morocco, and Pakistan. In 2021, these countries had payments revenues per capita of ~$2,300 (Hong Kong),
~$235 (Colombia), ~$125 (Morocco), and $25 (Pakistan).
2
Noncash transactions only.

fueled by interest-related income, a by-product of business models of payments providers and other
inflationary pressures and a rate environment many financial services firms alike. In this context, a
regions have not experienced for decades (Exhibit central bank response to inflation may serve to
4). Although interest rates are notoriously difficult expand interest margins, generating more income
to forecast, we consider the payments sector to from this side of the payments equation, primarily
be well positioned to exceed the $3 trillion mark for deposit-holding parties such as banks. The
by 2026 or sooner. These macroeconomic factors combination of inflation and interest margins, in
are among several rearranging the chessboard and turn, will require changes in the cash management
calling for a renewed strategic focus. strategies of businesses and consumers. At the
same time, factors like the global energy and
commodities environment create economic-
Looking ahead: Six forces reshaping growth uncertainties and increase the likelihood of
the landscape recession, differing by region. This, in turn, will have
At a top-line level, our outlook for global payments impact on the liquidity and investment strategies
through 2026 is remarkably favorable, with of many companies and households, altering
projected average annual revenue growth of 9 payments economics on both the demand and
percent. These gains will be distributed quite supply sides.
differently than in the past, however. Which players
will capture the future revenues will depend on 2. Geopolitical environment. Geopolitical
actions they take to capitalize on the opportunities disruptions are altering the long-standing
created by six forces reshaping the landscape: trend toward globalization, prompting moves to
greater payments regionalization and localization.
1. Macroeconomic environment. In many regions Instances of regional and domestic networks
of the world, inflation is at its highest level in with local control over key infrastructure are
decades, potentially calling for changes in the proliferating, challenging the standardization of
Web 2022
Exhibit 4
Emerging cautiously: Australian Consumers in 2022
Revenue
Exhibit 2 of 10 growth is dominated by credit cards in the Americas and by
Revenue growthrevenues
account-related is dominated by credit cards
in Asia–Pacific in the Americas and by
and EMEA.
account-related revenues in Asia–Pacific and EMEA.
Composition of growth in regional payments revenues, 2021–26F, %

100 = $674 billion $224 billion $207 billion $53 billion
5
17
42
Credit cards 50 43
Transactions¹ 39
Account-related²
26
48
52
44
24
10
Asia–Pacific North America EMEA Latin America
1
Change in fee revenues on domestic and cross-border payment transactions, excluding credit cards.
2
Change in income on current accounts and overdrafts.

solutions across geographies. An increasing number pressure on providers to modernize their payments
of countries are looking to ensure local instances infrastructure.
of payment services and key infrastructures, likely
leading to increased complexity in local regulations 6. Social responsibility. The overall momentum
and requirements. for social responsibility in business—often
characterized under the environmental, social,
3. Capital markets reset. While “attacker” and governance (ESG) banner—also is changing
payments companies significantly outperformed the context for payments. Governance covers
both the broader market and “incumbent” payments the need for banks to act as gatekeepers against
players over the last few years in the capital money laundering, fraud, and other unauthorized
markets, 2022 saw a significant reset in valuations. access to payment systems, and it is a major driver
In the 12 months ending August 2022, these of investment and operational change across the
same attackers delivered a negative 70 percent industry. Inclusion and customer protection also are
return to shareholders, compared to negative increasingly central to the missions of payments
26 percent for incumbents. This valuation reset players.
creates opportunities across the landscape as
incumbent companies consider acquisitions and In the following exploration of these six forces, we
attackers focus on sustainable growth and a path to will assess their projected impact on payments
profitability. revenue and offer ideas of how players across
the ecosystem can adjust to and thrive in the new
4. Commerce expectations. A main driver of the landscape.
past high valuations of fintechs and attackers
was the expectation of revenue growth through
expanding customer relationships. This opportunity The macroeconomic environment:
persists as payments increasingly serve an Higher interest rates and inflation
integrated, value-added commerce role rather than Just as the primary drivers of payments revenue
merely executing a stand-alone financial or money differ across the four major geographic regions, the
movement transaction. The most common current impact of inflation and interest rates on revenue will
embodiment of this trend is commerce facilitation, vary geographically as well. In most regions, interest
extending beyond checkout and payment to rate increases are expected, which will benefit
enhance the commerce journey. The most promising markets more dependent on deposit balances,
for the future is embedded finance, or integrating such as Europe and Asia. However, China, which
finance products into nonfinance ecosystems. accounts for roughly three-quarters of Asia–Pacific
Players that can monetize services and data are payments revenues, is reducing its interest rates as
poised to capture a larger share of revenue pools. of this writing.
5. Technology modernization. After a long period Higher rates typically correlate with larger net
of mostly incremental upgrades to networks, and interest margins on transaction account balances,
to bank and business payment systems, companies which, in turn, generate liquidity-related revenue.
are now making more structural as well as de novo These effects tend to materialize gradually, partly
infrastructure improvements. For instance, banks because of the rolling averages and maturity
are aggressively modernizing their core systems matching applied to calculate revenues. At the same
to real-time, third-generation cores and updating time, offsetting effects may come from consumers
their payments infrastructures, largely in response and businesses shifting balances away from
to the continued rise of instant payments, open- transaction accounts to other deposit vehicles in
banking requirements, and cloud technology. We pursuit of higher rates—and from banks responding
forecast that several regions will enter the next by paying higher rates to retain deposits. One
S-curve on instant-payment transaction growth. In example is the expected near-term elimination of
addition, with the continued growth of embedded negative interest rates on client deposits, which
finance, digital natives’ expectations for how creates an immediate negative impact on bank
those services are delivered will continue to exert revenues.

Inflation, in contrast, will create an organic policy agendas. Deployment of POS and online
uplift for the transactional components of applications of local payment solutions, using
payments revenue priced as a percentage of economic models and access rules that differ
value, such as credit card interchange. Fixed from those of international solutions, allow
transaction-based fee components might remain countries to boost inclusion and grow local
unchanged, potentially creating a drag on profits e-commerce—for example, Pix in Brazil, UPI in
as related costs are rising under influence of India.
the same inflation. Consequently, inflation could
disproportionately hurt business models relying A by-product of the focus on regional and
on per-transaction pricing (such as processing national payments infrastructures will be the
or most A2A services) while leaving volume- increased complexity of regulations across
based revenue models (like credit card merchant markets. Fragmentation and the need to localize
acquiring) unscathed. will likely create continued disconnections across
compliance and security requirements, despite
Many current payments leaders have not yet ongoing international dialogue to standardize.
navigated a high-interest-rate, high-inflation This creates opportunities for payments providers
environment, and some emerging payment that can simplify cross-border payments for
products and models—for example, buy now, pay customers or create turnkey solutions for related
later (BNPL)—are similarly untested under such services—say, know your customer (KYC) as a
conditions. Assuming the credit challenges of a service, digital ID, and security.
potential downturn can be managed, traditional
players like banks and card issuers could be well Geopolitical events and sanctions have also had
positioned for this macro environment, given that an impact on trade and treasury international
liquidity primarily accrues to account-holding payments, strengthening regional bonds and
institutions. Higher interest rates can partially creating shifts in segments and geo-corridors.
soften profitability pressure on banks and may The trend toward reshoring and nearshoring that
provide headroom to invest in strategic initiatives, emerged in 2020 continues to develop. What
such as payments and digital. However, an was initially believed to be a temporary strain on
economic downturn, the potential for which varies global supply chains has proven to be a persistent
by region, would alter this equation. issue, with disruption affecting several sectors,
including automotive and electronics. Ongoing
logistic disruptions, elevated shipping costs, and
Geopolitical environment: Payments stress on global supply chains are prompting
regionalization and localization initiatives to diversify suppliers and simplify
Recent geopolitical events in 2022 have shipping requirements. The trade corridor mix
reinforced a growing trend of electronic payments may shift as a result, although such transitions
infrastructure taking on heightened importance for develop over years rather than months. For
national and regional governments. As discussed example, a number of the world’s largest tech
in prior Global Payments Reports, many countries manufacturers have recently shifted a significant
have invested in modern instant-payment systems share of their production of hardware peripherals
and are championing the use of these domestic and small electronic devices to different
schemes compared with nonnative alternatives. countries.
The focus is shifting to building applications and
value-added services (such as functions that issue In this environment, banks active in the arenas
requests for payment) that leverage these rails to of trade finance and supply chain finance need
boost uptake and usage after sometimes-slow to consider how to reposition their strategies. As
adoption starts. companies reconsider their supply chains, what
is the best way to capture this reshoring trend?
In addition to instant payments, local networks Which products and what differentiation can help
are being established to reduce dependency maintain or increase relevance in a complex trade
on international providers or to support local finance environment?

Capital markets reset: Turning EBITDA multiples³: from approximately 80 times in
unicorns into workhorses August 2021 to 29 times in August 2022 (Exhibit 5).⁴
Although payments companies’ return to
shareholders has markedly exceeded that of One cause of the change in valuations is a stark
financial institutions over the past decade, the moderation in growth expectations: After attackers
story over the most recent year has been quite grew revenues 68 percent per year from 2019
different. Many payments companies have to 2021, consensus analyst growth estimates for
been greatly affected by changes in investor 2021 to 2023 have receded to 19 percent annually.
expectations and macroeconomic conditions, Meanwhile, analysts expect the revenue growth
as evidenced by an average 38 percent decline rates of incumbent payments companies to remain
in total shareholder returns (TSR) in the 12 relatively unchanged at 10 percent, compared with
months spanning August 2021 through August 11 percent from 2019 to 2021. In essence, attacker
2022—significantly greater than the decreases firms relinquished the disproportionate shareholder
experienced in the banking sector (10 percent), the returns realized since early 2020 and are now
overall market (13 percent), and among technology performing roughly on par with incumbent payments
companies (26 percent). Market environment firms over a two-and-a-half-year horizon.
changes have had a particularly strong impact on
attacker payments companies, which generated Within payments, some segments have shown
negative 70 percent TSR over the same 12 months greater resilience than others. In particular,
(versus 26 percent for incumbent payments “payments scheme” operators have felt the least
companies) and experienced sharp reductions in impact from changes in investor expectations and
Web 2022
Exhibit
Emerging5cautiously: Australian Consumers in 2022
‘Attacker’
Exhibit 2 of 10
payments companies have given back their shareholder gains of the
‘Attacker’ payments companies have given back their shareholder gains of the
prior two years.
prior two years.
Total shareholder returns (TSR), Index (Jan 1, 2020 = 100)
Market¹ Attacker² Incumbent³

400
350
300
250
200
150
100
50
2020 2021 2022

1
Top 5000 companies globally by market capitalization.
2
Attacker payments players defined as businesses established less than 15 years ago and with a business and operating model characterized by “disruptive”
characteristics either in terms of products (eg, e-commerce acquiring only, issuing of non-physical cards, payments-as-a-service), distribution channels
(eg, partnerships with e-commerce/tech players), or technological infrastructure (eg, cloud-based data centers). Six companies included sample.
3
Incumbent payments players defined as businesses established more than 15 years ago and with a business and operating model based on “traditional” pay-
ments products (eg, physical card issuing, in-store merchant acquiring, payments schemes), distribution channels (eg, direct distribution, partnerships with
other financial services companies), or technological infrastructure (eg, on-premise data center based on legacy technology). Twenty companies included in
sample.
Source: S&P Global, Corporate Performance Analytics by McKinsey
3
Enterprise value divided by EBITDA.
4
Excluding outliers. EBITDA multiples including outliers fell from about 111 times to about 41 times.

appetite, with a TSR decrease of 9 percent over the and services surrounding the payment. Such
past 12 months and a relatively limited reduction in initiatives have been under way for several years.
multiples, from 27 times EBITDA in August 2021 to
21 times in August 2022. This could be due to the The reset in valuations reflects, in part, a recognition
more balanced business models and strong market that not all payments specialists will succeed in
positioning enjoyed by traditional leaders in the expanding their market reach beyond payments.
sectors, which better insulates these companies Business models, such as neobanks employing
from macroeconomic disruptions and changes in debit and prepaid card products to acquire
interest rates and inflation. In contrast, incumbent customers, will increasingly resemble traditional
payments technology providers (for example, financial institutions if they cannot succeed in
processors, merchant acquirers) fared worst of building customer ecosystems. Business models
the subgroups, with a TSR decrease in 2022 of 44 like small-business merchant services have proven
percent and EBITDA multiples decreasing from 32 more successful at creating platforms combining
times in August 2021 to 15 times in August 2022, in software and services that enable commerce for
response to radically revised growth expectations merchants. Our 2022 survey of US merchants
(26 percent for 2019–21, versus 11 percent for shows the average spending on value-added
2021–23), notwithstanding their traditionally high services ranges from $11,306 for a small merchant
margins. to $112,067 for a large merchant, with the most
common services for small merchants by spend
This decrease in many payments companies’ including insurance, marketing, and customer
valuations could provide a catalyst for consol- relationship management (CRM).
idation by incumbent payments companies and
tech company entrants, given the lower multiples Players in the landscape that can monetize services
and reduced feasibility of IPOs as an exit strategy and data are poised to capture an outsize share of
for private firms. Attackers might, in turn, shift revenue pools. Nonbanks and technology players
their strategic approach, moving from “growth at with a large captive audience are increasingly using
all costs” to a fundamentals-focused and cost- embedded finance to enhance their role in the
conscious operating model with renewed focus on commerce experience, increase their engagement
profitable customer and account growth, cash flow, with end users, and gather additional customer
and operating performance. These companies data. Providers using embedded finance may
will likely revisit monetization opportunities—for continue to have the competitive edge, given the
example, partnerships with incumbent payments relationship with the customer and their larger
companies and companies in other sectors— ecosystem of services beyond financial services and
while maximizing the efficiency of their existing payments. Extending into payments revenue pools
operating models. When the going gets tough, may ultimately be easier than extending outside
adept unicorns can quickly pivot into workhorse payments revenue pools. Meanwhile, opportunities
roles. are created for traditional financial services
providers to provide the infrastructure enabling
embedded finance, albeit without the customer
Commerce expectations: From relationship.
payments to commerce facilitation
High valuations for payments attackers were
based in part on the promise of converting Technology modernization: From
the frequency of customer touchpoints and incremental to structural
engagement into monetization across both Payments providers have always required regular
consumer and commercial customer journeys. investments in infrastructure and systems
This would require tapping into payments- technology. However, the high relative cost of
adjacent revenue pools such as marketing and changing complex and entrenched systems that
personalization through payments data, commerce have proven resilient has led many participants
enablement optimizing the shopping journey to limit investing to a long period of incremental
beyond the payments experience, and software improvements.

This is changing. Payments infrastructures are benefit while legacy providers grapple with the
now undergoing full redesigns, and banks are changing economics of their frontline business.
making fundamental adjustments to their core
payment systems. According to McKinsey’s 2021 Meanwhile central banks and national payments
Cloud Survey, the share of IT spending by banks on communities are likely to continue to consider
legacy infrastructure is expected to decrease from modernizing their national payments infrastructures
roughly 50 percent in 2021 to about 10 percent even beyond instant payments for a range of reasons,
in 2024, thanks to private cloud and true multi- including financial inclusion, global trade and
cloud solutions. This step change in infrastructure competitiveness, and currency considerations. The
modernization is a result of increasing pressure to exploration of central bank digital currencies (CBDCs)
support the transition to instant, open, integrated, will continue to progress, albeit at an evolutionary
and cloud-based solutions to meet continuously rather than revolutionary pace.
rising customer experience expectations across the
commerce journey.
Social responsibility: Heightened
Instant-payments volumes are increasing 40 to 60 expectations
percent globally and showing signs of reaching an As noted in our Global Banking Annual Review
inflection point on the S-curve. Instant-payments of 2021,⁵ that year saw increasing pressure from
usage continues to nearly double annually in India, governments, investors, regulators, and consumers
Spain, and Thailand, among other countries, and to address climate risk and sustainability issues. The
it is increasing by roughly 50 percent per year in impact of ESG will extend to nonbank payments
Australia and Singapore. Even in China and the providers as well.
United Kingdom, where the technology has already
achieved broad adoption, growth continues at Environment will greatly influence the area of trade,
double-digit rates. where support to polluting commodities or industries
comes under scrutiny. Relatively emission-heavy
Continued open-data requirements from payments products, such as cash and checks, may
regulations (Europe) and market pressures (US) face revision in the quest for carbon-neutral systems.
are forcing financial services providers to enable At the same time, consumers are looking to their
API-based access to payments data. Digital natives merchants and payments providers to understand
expect the benefits and efficiency of an API-based the environmental impact of their purchases.
integration, so financial services providers that want
to participate must create an orchestration layer on Social responsibilities also affect payments,
top of legacy systems. Retailers moving to the cloud particularly given the role of payments in financial
are demanding payments networks and acquirers to inclusion and data privacy. Digital payments and
support this shift with commensurate infrastructure wallets in emerging markets have played a key role
upgrades of their own. Further, innovative in bringing financial services to the underserved
infrastructure providers (for example, Cross River in cash-based economies. In developed markets,
Bank and ClearBank) are delivering new capabilities scrutiny of the role of payments in emerging verticals,
through de novo payments infrastructures, raising such as gaming and cannabis, will likely continue in
the competitive bar even higher. parallel with increasing consumer demand.
These forces are accelerating the potential On governance, payments companies play a key
decoupling of payments from the large legacy role, given their obligation to contribute to the
providers as payments increasingly shifts to stability, security, compliance, and resilience
outsourcing and software-as-a-service (SaaS) of economic systems. Investments required to
models. Providers that make the technology support this gatekeeper role for the transactional
investments to offer payments as a service could system—through KYC and anti–money laundering,
5
The great divergence: McKinsey Global Banking Annual Review 2021, December 2021.

for instance—impose growing costs and The rare confluence of dynamics presents
challenges. Though historically more of a factor for an opportunity for competitors to reposition
international payments, the ESG role increasingly themselves on the payments chessboard for long-
weighs on domestic providers of payment services term advantage. For instance, players that can
as well. adapt their revenue and risk models and capabilities
to macroeconomic factors like higher inflation
We believe that over the next five years, ESG and interest rates will emerge better positioned,
concerns will be at the core of strategies for protecting margins from higher operating costs
payments providers, banks, and other firms in while creating the right balance in revenue sources.
financial services and that these companies need
to be clear about their efforts to meet consumer Incumbents may enjoy the balance sheet flexibility
and business expectations. We explore examples to make strategic acquisitions and significant
Find more content like this on the of this further in our chapter on sustainable global technology modernization investments that position
McKinsey Insights App transaction banking. the company to capture future revenue pools.
Conversely, attacker payments companies will
need to adapt rapidly to new market realities. All
players will need to reassess their business models
and value propositions to capture opportunities
The payments industry is poised for significant emerging from payments regionalization, embedded
growth over the coming five years; we expect an finance, and the rising importance of sustainability.
average annual revenue growth rate of 9 percent,
Scan • Download • Personalize exceeding the already-healthy prepandemic The payments providers that adjust their operating
long-term trajectory of 6 to 7 percent. This models and platforms in a timely way to be both
growth will partly be in response to the changing global and local will stand to benefit from the
interest rate environment, and partly to increasing resulting scale and flexibility. They will also be
dollar volumes resulting from inflation. In some well positioned to help customers navigate the
regions, however, there is a greater chance that growing complexity of the payments and commerce
payments providers will face the headwinds of an landscape, both cross-border and domestic. Those
economic contraction. Changes in the composition establishing early leadership in purpose, mission,
of revenue growth, along with other new sector and social impact will have the opportunity to win
dynamics, should prompt players across all regions with consumers and mitigate reputational risk—and
and categories to revisit strategies and adjust to monetize these value-added capabilities.
courses of action.
Sukriti Bansal is a research science expert in McKinsey’s Gurugram/Delhi office, Luca Bionducci is an associate partner in
the Rome office, Olivier Denecker is a partner in the Brussels office, Philip Bruno is a partner in New York office, and Grace
Klopcic is a partner in the Denver office.
The authors would like to acknowledge the contributions of Aaron Caraher, Amit Gandhi, Baanee Luthra, Marie-Claude
Nadeau, Glen Sarvady, Peter Stumpner, Aparna Tekriwal, Roshan Varadarajan, and Adam Wos to this report.
Copyright © 2022 McKinsey & Company. All rights reserved.

Embedded finance: Who will lead

the next payments revolution?
Winners are already emerging in the race to provide banking and payments infrastructure
for embedded finance, but incumbents and new entrants still have time to claim a share of
this dynamic market.
by Andy Dresner, Albion Murati, Brian Pike, and Jonathan Zell
© Getty Images
October 2022
Small businesses starting up today may never a channel for the banks behind them to reach end
interact with a conventional bank. By logging into customers.
their e-commerce or accounting platform, they can
open a deposit account, order a debit card, and What makes the next generation of embedded
meet most of their financing needs. The operators of finance so powerful is the integration of financial
these platforms are not usually banks. Rather, they products into digital interfaces that users interact
are software companies that partner with banks and with daily. Possibilities are varied: customer loyalty
technology providers to embed financial products apps, digital wallets, accounting software, and
into a single seamless, convenient, and easy-to-use shopping-cart platforms, among others. For
customer experience. This new form of partnership consumers and businesses using these interfaces,
between banks, technology providers, and acquiring financial services becomes a natural
distributors of financial products via nonfinancial extension of a nonfinancial experience such as
platforms underpins what has been hailed as shopping online, scheduling employees to work
the embedded-finance revolution. Sitting at the shifts, or managing inventory. This more deeply
intersection of commerce, banking, and business embedded form of embedded finance is what has
services, payments has been one of the first use grown so significantly in the US in recent years.
cases of embedded finance, and a large number of
the aspiring embedded-finance providers originate The evolution of embedded finance has been
from the payments industry. enabled by fundamental changes in commerce,
merchant and consumer behavior, and technology.
The value of this integrated experience for The digitization of commerce and business
customers helps explain why embedded finance management has massively expanded opportunities
reached $20 billion in revenues in the United States to embed finance in nonfinancial customer
alone in 2021, according to McKinsey’s market- experiences. As much as 33 percent of global card
sizing model.¹ According to our estimates, the spending—50 percent in the US—now takes place
market could double in size within the next three online, with a large portion of small and midsize
to five years. Despite the scale of this opportunity, companies in the US relying on software solutions
many banks, payments providers, fintechs, for managing their business.³ In addition, as digital
investors, software firms, and potential distributors natives came of age, they expanded the pool of
are unsure what embedded finance involves, how consumers and businesses open to receiving all
they can participate, and what it takes to win— their financial services via digital platforms. Finally,
questions we address in this article. open-banking innovation, supported by mandates in
the European Union and market-led adoption in the
US, has helped unlock latent demand by enabling
What is embedded finance? third-party fintech players to access consumers’
Put simply, embedded finance is the placing of banking data and even conduct transactions on
a financial product in a nonfinancial customer their behalf.
experience, journey, or platform. In itself, that is
nothing new. For decades, nonbanks have offered
financial services via private-label credit cards Who distributes embedded finance,
at retail chains, supermarkets, and airlines. Other and what products do they offer?
common forms of embedded finance include sales Embedded finance is likely to emerge in any
financing at appliance retailers and auto loans at environment in which a critical mass of end
dealerships. Arrangements like these operate as customers (consumers or businesses) have frequent
1
The model is based on McKinsey’s Global Banking Revenue Pools, 2022; McKinsey’s Global Payments Map, 2022; consumer and merchant
research surveys; and data from the reports of embedded-finance firms.
2
McKinsey Global Payments Map, 2022.
3
McKinsey Merchant Acquiring Survey, 2022.
17 Embedded finance: Who will lead the next payments revolution?

(often daily) digital interactions with the operator financial products, novel use cases are emerging.
of the digital platform, which we refer to as the For example, embedded-finance distributors are
“distributor” of embedded finance. For a nonbank offering prepaid cards to employees as part of
company acting as a distributor, embedded finance earned-wage access programs; giving merchants
offers a way to enhance the customer experience the option to use their deposit accounts for instant-
and create a new source of revenue without payments settlement. Some are providing just-in-
incurring the overhead associated with operating a time funded debit cards for gig economy workers
bank. The types of businesses well placed to offer to use when making purchases for members of
embedded finance include retailers, business- delivery-service platforms.
software firms, online marketplaces, platforms,
telecom companies, and original equipment The embedded-finance product portfolio is likely
manufacturers (OEMs). All these categories have to expand further as customer-onboarding and
seen high levels of activity and innovation in product-servicing processes are gradually digitized
embedded finance during the past year or two. and real-time risk analytics and services grow more
sophisticated. Risk is likely to remain a constraint
Among embedded-finance distributors and their on growth, however, as products that require case-
end customers, demand is already maturing for a by-case assessment, in-person touchpoints, or
range of deposit, payment, issuing, and lending regulatory waiting periods, such as commercial real
products (Exhibit 1). In addition to these traditional estate financing, are less susceptible to end-to-end
Exhibit 1
Demand for embedded finance is already growing in deposits, payments, issuing,
Demand for embedded finance is already growing in deposits, payments,
and lending.
issuing, and lending.
Embedded-finance distributors Embedded-finance products
Traditional Offer attractive financial Transaction and deposit accounts that

retailers products to enrich the Deposits merchants and consumers can open and
customer checkout use from within an app or software platform
experience and incentivize
brand loyalty and spending
Money movement from within nonbank
Payments
apps or software
Software Strengthen the platform value
firms proposition to drive merchant
adoption, retention, and Prepaid, debit, and credit cards for
revenues Issuing customers and employees, issued from
within business management software
Marketplaces Offer tailored financial products or apps
and platforms to improve the customer
experience and increase Unsecured lending embedded in business
merchant adoption, retention, management software (eg, merchant cash
and revenues Lending advance)
Telecom Increase customer engagement Secured lending for large purchases with
companies and enhance the value of underwriting and origination at point of sale
smartphone software and
hardware with money-movement
capabilities
OEMs Simplify ownership and financing

through subscription and other
financing services
Source: McKinsey analysis
Embedded finance: Who will lead the next payments revolution? 18

digitization. Despite these constraints, we estimate products. Balance sheet providers sometimes
that products suitable for offering via embedded partner directly with technology providers to
finance could account for as much as 50 percent of create an integrated embedded-finance offering
banking revenue pools.⁴ for distributors. For instance, Stripe is partnering
with Goldman Sachs and other banks to offer
embedded finance to platforms and third-party
Who are the enablers of embedded marketplaces.
finance?
The distributors of embedded finance rely on two A few banks and fintechs, including Cross River
sets of providers to manufacture the embedded- Bank and Banking Circle, fulfill both of these
finance offering and grant access to it (Exhibit 2): functions. Having built their own technology layer
on top of their own balance sheet, they provide
— Technology providers (fintechs) provide the embedded finance to distributors such as retailers,
platform through which distributors can access, business-software providers, marketplaces, and
customize, and offer embedded-finance OEMs by themselves, with no need for additional
products. Some, including Marqeta, provide partnerships.
point solutions for specific categories of
financial products, such as card issuing. Others,
including Unit, Bond, and Alviere, operate Who is capturing the value?
platforms that offer distributors multiple Not all players benefit equally from the rise of
financial products, such as deposits, money embedded finance. As in banking in general,
movement, and lending. revenue primarily accrues to risk takers and to the
distributors that own the customer relationship.
— Balance sheet providers (licensed or chartered For example, according to McKinsey research,
financial institutions) are responsible for the majority of revenues from embedded-finance
manufacturing embedded-finance products, lending products (55 percent of $14 billion in the
providing risk and compliance services, and United States in 2021) accrued to the balance
offering access to funds for lending and deposit sheet provider—the firm bearing the risk of credit
Exhibit 2
To embed financial products into their customer journeys, distributors work
with technology and balance sheet providers.
To embed financial products into their customer journeys, distributors work
with technology and balance sheet providers.
Distributor Technology provider Balance sheet provider
Role in Works with technology and Maintains and configures Provides distributors with
embedded balance sheet providers to technology for delivering access to regulated license,
finance embed financial products in financial products to risk framework, funds, and
its customer, employee, and distributors via APIs a place to hold deposits
partner journeys
Types of Traditional retailers, software Fintechs and banks Banks

firms involved firms, marketplaces and
platforms, telecom companies,
OEMs
4
Calculated as revenue pools of lower-risk, highly automatable products that have proven demand and can realistically be embedded, based on
McKinsey’s Global Banking Revenue Pools, 2022.

default. However, where payments and deposit complex offerings to address customers’
products were concerned, the distributors who broader financial needs. Some distributors
owned the end-customer relationship benefited prefer to shape their strategy around a one-stop
most. In lending, for instance, they earned $4 billion shop developed with a single trusted technology
of the remaining $6 billion revenue pool, equal to 30 partner that offers a wide array of products,
percent of total revenues. while others opt to work with several technology
providers to avoid overreliance on one partner.
These revenue dynamics explain two market trends
we have observed. First, many embedded-finance 2. Product depth. A few technology and balance
distributors began by offering deposit and payment sheet providers are building deep expertise in
products before extending their product range to specific embedded-finance categories such as
lending products such as credit cards and merchant issuing, in order to claim outsize market share
financing. Deposit and payment products are in these niches. They develop innovative use
attractive to distributors not only because they cases—such as just-in-time fund deposits into
represent substantial revenue pools and promote cards or crypto-linked payment authorization—
stickiness, but also because they are a powerful as a basis for creating novel financial products
tool for building customer relationships and for end customers. Over time, however, the
capturing customer data that can be used to inform demand for integrated financial solutions and
underwriting decisions for future higher-margin the synergies that can be captured across
lending products. product categories are likely to prompt these
providers to protect their flanks with product
Second, many technology providers are seeking breadth as well.
to capture a larger share of embedded-finance
revenues by expanding across the value chain. In 3. Program management support. Many
lending, for instance, they are looking to increase distributors that are new to embedded finance
their share of revenues by finding ways to share in are understandably concerned about how to
the risk, such as offering repurchase agreements for build, sell, and service a financial product for
loans originated by balance sheet providers. end customers. Some of them may see the
regulatory and reputational risk attached to
financial products, especially lending, as an
What does it take to win in embedded insurmountable hurdle. To help them overcome
finance? the risk, many embedded-finance technology
For embedded-finance providers, success demands providers are offering sales, servicing, and risk
clear differentiation in the form of product breadth management expertise or are orchestrating
or depth, or the provision of ancillary program other partners providing them. The ability to
management services. provide distributors with this kind of program
management is likely to be a key source of
Options for differentiation differentiation in the long run.
We see three main sources of differentiation for
embedded-finance distributors, balance sheet
providers, and technology providers: Key decisions for embedded-finance
market entrants
1. Product breadth. Many distributors are adopting Although leaders are already emerging, the
a “land and expand” approach to embedded embedded-finance market still has ample white
finance. They start by offering payment space for new entrants; we expect it to double in
acceptance or deposits and then extend their size over the next three to five years. The long-
product portfolio to lending products or more term winners are likely to be those that are already
Embedded finance: Who will lead the next payments revolution? 20

building the table stakes technology, expertise, including the necessary technology to enable it. To
and relationships needed for a future leadership do this, they should provide third-party developers
position. Financial services firms and fintechs with self-service access and well-documented APIs.
looking to stake their claims in the embedded-
finance business would be well advised to commit Adapt to B2B2C and B2B2B sales motions.
themselves to implementing four initiatives: Although some financial institutions operate with
choosing a strategy, establishing a developer channel partners, many are accustomed to serving
experience, building capabilities to support end customers directly. Those using direct channels
distributors, and developing support and risk will need to build a new set of capabilities to support
services. distributors in selling embedded-finance products
to their consumer or business customers.
Choose where to compete. For most banks with
proprietary distribution, embedded finance Develop support and risk services. Retailers,
represents a significant cannibalization risk. manufacturers, telecoms, and other distributors of
However, banks with limited footprints or localized embedded finance may not have the capabilities
relationships, such as community banks and to build, sell, and service financial products in a
regional banks, may see it as an attractive way risk-controlled, regulatory-compliant, effective
to expand their revenue base. Some may be manner, nor will they have the time or appetite to
comfortable with growing deposits and earning build such capabilities. They will look to balance
revenues relatively passively, at least early on, but sheet and technology providers for advice on how
many will look for opportunities to differentiate best to deploy embedded finance and orchestrate
themselves and boost revenues through more the expertise and tools needed to deliver it in a
advanced products and support. At the moment, compliant way. As well as providing advice, the
payments-focused technology providers are leading balance sheet and technology providers will need to
the charge on embedded finance, using their money build a risk management framework that gives them
movement capabilities to attract distributors and confidence that the distributors they work with are
then expanding into products that have been the acting within their risk appetite and in a compliant
strongholds of banks, such as lending. manner.
Build and enable a modern developer experience.

Many banks and legacy financial services
infrastructure firms are not yet equipped to Winners are already emerging among the financial
externalize their processes and workflows to allow institutions that manufacture embedded finance.
distributors to seamlessly integrate embedded- However, tech-savvy banks, fintechs, and payments
finance products into their journeys or distribution companies that are willing to invest and partner still
platforms. Distributors wanting to scale up quickly have time to claim their share of this fast-growing
will need to build a modern developer experience, market.
Andy Dresner and Jonathan Zell are partners in McKinsey’s New York office, Albion Murati is a partner in the Stockholm
office, and Brian Pike is an associate partner in the Stamford office.
The authors wish to thank Robert Byrne and Jill Wilder for their contributions to this article.

Sustainability in global transaction

banking: A market imperative
Sustainable financial products can propel revenue growth for banks and contribute
substantially to businesses’ progress in meeting global climate goals. But success
requires a strategic approach.
This article is a collaborative effort by Alessio Botta, Nunzio Digiacomo, Joseba Eceiza, Helmut Heidegger, Reema Jain, Francesco
Mach di Palmstein, and Markus Röhrig, representing views from McKinsey’s Banking Practice.
© Getty Images
October 2022
Sustainability¹ has become a topic of crucial By contrast, most banks across the world have
importance for many corporations, including taken only preliminary steps toward incorporating
financial institutions. One reflection of this sustainability features within GTB products. This
is the strong growth in sustainable debt slow uptake derives in part from complexity—which
instruments, which according to BloombergNEF arises from paper-intensive processes involving
surpassed $1.6 trillion in 2021.² In contrast, multiple parties—and from the lack of reliable data
sustainable global transaction banking (GTB) on companies’ sustainability-related activities and
is still in the early stages, but its potential for of industry standards for evaluating these activities.
growth is significant. We estimate that revenue
from sustainable trade finance and cash Despite these challenges, embedding
management products will grow by 15 to 20 sustainability-tracking capabilities within core
percent annually to total combined revenues of transaction banking services can be highly
$28 billion to $35 billion in 2025,³ with market effective in improving companies’ performance on
penetration reaching approximately 25 percent ESG metrics, as trade and payment transactions
in trade finance products and 5 percent in cash are systematic and recur frequently. What is
management products. more, trade finance rolls over frequently (every
30 to 90 days), which means that products such
Research also indicates that demand for as supply chain finance (SCF), letters of credit,
sustainable GTB products far exceeds supply and guarantees have the potential to contribute
(at present, only 10 percent of demand is disproportionately to new volumes in sustainable
met⁴), and we expect that in the coming years, finance.
sustainability will become a vital element of
a competitive GTB offering. Surprisingly, few The trade finance community—including financial
banks today embed sustainability in their GTB institutions, export credit agencies, trade
products, handing market leaders an opening to organizations, technology and service providers,
capture a disproportionate share of the market. and corporations—is focusing on various
Banks should act now to build a sustainable sustainability initiatives.⁶ Diverse banks offer
GTB value proposition that enables them to sustainability-linked solutions, including deposit
defend existing relationships and expand their accounts backed by investments in sustainability-
market share while staying ahead of customer rated assets and letters of credit issued for
demands and the expectations of employees, transactions in which the underlying asset (for
investors, and the public. example, batteries for electric vehicles) contributes
to efforts to mitigate climate change. In addition,
the number of requests for proposal (RFPs) for
Sustainability in GTB: Opportunity trade finance projects involving sustainability
and imperative criteria is increasing, especially in the United States
Banks’ current sustainability offerings are and Europe.⁷
typically incorporated in traditional lending
products, and growth in these products The main reason for strong corporate demand
has been remarkably strong. According to for sustainable GTB products is that banks have
Bloomberg estimates, the combined volumes unique access to transaction data (through various
of sustainability-rated debt instruments have products like cash pooling and supply chain
grown approximately 80 percent per year, finance), which can be used to help companies
increasing from approximately $155 billion in manage the carbon impact of their operations
2017 to more than $1.6 trillion in 2021.⁵ and achieve their target contributions to industry
1
Sustainability is a broad term covering the impacts of environmental, social, and governance (ESG) guidelines. Specifically, ESG guidelines encompass
the degree of responsibility that companies assume, irrespective of what they are legally required to do, for sustainable development in these three areas.
See Jordan Bar Am, Nina Engels, Sebastian Gatzer, Jacqueline Lang, and Frank Sänger, “How to prepare for a sustainable future along the value chain,”
McKinsey, January 2022, McKinsey.com.
2
“Sustainable debt issuance breezed past $1.6 trillion in 2021,” BloombergNEF, January 12, 2022 , bnef.com.
3
Estimates subject to change according to future macroeconomic conditions.
4
World supply chain finance report 2020, BCR, bcrpub.com.
5
Gregory Elders et al., “Blossoming green-bond market growing toward $250 billion year,” Bloomberg Intelligence, March 8, 2018, bloomberg.com;
“Sustainable debt issuance,” January 12, 2022.
6
Sustainability in export finance, ICC Global Export Finance Committee Sustainability Working Group, September 2021, iccwbo.org.
7
Lucy Fitzgeorge-Parker, “Transitioning trade finance is ESG’s biggest challenge,” Euromoney, January 25, 2021, euromoney.com.
23 Sustainability in global transaction banking: A market imperative
sustainability goals, such as the UN Sustainable standards of the supplier base. Finally, improving
Development Goals (SDGs) for 2030. Banks can performance on sustainability goals is part of a
be particularly effective in assessing scope 3 virtuous cycle: research shows that the financial
greenhouse gas (GHG) emissions, which typically performance of companies corresponds to how
account for most emissions linked to a company’s well they contend with ESG and other nonfinancial
supply chain and are the most difficult to measure matters.⁸
(see sidebar, “How to define sustainability for
GTB products”). Stronger monitoring enables a Given the strong and growing demand among
company to reduce emissions along its supply corporates for sustainable financial services,
chain, which enables it to meet the expectations McKinsey estimates that in 2025, sustainable
of shareholders and stakeholders. GTB global revenue pools will reach $16 billion
to $20 billion in trade finance and $12 billion to
Not only do companies that adopt sustainability- $15 billion in cash management, both growing at
rated GTB offerings gain a stronger reputation an annual rate of approximately 15 to 20 percent.
in the eyes of investors and the public through This opportunity entails primarily a shift from
a genuine and demonstrable commitment to traditional GTB products to GTB products and
better outcomes for the environment and society, services incorporating measurable sustainability
they also typically gain access to favorable objectives. Secondarily, it involves incremental
conditions from their own buyers, including revenues flowing from the anticipated acceleration
dynamic discounting and wider access to credit of overall GTB revenue growth. Our projection
from banks. At the next level, participation of $28 billion to $35 billion in sustainable GTB
in an ecosystem supporting the shift toward revenue in 2025 represents 8 percent of global
sustainability enhances a corporate client’s transaction banking revenue from core products,
access to suppliers with better sustainability including trade finance (buyer-led, supplier-
performance on measurable outcomes. Further, side, and documentary) and cash management,
stronger involvement of mid-corporates (which including commercial cards, acquiring, POS,
typically face significant challenges in complying deposits, liquidity management, payments, and
with sustainability standards) helps to elevate the collections (Exhibit 1).
Exhibit 1
The revenue
The revenueopportunity in sustainable
opportunity globalglobal
in sustainable transaction bankingbanking
transaction (GTB) is (GTB) is
estimated to grow to $28 billion–$35 billion by 2025.
estimated to grow to $28 billion–$35 billion by 2025.
Global annual banking revenues related to sustainability opportunities Expected penetration
$ billion of sustainable GTB
revenue to overall GTB
2021 2025 2025 revenue pool
Buyer-led and supplier-

5 9–11 18–22%
side trade finance¹
Documentary trade
finance² 4 7–9 20–25%
Cards³ 3 6–8 3–4%
Account-related 3 5–7 4–5%

liquidity⁴
Payments and liquidity
0.3 1 ~5%
management⁵
Total sustainable GTB 15 28–35 6–8%
Total GTB⁶ ~370 ~470
1
These figures are not included in GPR report; includes reverse factoring, invoice discounting, factoring, etc.
2
These figures are carved out from cross-border in GPR report.
3
Includes commercial credit card and other products.
4
Fee component of current accounts, term deposits, and overdrafts.
5
Including cross-border and domestic transactions; also includes collections.
6
Includes revenues relevant for ESG products in GTB; excludes net interest income component for deposits.
Source: Bank websites; expert interviews; McKinsey Payments Map
8
Sara Bernow, Jonathan Godsall, Bryce Klempner, and Charlotte Merten, “More than values: The value-based sustainability reporting that investors
want,” McKinsey, August 2019 , McKinsey.com.
Sustainability in global transaction banking: A market imperative 24
As evidence mounts that companies’ adoption of that banks aiming to lead in this space should
policies and practices to address sustainability broaden their value proposition in three waves.
is linked to stronger financial performance,⁹ GTB First, they should enhance the basic products
service providers stand in a unique position of trade finance and cash management with
to support clients working toward combined basic sustainability features. The next wave
sustainability and economic goals. And just as would involve building a more elaborate supply
consideration of impacts on sustainability has chain ecosystem with a robust sustainability
become standard practice for a growing set of rating methodology and advanced analytics
asset managers and institutional investors, we to assess sustainability across the supply
anticipate that sustainable GTB will become chain. Finally, depending on client needs
a market imperative and that the integration and expectations in the markets served,
of sustainability-related features within core banks could build advisory services to help
transaction banking services will become a vital corporate buyers and their suppliers improve
element of a competitive offering. their performance on sustainability goals.
A best-in-class sustainable GTB

ecosystem
Based on our analysis of banks’ current offerings
in sustainable transaction banking, we believe
9
Witold Henisz, Tim Koller, and Robin Nuttall, “Five ways that ESG creates value,” McKinsey, November 14, 2019, McKinsey.com.
How to define sustainability for GTB products
Sustainable GTB products are cash management and trade finance products that support companies in their sustainability activities,
which aim ultimately to contribute to the UN Sustainable Development Goals (SDGs).
In the broadest sense, sustainability principles and practices enable organizations to assess their impacts on environmental, social,
and governance matters while also considering their financial returns. More specifically, the 17 UN SDGs comprise 169 targets and
231 indicators. Realizing the SDGs by 2030 will require an estimated $5 trillion to $7 trillion a year of new investment.¹ GTB, as the
business responsible for moving these flows, has a critical role to play in achieving these goals.
Organizations’ internal sustainability frameworks and the UN SDGs complement each other by supporting businesses, governments,
and civil society in their efforts to operate in ways that are genuinely sustainable in the impacts they have on the environment, society,
and people. There are also important differences between these two components of sustainability governance. On the one hand, the
sustainability frameworks of businesses focus on processes and are designed to report at a micro (firm) level, but they lack globally
agreed-upon definitions and standards. On the other hand, the SDGs comprise both a specific set of time-bound goals and a globally
accepted framework for reporting at a macro level (globally, regionally, or domestically).
At the intersection of companies’ sustainability frameworks and the UN SDGs stands the Greenhouse Gas Protocol (GHGP), which
addresses the environmental component of sustainability, including UN SDG 13, which targets climate action. The GHGP, formed
through a partnership between the World Resources Institute and the World Business Council for Sustainable Development,
encompasses three scopes: the direct emissions from sources the company owns or controls (scope 1), indirect emissions from the
1
Sustainability in export finance, ICC Global Export Finance Committee Sustainability Working Group, September 2021, iccwbo.org.

generation of purchased energy (scope 2), and all other indirect emissions occurring as a consequence of the company’s activities but
produced from sources not owned or controlled by the company (scope 3).² GTB can contribute to improved performance in all three
scopes, but it is in scope 3 where it has the potential to bring the greatest impact, particularly as it addresses 15 different upstream
and downstream emissions, which can be monitored with the help of transaction data collected from across the supply chain.
Each link in the supply chain, from the underlying asset or good to transportation and the final use of funds or goods, affects the
sustainability rating of a trade finance or cash management product (exhibit). For both product lines, the underlying asset—say, a wind
farm, solar panels, electric vehicles, goods made from recycled materials, or an agricultural good produced with sustainable farming
methods—is typically the main source of impact on external parties and, consequently, the most important factor in defining the value
of the product as contributing to a company’s sustainability.
Note that while the GHGP categorizes greenhouse gas emissions associated with a company’s corporate carbon footprint (CCF) into
scopes 1, 2, and 3, this categorization does not apply to the product carbon footprint (PCF). The PCF describes the total amount of
greenhouse gas emissions generated by a product or a service over the different stages of its life cycle and is calculated according to
various standards, such as ISO 14067 and PAS 2050. A sustainable GTB offering should take into consideration both corporate and
product impacts.
Exhibit
Sustainable trade finance and cash management products are defined by the
Sustainablegoods
underlying tradeand
finance and cash management
the sustainability products
ratings of buyers and are defined by the
suppliers.
underlying goods and the sustainability ratings of buyers and suppliers.
How GTB cash and trade products support companies

Contribution to UN Sustainable
Sustainability impact on ESG metrics Development Goals
• Environmental (eg, carbon footprint per GHGP,¹ water quality) • 17 goals
• Social (eg, community relations, customer satisfaction) • 169 targets
• Governance (eg, internal controls, regulatory policies) • 231 indicators
Main contributor
Underlying sustainable good to sustainability
Production Transportation
GTB cash and

trade products
Supplier’s sustainability rating Buyer’s sustainability rating
Payment and/or financing

Financial intermediary
1
Measured according to Greenhouse Gas Protocol accounting standards.
2
Examples of scope 3 emissions include those resulting from “extraction and production of purchased materials; transportation of purchased fuels; and use of sold
products and services.” See The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, revised edition, World Business Council for Sustainable
Development / World Resources Institute, March 2004.

Basic sustainable products a clear contribution to the environment. This
The basic products of trade finance and cash solution focuses on five main sectors: renewable
management should incorporate sustainability energy, clean transportation, waste management,
features such as a basic rating methodology for sustainable water, and hydrogen. Another bank
qualified transactions: offers a sustainable deposit, which is dedicated to
financing sustainable assets located in developing
— Documentary trade finance. For sustainable countries and is aligned with the UN SDGs. This
buyers or sustainability-linked transactions, offering—priced in US dollars, British pounds, and
banks could offer documentary trade finance, euros—is broader in scope than “green deposits,”
including letters of credit or guarantees, at available for several years, which focus on financing
better pricing and improved access. As an renewable-energy projects.
illustration, a letter of credit for the delivery
of solar panels would qualify as a sustainable Supply chain ecosystems
transaction, offered at a preferred rate to the A fully fledged sustainable supply chain ecosystem
buyer—and transferable as a sustainable trade should enable suppliers and buyers to interact
asset. seamlessly, provide a robust sustainability rating
methodology, and offer preferable rates to
— Cards. On commercial cards, banks could offer organizations that meet sustainability thresholds.
favorable terms for purchase of sustainable The key strategic distinction of this wave is the use
goods or a mechanism to compensate for high- of advanced analytics to assess and manage ESG
emission expenses such as travel. In addition, risk across the entire base of suppliers and buyers.
this category could include other products For example, banks can help corporates assess
such as acquiring and point-of-sale (POS) the amount and types of GHG emissions that each
products with features such as rounding up each supplier adds to total supply chain emissions and
transaction to divert the surplus to sustainability set policies for minimum standards and bidder
projects or lowering POS or e-commerce fees exclusion criteria. The ratings capability (typically
for purchases of sustainable goods or purchases provided by a third party focused on sustainability
from merchants with higher sustainability scores. assessment) is integrated within a technology
platform that is usually supported by a trade fintech
— Account-related liquidity. Banks could invest company.
deposits in sustainable assets.
Products in this wave include buyer-led and
— Payments and liquidity management. In supplier-side trade finance:
payments, banks could offer favorable terms
on transactions for sustainable underlying — Buyer-led trade finance. With buyer-led trade
assets and with counterparties scoring finance, such as reverse factoring, the bank
high on sustainability. In the area of liquidity could pay sustainable clients’ suppliers before
management, banks could enable virtual maturity at a more favorable financing rate than
accounts, which can be segregated from the in traditional reverse factoring. Or the bank could
account structure, to separate balances and offer dynamic discounting, in which the buyer
transactions related exclusively to sustainable pays suppliers before maturity in exchange
activities. Within collections, banks could for a discount on the payable amount, with the
offer favorable terms on digital collections discount rate decreasing as the supplier or
and sell CO2 emissions credits to offset the underlying asset becomes more sustainable.
environmental impact of cash and check
transactions. — Supplier-side trade finance. Approaches to
supplier-side trade finance could include invoice
Some banks are already offering sustainable factoring where the invoice is discounted at
products. Examples from one bank include a favorable rate for the supplier according to
green guarantees and standby letters of credit, underlying sustainable assets or the involved
which guarantee an underlying project with companies’ ratings.

For example, a global bank has developed a Significantly, banks have the potential to
sustainable SCF platform, one of the main partners provide comprehensive and holistic advisory on
of which is a third-party sustainability ratings sustainability performance metrics by leveraging
agency, affording participants greater transparency their extensive data sets. As an example, a bank
and objectivity than typically available with internal might advise a corporate on reducing emissions
key performance indicators (KPIs). The platform along its supply chain or provide support in
also provides quantifiable, external evidence establishing baseline emissions of the company’s
of participants’ ESG status in various areas, suppliers or projects. It might also consult on using
including the environment, human rights, labor, aids for sustainability that are available to the
and sustainable procurement. The digital platform, public at no charge, such as sustainable metrics
developed in partnership with a fintech organization, in procurement selection, and on benchmarking
includes market-tested capabilities for capturing, with other banks or companies to raise targets and
accessing, and onboarding suppliers. Fast improve monitoring. In addition, banks can work with
integration of new suppliers reinforces supply chain suppliers to reduce emissions linked to materials
resilience, which—along with enhanced visibility and and processes. Further, they might prioritize
communication on invoices—increases the value of personal engagement with small and medium-size
the platform to all participants. enterprises (SMEs) to expand the reach of their
advisory business, as smaller firms are typically
Another example is the launch of a sustainability- underserved by rating agencies, which, due to their
linked reverse-factoring or SCF program in Asia– limited sales networks, tend to focus on large firms.
Pacific to help corporate clients and their suppliers
achieve their sustainability objectives and improve Banks can also support certification on emissions
supply chain resilience, as well as manage working by standardizing the process for obtaining broadly
capital needs. The program includes criteria for recognized assessments of each supply chain
periodic evaluation of suppliers’ performance participant’s performance on environmental
in meeting ESG standards. ESG scorings are sustainability measures. This service would include
conducted by the corporate buyer’s independent the identification of environmental-sustainability
assessor. Qualifying suppliers can access supply KPIs, customized by industry and subsector, and
chain financing at preferential rates tied to their the selection of thresholds for varying levels
sustainability score. of compliance with GHG emissions standards.
Leveraging their unique access to data along the
Advisory and certification services value chain, banks can establish automated tracking
Advisory and certification services can support systems to evaluate suppliers’ performance on
companies in their ongoing efforts to reduce select KPIs.
GHG emissions along their value chain. These
value-enhancing services, which are adjacent Based on our examination of 12 banks, we have
to sustainable GTB products and platforms, observed that sustainable GTB offerings vary
extend beyond the traditional core competency according to bank size and markets served. For
of transaction banking. By consulting on various instance, global banks offer the broadest range
marketwide standards and assisting clients in of sustainability-linked trade finance and cash
achieving ESG certifications and improving their management products, including advanced
ratings, banks can reinforce the trusted advisory digital platforms through which corporates and
role that any GTB institution claims to pursue qualified suppliers may access SCF at preferential
and can gain a distinct competitive advantage. rates (Exhibit 2). However, few of these platforms
Banks may also consider providing an ecosystem operate at scale. The sustainability offering of
of nonfinancial sustainable offerings, including banks operating in two or more global regions
mobility- and energy-related products. (multiregional banks) is typically limited to the

Exhibit 2
Sustainable GTB value propositions typically differ by bank segment.
Sustainable GTB value propositions typically differ by bank segment.
Currently not Currently offered ADP¹ Partnership with SRA²
offered or limited
Global banks Multiregional banks Domestic banks

A B C D E F G H I J K L
Documentary
trade finance
Basic Cards³
sustainable
trade and
cash Account-related
products liquidity
Payments
and liquidity
management⁴
Sustainable Buyer-led
supply trade finance
chain
ecosystem Supplier-side
trade finance
Sustainable GTB advisory

and certification services
Note: Not exhaustive.

1
Advanced digital platform.
2
Sustainability rating agency.
3
Includes commercial credit card and other products.
4
Including cross-border and domestic transactions.
incorporation of basic sustainability features into present, however, sustainability advisory represents
trade finance products, with the majority also white space to be explored.
partnering with independent rating agencies to
score suppliers on the extent of their sustainable
practices. Few multiregional banks offer an Constraints to scale
advanced digital platform. Domestic banks With so many untapped opportunities, what
generally focus their sustainability program on is holding back banks? We see three types of
lending and currently do not offer GTB products constraints limiting their ability to scale sustainable
with sustainability features. GTB products:
Across banking segments, sustainable 1. lack of standards on several levels

advisory and certification services are limited
or nonexistent. Advanced digital platforms 2. limited capital available for ecosystem
provide an excellent environment for scaling development and operation
these adjacent services, which have the potential
to contribute significantly to GTB revenue. At 3. an economically challenging business model

Lack of standards on several levels Adoption of standards governing the design of
As discussed in a McKinsey report prepared APIs for trade finance systems has been limited,
last year in collaboration with the International however, and the proliferation of proprietary
Chamber of Commerce (ICC) and Fung Business models increases the fragmentation of the
Intelligence,10 diverse standards vital to creating global trade finance ecosystem. Banks continue
an efficient, transparent, and wholly interoperable to publish proprietary B2B APIs, just as fintechs
global system of trade finance are in varying design data models for interaction with their own
stages of conceptualization, development, and platforms.
implementation. Gaps in the development and
application of standards pose challenges on — Standards for shared utilities. As an example
several levels, from trade documentation to product of industry efforts to establish standards for
definitions, data models, application programming shared utilities, SWIFT announced last year
interfaces (APIs), and shared utilities: that its KYC Registry would be the first global
utility to integrate the ICC’s Sustainable Trade
— Standards for sustainable digital trade Finance Guidelines for customer due diligence,
documents. While numerous efforts have which cover key areas such as sustainability
attempted to make electronic documents legally commitments, capacity and track record, supply
acceptable and some countries have adopted chain practices, and commodities.12
the Model Law on Electronic Transferable
Records (MLETR), more effort is required to Limited capital for ecosystem development and
increase adoption by making the law more operation
broadly acceptable and introducing electronic The capital available for investment is limited, which
transferable records for sustainable trade. for banks and corporates alike poses a significant
challenge to the implementation of a sustainable
— Standard definitions of sustainable trade GTB offering. Further, a substantial investment is
finance products. There are disparate efforts required to build the data platforms critical for the
to establish a widely accepted trade finance advanced sustainability products and services of
product taxonomy, such as that published the second and third waves (that is, a GTB digital
by the Global Supply Chain Finance Forum.11 ecosystem and advisory and certification services).
However, the global trade finance community As fintech valuations have dropped significantly
still lacks common definitions of “supply chain this year, technology providers are facing new
sustainability” (broadly) and “sustainable trade constraints in accessing capital, which may hamper
finance products” (more narrowly). development of more robust platforms.
— Standards for uniform sustainable trade finance Additional investments are needed to establish and
data models. Sharing information among run partnerships with the various parties involved in
participants is at the center of a sustainable the trade finance ecosystem—for example, fintech
ecosystem. A data model might, for example, companies, ratings agencies, shipping and logistics
govern how a specific sustainable product companies, banks, and technology companies.
or company sustainability rating should be These arrangements can carry hidden costs that are
presented and which technical format should be often overlooked. Banks may also need to consider
used. the potential opportunity costs that come with
partnerships: the decision to enter a partnership
— Standards for sustainable trade finance APIs. instead of developing a capability in-house usually
Standard APIs would enable participants to closes the door on other opportunities. Furthermore,
connect and exchange data seamlessly with the cost to unwind a partnership can be significant,
multiple networks and service providers. should it not live up to expectations.
10 Alessio Botta, Adolfo Tunon, Reema Jain, Pamela Mar, and Andrew Wilson, Reconceiving the global trade finance ecosystem, McKinsey in
collaboration with the International Chamber of Commerce and Fung Business Intelligence, November 2021, McKinsey.com.
11 Standard definitions for techniques of supply chain finance, Global Supply Chain Finance Forum, 2016, iccwbo.org.
12 “SWIFT and ICC collaborate to drive sustainability in trade finance,” SWIFT, March 10, 2021, swift.com.

An economically challenging business model principles and goals within their business
The third major constraint is the economic challenge line strategy in alignment with the bank’s
of scaling an offering that relies largely on discounted broader sustainability strategy. This strategic
pricing for sustainable companies. What is more, the vision should also broadly identify the sectors
gap between trade finance supply and demand has expected to benefit the most from the bank’s
reached $1.7 trillion, with rejection rates for SMEs sustainable GTB offering.
running at 40 percent.13 Banks should consider how
much funding can be designated for sustainable The next step is to identify the priority products
finance products in order to meet clients’ needs and and criteria for sustainability ratings, bearing
realize trade finance’s potential contribution to the in mind that these constitute the core value
UN SDGs. added for clients from diverse industries and
segments. Leaders should start by stating
One way to address this constraint would be an clearly which elements of ESG the sustainable
asset-light model, where the bank creates a class of GTB offering will cover and then—in many cases,
sustainable trade finance assets for large investors. in partnership with an ESG-ratings company—
This originate-to-distribute model creates capacity develop metrics for assessing performance
for banks to issue further credit and offers investors to discrete objectives. These metrics can be
several advantages, typically including low default applied, on the one hand, to the evaluation of
rates, short-term durations, and self-liquidation.14 financial instruments or products to be offered
To succeed, this approach should be accompanied to clients and, on the other, to the establishment
by continual improvements in digitization and of sustainability ratings for SCF platform
standardization to offer investors more transparency. participants.
— Banks with basic sustainable GTB products

Next steps: How to build a sustainability should complete their offering by extending
value proposition beyond trade finance products to enhance
Banks differ in how far along they are in developing a traditional cash management products—for
sustainability value proposition for GTB. While several example, deposits, commercial cards, and
have incorporated sustainability elements in select acquiring—with sustainability features. These
cash management and trade finance offerings, many banks will also need to build partnerships, as
lack a clear sustainability strategy for the enterprise. sustainability is part of an ecosystem where
Others have launched solutions to match their different organizations fulfill distinct roles, such
competitors or in response to a client request, but as maintaining the technology platform, enabling
these initiatives are often launched without assessing sustainability-linked transactions, administering
the potential impact of offering the solution to other sustainability ratings, and managing data assets
clients. to ensure consistent execution and transparency.
Selecting partners can be an arduous journey,
Choose the appropriate sustainability strategy encompassing identification and evaluation
Across global markets, any GTB service provider must of potential partners and implementation and
consider the expectations of customers, investors, integration with the platform. Several cross-
regulators, and the public and think holistically about industry groups are developing services to
how to add value to corporate and SME relationships leverage transaction data to reduce carbon
with a sustainable GTB offering. Based on their emissions. Banks can partner with fintech
starting point, banks should consider the following or open-banking platforms to access open-
elements for implementing the sustainability strategy: banking data.
— Banks without any sustainable GTB offering — Banks with a leading offering should focus on
should start by embedding sustainability building value-added services in sustainability
13 “Global trade finance gap widened to $1.7 trillion in 2020,” Asian Development Bank, October 12, 2021, adb.org.
14 Reconceiving the global trade finance ecosystem, November 2021.

(such as advisory, certification, and analytics), and accelerate the adoption of the sustainability
which could help to differentiate a bank’s offering by engaging effectively with clients
sustainability offering. Advisory services could in target sectors, using automated monitoring
provide deep knowledge on regulations and and feedback loops to improve messaging. It
insight into the implications of sustainable will also be crucial to train sales specialists for
GTB and sustainability ratings across diverse sustainability-linked products, as well as educate
industries. Certification should provide colleagues about the bank’s overall position on
legitimacy and consistency in the increasingly ESG principles and what the new sustainable GTP
complex population of sustainability rating offering can do for clients (and for society)—all
agencies, and banks should be able to provide supported by a robust digital engagement and
KPIs and tracking mechanisms to monitor communication strategy. Internal communication
corporate clients and their suppliers and across the bank should be continuous, fast, and
Find more content like this on the customers. Finally, analytics should provide a consistent. Sharing success stories, including
McKinsey Insights App rigorous framework to guide clients’ and banks’ public recognition of clients who achieve new
decisions about how to maximize the impact levels of certification, also can strengthen
of the actions taken to reduce emissions. This engagement with both clients and colleagues.
capability could be developed in-house or in
partnership with specialized data analytics
providers.
Go to market and then accelerate Sustainability in GTB represents a significant

Scan • Download • Personalize Banks should define a go-to-market strategy for opportunity for banks not only to meet their
sustainable GTB, prioritizing sectors that have ESG objectives but also to expand revenue as
higher overall emissions and are more relevant they help customers meet their business and
to the institution’s business. Examples of priority ESG needs. Moreover, the transaction banking
sectors might include energy, retail and luxury, and business, through which different flows converge,
automotive and industrials. By targeting industries has the potential to deliver an outsize impact on
with higher scope 3 emissions, banks have greater the reduction of societies’ GHG emissions by
potential to deliver a significant improvement in serving as a channel to deliver tools for improving
the sustainability performance of corporate clients sustainable practices at client organizations
and their suppliers. in diverse industries around the globe. For all
these reasons, success at sustainable GTB is an
Once a bank has launched any offering, it is imperative; achieving it depends on implementing
important from the beginning for it to promote a comprehensive and coherent strategy.
Alessio Botta is a senior partner in McKinsey’s Milan office, where Nunzio Digiacomo is a partner. Joseba Eceiza is a partner
in the Madrid office, Helmut Heidegger is a senior partner in the Vienna office, Reema Jain is an associate partner in the
Gurgaon office, Francesco Mach di Palmstein is a consultant in the Rome office, and Markus Röhrig is a partner in the Munich
office.
The authors would like to acknowledge the contributions of John Crofoot, Prakhar Porwal, Adolfo Tunon, and Carmine Porcaro
to this article.

Central bank digital currencies:

An active role for commercial
banks
With central banks increasingly exploring central bank digital currencies
(CBDCs), now is the time for commercial banks to establish their role in a
fast-changing landscape.
by Olivier Denecker, Arnaud d’Estienne, Pierre-Matthieu Gompertz , and Elia Sasia
© Getty Images
October 2022
Roughly 90 percent of the world’s central banks Brazil, and 14 percent in the US—reported that
are pursuing central bank digital currency (CBDC) they held digital assets as part of their financial
projects.¹ Some, including those in the United States portfolios.⁴ Some see consumer use of digital
and South Africa, are at the exploratory phase; assets as a potential challenge to fiat currency
others are development projects (the European as a unit of measurement for transactions and
Union) and pilots (China). In some locations, value.
including Nigeria and the Bahamas, solutions are
already operable, and central banks are looking 3. Some central banks perceive erosion in their
to expand. Despite the high level of activity, most role as payments innovators—thought leaders
CBDC initiatives today remain in the nascent advancing next-generation models beyond
stages of market development and, in many cases, today’s cash and infrastructure. CBDCs offer the
even technical design. However, alongside the potential to improve on legacy cash use cases,
conceptually similar but quite distinct digital coins such as by reducing cross-border transaction
being issued by private entities, this form of digitally costs and enhancing financial inclusion. By
issued public money stands at the forefront of spearheading the design process and clarifying
central bank innovation in the monetary space. use cases, central banks can ensure that these
strategic conversations take place in a public
In particular, four trends have likely spurred central forum.
bankers’ interest in CBDCs:
4. Many central banks are looking to establish
1. Cash usage has rapidly declined—by roughly greater local governance over increasingly
one-third in Europe between 2014 and 2021, global payment systems. As the appointed
dropping to as low as 3 percent (in Norway) guardians of systemic stability, central banks
of overall payment transactions. This trend see potential benefits of establishing a CBDC as
threatens to marginalize the sole source of the anchor of local digital payment systems.
central bank or public money in many economies,
requiring central banks to reassess their role in While most CBDC initiatives are nascent,
the monetary system. commercial bank leaders would be well advised
to engage central banks in order to learn more
2. Growing interest in privately issued digital about these digital initiatives and help shape
assets signals potential competition with future models. Along with summarizing the
central banks in their role as the sole provider various models under consideration, this paper
of monetary value in sovereign economies. outlines the risks, opportunities, and potential
Various recent sources show a meaningful share paths forward for various stakeholders.
of consumers worldwide actively involved in
trading, transacting, or holding digital assets,
with particularly high rates in emerging markets. A central bank solution with many
For example, 10 percent of UK adults reported permutations
holding, or having held, a crypto asset.² The CBDCs differ fundamentally from other forms of
European Central Bank (ECB) has indicated digital coins in that they are directly backed by
that as many as 10 percent of households in six central bank deposits or a government pledge.
large EU countries owned digital assets.³ And Therefore, they offer stable value and can aim to
roughly one-fifth of respondents to a McKinsey combine benefits in the areas of trust, regulatory
survey—22 percent in India, 20 percent in stability, and audit transparency.⁵
1
Anneke Kosse and Ilaria Mattei, Gaining momentum–Results of the 2021 BIS survey on central bank digital currencies, Bank of International
Settlements (BIS) Papers, number 125, May 2022, bis.org.
2
Alice Fearn and Charlotte Saunders, Individuals holding cryptoassets: Uptake and understanding, HM Revenue & Customs, UK government,
February 2022, GOV.UK.
3
Lieven Hermans et al., “Decrypting financial stability risks in crypto-asset markets,” European Central Bank, May 2022, ecb.europa.edu.
4
McKinsey Survey in United States (July 2022), India (March 2022), and Brazil (June 2022).
5
For more on how the US Federal Reserve currently views the issues surrounding CBDCs, see Money and payments: The U.S. dollar in the age of
digital transformation, Federal Reserve, January 2022, federalreserve.gov.
34 Central bank digital currencies: An active role for commercial banks

CBDCs can be deployed under a variety of with smart contracts,⁶ such as the Bank of Israel’s
technology models, depending on a central bank’s initiative, aim to improve payments convenience.
desired objectives and use cases. CBDCs do not Examples include payment of sales tax directly
necessarily rely on decentralized technologies, as to tax authorities at point of sale and automated
they can be administered by central bank agents as distribution of social benefits for economic relief
well as distributed via digital-ledger technologies. conditioned on the recipients meeting defined
They can be held on physical devices such as cards requirements.
or phone wallets or exist as a purely digital book
entry. They can be issued as stand-alone tokens
(stored at any of multiple carriers) or as account- A growing central bank imperative
based assets held directly at the central bank. Although central banks quote numerous reasons
to pursue CBDC projects, surprisingly few such
A fundamental decision for central banks is projects appear to be driven by specific customer
whether to issue a retail or wholesale CBDC. use cases or needs. Notably, the case for CBDCs to
Each has its own set of objectives, use cases, date has been focused more on policy and systemic
and end users. Wholesale CBDCs mostly target objectives than by specific customer requirements
financial institutions (banks and nonbanks) and or benefits. CBDCs could enable central banks
large corporate treasury centers as their primary to address a wide range of systemic objectives—
users, and they aim to improve the efficiency ensuring financial inclusion, reducing fraud
of settlements—both payments and securities, and money laundering, guaranteeing sovereign
domestic and cross-border. This may or may not alternatives for digital payments, stimulating local
involve providing nonbanks with direct access to payments innovation, and creating a new vehicle for
central-bank accounts. monetary policy. The objectives central banks have
identified in their pursuit of CBDCs at this stage
Cross-border settlements may be a particularly typically fall into one or more of five categories.
compelling use case for wholesale CBDCs, given the
high cost and slow execution of current processes Developing ‘cash 2.0’
and the opportunity to reduce counterparty risk by Central banks are under pressure to deliver a next-
enabling connected and instant settlement between generation payments vehicle providing several of
parties. For example, Project Aber, launched by the features that users value about cash: ubiquity,
the central banks of Saudi Arabia and United Arab universal acceptance, and anonymity. Also, in both
Emirates, tested the use of a jointly issued digital emerging markets and developed economies,
currency as an instrument for domestic and cross- reduced cash usage and rising digitization of
border settlement between the two countries. financial services have heightened financial
For wholesale CBDCs, the use of new and often inclusion challenges.
“distributed” technologies is frequently central to
the exercise, a potential means to expand access to CBDCs could equip central banks to play a direct
public money. role in facilitating financial services access for
the unbanked who are reluctant to connect to
Retail CBDCs target consumers and local commercial banks or in some cases may be
businesses as end users, with possible use cases overlooked because they lack sufficient revenue
including disbursement of social benefits, an potential. CBDCs could also enable accounts to
alternative to cash for e-commerce point-of-service be held directly on the central bank ledger, with
and bill payments, and enabling of seamless peer- account holders accessing and transacting with
to-peer transactions for banked and unbanked their balances through digital wallet applications
users. In more complex initiatives, CBDCs combined linked to the central-bank account through APIs.
6
Contracts that can be self-executing and self-enforcing, without the need for intermediaries.
Central bank digital currencies: An active role for commercial banks 35

Securing the monetary anchor Jamaican CBDC models (see sidebar, “Country
The reduction of cash and the advent of alternative case studies”) offer a template for how this could
payment currencies have threatened the role be accomplished.
of public money (as opposed to commercial
bank money) as the fundamental unit of value
measurement. An increasing share of commerce Potential for radical redesign
is poised to be conducted through alternative Ultimately, the success of CBDC launches will
payment means that lie outside the bounds of be measured by user adoption, which in turn
regulatory control. CBDCs could help preserve will be tied to the digital coins’ acceptance as
the role of public fiat in monetary policy, securing a payment method with a value proposition
central banks’ role in protecting financial stability on that improves on existing alternatives. If such
their markets.⁷ benefits remain unproven, CBDC efforts may fall
short of adoption targets. In this scenario, the
Preserving central banks’ role in orchestrating ramifications for traditional banking and payments
payments services innovation players will be limited. However, should initiatives
With the growth of nonbank players in payments, progress beyond the pilot stage, central banks
central banks face potential erosion of their and governments are likely to deploy all tools at
oversight role in important areas such as data their disposal to foster success, given the critical
management, settlement systems, and customer policy objectives just outlined, as well as potential
rights—areas they have historically supervised affect on central bank credibility. To be successful,
through traditional licensed banks. Central banks CBDCs will need to gain substantial usage,
have also struggled to achieve efficiencies in areas partially displacing other instruments of payment
such as cross-border payments. and value storage.
A CBDC alternative would allow more direct control The successful launch of a CBDC involving direct
and influence over enforcement of minimal market consumer and business accounts could displace
standards. Privacy issues would need to be carefully a material share of deposits currently held in
managed, however, given the (real or perceived) commercial bank accounts and could create a new
access to detailed transaction data afforded to competitive front for payment solution providers.
government entities through a CBDC. Bankers are already facing the need to strengthen
their client relationships beyond the traditional
Keeping pace with international currency deposit model; CBDCs could exacerbate this
advances challenge.
To ensure the preeminence of their currency zone—a
core central bank objective—central banks must Commercial banks will likely play a key role in
keep pace with their international currency peers. large-scale CBDC rollouts, given their capabilities
Most also aim to maintain at least one scalable and knowledge of customer needs and habits.
solution for economic value exchange beyond the Commercial banks have the deepest capabilities
control of other countries or central banks. CBDCs in client onboarding (including know your
are one of the potential policy vehicles in this cross- customer) and the execution and recording of
border competition. transactions, so it seems likely that the success
of a CBDC model will depend on a public–private
Stimulating financial inclusion partnership (PPP) between commercial and
CBDCs can play a key role in providing access to central banks, or at minimum a less formal
digital payments without the requirement of a bank collaborative model that promotes a digitized
account. Access would be facilitated by a central monetary environment across the banking and
bank–issued digital wallet. The Nigerian and payment value chain.
7
See Markus Brunnermeier and Jean-Pierre Landau, The digital euro: Policy implications and perspectives, European Parliament, January
2022; europarl.europa.eu; and Gaining momentum, May 6, 2022.

Country case studies
Some countries’ central banks have already tested CBDC concepts. The experiences of Nigeria, China, and Jamaica suggest lessons that may
apply in other parts of the world.
Nigeria’s eNaira
Nigeria became the first African country to introduce a digital currency with the October 2021 launch of retail CBDC eNaira. Its intended bene-
fits include faster and more equitable distribution of cash assistance to households and communities participating in social welfare programs,
lower transaction costs and faster settlement, efficient cross-border transaction capabilities, and traceability and security to limit fraud.
The eNaira app garnered almost 800,000 downloads in the first seven months following its launch. According to some reports, half of those
downloads have not been activated. Merchant adoption of digital currency has been similarly limited, with fewer than 100 active retailers
accepting eNaira payments as of May 2022—a small number, given Nigeria’s status as Africa’s largest economy.
The low initial uptake of eNaira has been attributed to limited knowledge of the CBDC and how it functions, fear of exposure to security
breaches, and poor internet access in some regions. In response to these challenges, the Nigerian government recently announced that
eNaira will be made available on feature phones via Unstructured Supplementary Service Data (USSD), which will expand the potential market
by 100 million citizens on top of the current 25 million to 40 million smartphone holders.¹ The government also recently sponsored a hackathon
to promote visibility and identify key feature and technology improvements.
China’s digital yuan

The People’s Bank of China, China’s central bank, in 2019 began a large-scale pilot of its E-CNY, spanning 15 cities. As of May 2022, 4.5 million
merchant wallets and 260 million transactions worth over 83 billion renminbi have been performed through the E-CNY pilot, focused on trans-
portation, government services, shopping, and other consumer-lifestyle use cases.
Considering China’s relatively high penetration of electronic consumer payments, a fully implemented E-CNY could address the last mile in
transitioning China to a fully electronic and real-time payment system. Internationally, E-CNY could provide an alternative for global trade
settlement, which remains highly reliant on US dollars and the SWIFT network.
E-CNY employs a hybrid design model, which is account based on the wholesale layer and token based at the retail level. According to
published documents, state-owned banks, commercial banks, and payments networks will all play operating roles, with both individual and
merchant wallets being created and maintained by commercial banks.
Although the pilot has encompassed significantly more volume than any other country’s CBDC initiative, it remains a small fraction of China’s
overall payments activity. An official time for a formal E-CNY launch has yet to be announced; a high-profile pilot expansion to the 2022 Beijing
Summer Olympics was muted by the exclusion of spectators.
Meanwhile, pilot testing is being extended to cross-border payments. For instance, pilot testing of cross-border payments between Mainland
China and Hong Kong—which has a separate legal and banking environment and infrastructure—is under way. The pilot involves 200 employ-
ees and selected merchant clients of the Bank of China (Hong Kong), a subsidiary of the state-owned Bank of China and Hong Kong’s sec-
ond-largest commercial bank.
Jamaica’s Jam-Dex
Jam-Dex, which launched in June 2022 and is the first CBDC to be formally ratified as legal tender, is a relatively simple retail offering with
“streamlined” KYC requirements and, in its initial iteration, no advanced use cases such as cross-border payments or smart contracts. Although
Jam-Dex leverages distributed technology, it is not blockchain based, setting it apart from the Bahamas’ Sand Dollar and the Eastern Caribbe-
an Central Bank’s DCash.
The Jamaican Central Bank is pursuing an indirect model, collaborating with the private sector for interfaces and issuance of digital wallets
while directly managing the back end, infrastructure, and ledger. The goal is to offer a digital alternative to cash that is seamless, secure, and
simple to use. Early Jam-Dex use cases emphasize peer-to-peer payments and payments to small and micro-businesses, including those
without traditional bank accounts, enhancing financial inclusion.
1
Steve Kaaru, “Nigeria’s eNaira now available via USSD to boost adoption and financial inclusion,” CoinGeek, June 19, 2022, coingeek.com.

However, depending on a central bank’s design and future payments landscape and realistic
choices—and there is a multitude of options to adoption goals.
consider—a successful CBDC introduction could
prove highly disruptive to the traditional banking 2. Which constituency(ies) does the CBDC aim
sector and could simultaneously spur a new wave of to address? The first step in achieving CBDC
financial services innovation. policy goals is determining scope. A focus on
any combination of user segments—private
Estimates vary widely on the potential reduction citizens (consumers), commercial banks, and
in commercial bank revenues stemming from a corporations—can be effective. Design choices
successful retail CBDC launch, but the combined should be based on the business cases and
affect on interest (through deposit substitution) features most valued by users. Decisions should
and transaction fees (erosion of payments volumes) draw upon extensive expertise building fintech
could quickly reach billions of euros. A more assets, often from outside of traditional central
moderate degree of market uptake and CBDCs bank organizations.
targeted to specific use cases—wholesale, cross-
border or financial inclusion—would, of course, have 3. What role will the central bank play?
a smaller impact. Participation could be deep or light, and the
adoption goal may be best accomplished by
Nonfinancial actors also will feel the impact. establishing PPPs that leverage long-standing
Merchants and consumers embracing CBDCs relationships with commercial banks and key
may be enticed by fully digital payment processes corporate entities.
featuring lower transaction fees and faster
settlement. Corporates and governments could 4. What resources and capabilities will be
benefit from CBDCs through faster and cheaper required? Central banks are likely to need
transfer of capital (including government subsidies) new decision-making processes. Request-
and enhanced risk control. for-proposal (RFP) processes can be valuable
exercises to assess technology options. In
While it is possible that governments could mandate addition, central banks should develop
CBDC acceptance by all payees through a legal- enhanced change management practices and
tender process and perhaps require their use given acquire new talent experienced in developing
certain transaction criteria, a mandate in itself partnerships.
is not sufficient to ensure widespread adoption.
Therefore, promoting some form of demonstrable 5. What changes will central banks need to enforce
benefits for participants, banks, payment players, beyond payments? Regulatory changes would
and nonfinancial actors will be necessary. Creation be required to achieve several of the previously
of this business case for the economy as a whole will stated objectives. Hurdles in regulation,
remain a key point of reflection for CBDC projects. commerce enablement, and fiscal rights will
need to be cleared. Goals like financial inclusion,
Central banks as CBDC architects to cite one example, could be advanced by
Each of the multiple CBDC design options is suited reducing minimum balance thresholds, made
to a different set of strategic objectives. As central possible by lower costs, as well as simplifying
banks set their priorities and determine how best to (without weakening) KYC checks through digital
achieve them, we believe they should consider five ID solutions.
questions:
By adopting an agile approach, central banks can
1. What is the end game in terms of adoption and deploy a CBDC within three years, compared with
ubiquity compared with traditional money? five years or more using a traditional waterfall
Business cases and scenarios should be development model (Exhibit 1). Although adoption
based on a market assessment of the current and realization of scale will likely prove to be longer-

Exhibit 1
CBDC deployment can be achieved in three years by applying an agile approach.
CBDC deployment can be achieved in three years by applying an agile
approach.
Step
Exploration Design and testing Implementation Scale-up
Explore and research Determine CBDC Perform iterative Monitor market adoption
need for and feasibility functions, features, small-scale launches; and implicit preferences;
of launching a central and underlying limit MVPs to selected clarify needs, iterate
bank digital currency technologies; draft areas/use cases solution, and implement
(CBDC) CBDC rules feedback
Duration 6 months–1 year 1 year 1–2 years N/A
Participants Central banks, commercial banks, end users,¹ corporations
1
Eg, merchants and consumers depending on wholesale or retail deployment.
Source: CBDC case studies; World Economic Forum
term efforts, lessons from early launches and a We offer a few key questions that should
set of best practices (Exhibit 2) can help foster be helpful for commercial banks in framing
early market acceptance. productive conversations about adapting to
CBDC models.
A key role for commercial banks
Public–private partnerships will be essential to — What benefits and objectives is a central
the success of a CBDC launch, enabling central bank pursuing with its rollout, and what
banks to leverage established infrastructure are the implications for bank and nonbank
and client relationships. Such alliances will help competitors in the region? Launches
central banks implement use cases aligned with prioritizing efficiency gains, for instance, may
end-user needs, complementing their gaps in alter the competitive battleground, giving
capabilities and knowledge of consumption commercial banks a platform to compete with
habits, particularly in a retail scenario. By fintechs’ cross-border transfer solutions, or
engaging commercial banks and other private the other way around.
stakeholders (technology enablers, merchants,
users) in the launch process, central banks — What role do commercial banks seek to play
will also foster a broader sense of ownership, in the new ecosystem, consistent with their
manage fears of displacement, and increase the overall strategy, digital capabilities, and
probability of successful adoption. available capital? Engagement models may
include “first movers” who co-create an
Different countries will likely pursue CBDC emerging CBDC ecosystem and “selective
models aligned with their specific goals, adopters” who incrementally adjust existing
capabilities, and stakeholders. The resulting capabilities to accommodate CBDCs. Players
multi-model environment will require global must identify the primary risks and benefits
banks to clearly state their CBDC strategy—both associated with this position, assess their
globally and locally—and engage with central likelihood and impact, and determine
banks in other countries. potential mitigation levers.

Exhibit 2
Central
Centralbanks
banksthat
thatapply eight
apply best
eight practices
best can improve
practices the chances
can improve of CBDC
the chances of adoption.
CBDC adoption.
1 2 3 4
Prioritize 1–2 use cases Maximize simplicity of Build a strong footprint in Focus on niche segments;
with an improved user onboarding and usage local markets, leveraging pursue a phased rollout,
experience and greater for consumers and ease brand awareness and starting with use cases that
customer value than of integration for loyalty offer high volume and
existing alternatives merchants address acute pain points
5 6 7 8
Create incentives for Build trust from the Seek partnerships to Leverage existing
businesses and consumers beginning by delivering on accelerate scale-up while payment infrastructure to
to adopt digital currency promises; better to maintaining a central accelerate time to market
succeed at something relationship with key
simple than half-deliver on customers
something complex
— Can commercial banks identify possible stakeholder groups, develop deep technical
alternative digital-asset strategies to address know-how (design options, technological
central bank–driven market evolution? The requirements, and so on), and establish robust
benefits of different approaches should be implementation and monitoring capabilities.
modeled for both the bank and its clients, and
the implications shared early on with the relevant 2. A clear or substantiated market value
supervisory bodies. The capabilities required proposition has yet to be documented. Some
to implement such strategies must also be consider CBDC benefits to be limited relative
assessed, recognizing that multiple forms of to already-established private solutions.
digital coins may well coexist for some period, if CBDCs, which are non-interest-bearing in
not permanently. most models, rarely offer advanced features
like smart contracts.
What next? A CBDC reality check 3. Trust remains a hurdle for a meaningful
Most CBDC launches remain too new to assess fully, share of citizens and system participants,
but as demonstrated in the sidebar, early adoption who question the motives behind CBDCs
has been mostly tepid. What is holding back central (often suspecting governments of aiming to
banks from achieving their goals more rapidly? Early monitor or restrict financial activities) or fear
experience reveals four primary hurdles for effective cybersecurity risks.
rollouts:
4. Technical challenges are evidenced by service
1. Many central banks have struggled to manage interruptions suffered by some existing
CBDC projects across an array of development solutions, as well as the digital divide that
stages, from research to full rollout, as they exists in rural areas and faces certain small
need to foster alignment across multiple businesses.

payments landscape, whether via payment
system cannibalization, flight of commercial bank
deposits to a “risk free” CBDC alternative during
times of financial uncertainty, or exceptional
With most central banks either in a pilot pressure on prices and costs of existing payment
phase or in the process of developing a systems. Unless properly planned for across the
CBDC, progress is poised to continue over the ecosystem, a widely adopted CBDC could fuel
coming year. Although we have yet to see a significant disruption of legacy financial services
fully successful rollout, the policy objectives economics and customer relationships. Banks
underpinning many of these pilots is likely to and payments players will of course still need
ensure significant pressure for adoption. Given to determine a positive CBDC business case in
the ongoing decline in cash usage, broad- order to gain internal support and endorsement.
based interest in digital assets, and persistent
concerns about sovereignty and monetary A successful CBDC launch is likely to require
stability, central banks appear highly motivated cooperation between central and commercial
to continue exploring the potential of CBDCs. banks, in an effort to develop a more inclusive
and efficient monetary system with a sustainable
Nonetheless, CBDC launches involve some business case. For either party, a go-it-alone
meaningful risks for the existing banking and course of action is far less likely to succeed.
Olivier Denecker is a partner in McKinsey’s Brussels office, Arnaud d’Estienne is a consultant in the Paris office, Pierre-
Matthieu Gompertz is an associate partner in the Amsterdam office, and Elia Sasia is a partner in the Milan office.
The authors wish to thank Dick Fong, Beatrice Martin, Marc Niederkorn, Glen Sarvady, and Tola Sunmonu-Balogun for their
contributions to this chapter.

Sustaining digital payments

growth: Winning models in
emerging markets
Digital payment transactions are skyrocketing in emerging markets as
innovations proliferate. Banks, fintechs, and telecom companies must
quickly develop their strategy to compete for market share.
by Reet Chaudhuri, Carolyne Gathinji, Gustavo Tayar, and Evan Williams
© Getty Images
October 2022
Digital payment transactions have grown rapidly next few years, with projected CAGRs of 15 percent
in emerging markets during the past two years, as between 2021 and 2026.
the pandemic accelerated shifts to contactless
payments and e-commerce.¹ E-wallets proliferated, Four major trends have driven the growth in digital
real-time account-to-account transfers took off, payments. First, the pandemic accelerated the
and industry players formed new partnerships to shift from cash to contactless digital payments that
access capabilities and broaden their customer was already under way among consumers. Second,
base. Some of the fastest growth in digital payments e-commerce continued to grow and evolve, with
occurred in Africa and Southeast Asia, where low global volumes increasing by 25 percent between
banking penetration gives payments providers 2019 and 2020 and expected to grow by 12 to 15
opportunities to capture untapped potential and percent a year to 2025.² Third, government pushes for
reach underserved populations. cashless payments to facilitate interoperability, plug
tax leakages, and ensure the effective distribution of
Along with new opportunities, banks, telecom aid accelerated the take-up of new digital payment
companies, and fintechs have experienced systems such as Wave in Côte d’Ivoire, UPI in India,
intensified competition. Banks maintain a leading and Pix in Brazil. Finally, investors’ appetite for
position in payments in most countries, but digital payments grew, leading to a proliferation of
nonbanks own the dominant front-end payment payments-focused fintechs. In Africa, for instance,
application in some emerging markets, including these firms accounted for about 40 percent of the
India, Kenya, the Philippines, and Vietnam. $5.2 billion in tech start-up capital in 2021.³
This article addresses the remarkable opportunities Despite this explosion in digital retail payments, cash
and competitive pressures of the fast-growing remains king in some markets. In Africa, it was used
emerging markets. We explore which digital in 95 percent of transactions in 2021, according to
payments models are best placed to gain McKinsey’s Global Payments Map. Cash is distributed
momentum in these markets, which monetization via extensive networks of retail agents: for instance.
paths payments providers are likely to pursue, and M-Pesa has more than 600,000 agents across seven
what innovations may lie on the horizon. African countries,⁴ and MTN has more than 970,000
across the continent.⁵ These agents help less
digitally savvy customers make bill payments, buy
Digital payments continue to increase airtime, access cash from their wallets, and conduct
Globally, between 2018 and 2021, the number other transactions. Cash is still the top in-person
of noncash retail payment transactions have point-of-sale (POS) payment method in Southeast
increased at a compound annual growth rate of 13 Asian markets, including Thailand (where it accounts
percent; while in emerging markets, that figure is for 63 percent of POS transaction value), Vietnam (54
25 percent. Some of the fastest growth occurred in percent), Indonesia (51 percent), and the Philippines
emerging markets in Africa (Morocco, Nigeria, and (48 percent).⁶ In Latin America, where credit and
South Africa) and Asia. Strong growth is expected debit cards are more established, cash accounts for
to continue in some emerging markets over the 36 percent of POS transaction value.⁷
1
“Digital payments” include e-wallet transactions, instant bank transfers, digital bill payments, online card payments, and other forms of
noncash payments made by and to businesses, individuals, and governments. “Emerging markets” refers to markets in emerging Asian
countries, Africa, and Latin America.
2
McKinsey analysis based on data from Euromonitor and company filings; 25 percent growth rate derived by comparing the six months ending
October 31, 2019, with the six months ending October 31, 2020.
3
Startup Deals Database, Africa: The Big Deal, August 24, 2022.
4
Kevin Namunwa, “51 million customers, 600K agents and more; M-Pesa celebrates 15 years,” CIO Africa, March 7, 2022.
5
MTN Group annual report, December 31, 2021.
6
The global payments report, Worldpay, 2022.
7
Ibid.
43 Sustaining digital payments growth: Winning models in emerging markets

The emerging markets where banks are the
strongest, such as Brazil and Nigeria, tend
to have a solid payments infrastructure and
a captive customer base stemming from his-
torical first-mover advantage or regulatory
restrictions on alternative rails.
Banks and third-party wallets compete In some markets with well-established banking
for share infrastructure, governments have intervened to set
In most emerging markets, the main contest for up unified payment systems that offer instant bank
providing digital payments is between banks, with transfers free or for a small charge. In the two years
their mobile banking apps and wallets, and third- since its launch, Brazil’s Pix has reached 122 million
party mobile wallets owned by telecom companies, customers (equivalent to more than half of the
e-commerce platforms, and other ecosystem population), more than 775 registered participants
participants. Which side comes out ahead is likely (including banks, government agencies, and other
to vary by country and depends to a large extent on institutions), and some two billion transactions a
market structure (Exhibit 1). month.⁸ In India, UPI has attracted more than 300
registered banks, close to 260 million users, and
Markets where banks lead almost six billion transactions a month.9
The emerging markets where banks are the
strongest, such as Brazil and Nigeria, tend to have Banks in emerging markets may also want to take
a solid payments infrastructure and a captive note of the strategies followed by their counterparts
customer base stemming from historical first- in developed markets such as Singapore and Hong
mover advantage or regulatory restrictions on Kong. Some banks are launching their own wallets,
alternative rails. Banks also retain a leading position such as DBS PayLah! by DBS in Singapore. Others
in markets where financial inclusion and card offer a wallet-like user experience on their mobile
penetration are low and regulatory regimes have not banking app and enable customers to complete
permitted nonbanks to offer wallets to underserved transactions by scanning a quick response (QR)
populations. code or using a near-field communication (NFC)
8 Data as of August 2022 from Banco Central do Brasil.

9 Anand Parthasarathy, “Made in India payment system is a runaway success that 10 nations are trying out,” Swarajya, July 15, 2022.
Sustaining digital payments growth: Winning models in emerging markets 44

Exhibit 1
Marketstructure
Market structurelargely
largelydetermines
determines whether
whether nonbank
nonbank wallets
wallets cancan
gaingain
an edge.
an edge.
Dominant players by market characteristics
Banking penetration Market characteristics Country Wallet
Banks maintain lead through partnerships, Tech giants displace banks by moving faster to
digitization, and interoperability with develop digital wallets embedded in broader
national fast-payment systems ecosystems
High
Singapore Brazil China
DBS Bank Itaú (Pix) Alipay; WeChat Pay
Banks facilitate digital payments through Nonbanks use first-mover advantage in digital
instant transfers; regulatory barriers have wallets to serve banked and unbanked
restricted nonbanks’ participation in mobile populations
Low payments in the past but have now eased up
Nigeria Philippines Kenya Indonesia Vietnam
All banks (Nigeria Inter-Bank Settlement System) GCash M-Pesa GoPay MoMo
Less open More open

Openness of regulation and payments infrastructure to nonbanks
device. Yet others are partnering with Apple Pay, face no regulatory barriers in creating strong value
Samsung Pay, and Google Pay to ensure they keep propositions to reach underserved customers. In
the balances of customers’ checking and savings Kenya and Ghana, for instance, telecom companies’
accounts even if they miss out on the last mile of first-mover advantage and innovative efforts to
payments. extend financial services to mass markets via mobile
wallets have resulted in very high penetration levels.
Some of these developed-market banks are
now extending their digital wallets into emerging Wallets are the leading e-commerce payment
markets. For example, DBS recently announced a method in the Philippines (accounting for 31 percent
partnership with Nets and UnionPay International of transaction value), Vietnam (25 percent), and
to make PayLah! available in 45 markets, including Indonesia (39 percent), and they take second
Malaysia and Thailand.10 place in Thailand after bank transfers.11 Some
wallets have achieved very high penetration levels
Markets where nonbank wallets are ahead in these markets. In the Philippines, for example,
Nonbank wallets tend to do best in markets with the registered users of the top two wallets, GCash
less developed payments infrastructure and and Maya, account for 83 and 65 percent of adults,
where telecom companies and other providers respectively.12 Such successes can partly be
10 Bryan Ng, “Shoppers can use PayLah! in Malaysia, Thailand, 43 other places abroad after DBS tie-up with Nets and China’s UnionPay,” TODAY
(Singapore), June 21, 2022.
11 The global payments report, 2022.
12 Lisbet Esmael, “GCash tops 60M users despite rival’s digital bank license,” CNN Philippines, May 24, 2022.

ascribed to the digital know-your-customer (KYC) prominent ride-hailing players in Southeast Asia,
processes that enable wallets to offer customers such as Grab and Gojek, are looking to capitalize on
a quick and easy onboarding experience. However, their high-frequency use and rich customer data by
as regulatory regimes are simplified and banks extending into groceries and other categories with
are allowed to offer a fully digital KYC process larger ticket sizes. Players with higher ticket sizes
instead of requiring new customers to visit a but lower frequency of use, including e-commerce
branch, this advantage will be eroded. Moreover, platforms Jumia in Africa and Shopee in Southeast
banks will benefit from the introduction of new QR Asia, are pushing in the opposite direction, seeking
standards—such as QRIS in Indonesia and QRPh in to boost user engagement through gamification and
the Philippines—that are forcing wallets to open up other approaches.
their proprietary QR networks to bank apps.
In Africa, M-Pesa morphed from a mobile money
An evolving landscape service into an ecosystem by forming partnerships
Meanwhile, banks are using easy instant payments to create a super app with seamlessly integrated
(for instance, those offered by Pix in Brazil) and mini apps in e-commerce, travel, health, agriculture,
more user-friendly apps to encroach on territory and other categories. User engagement and
previously carved out by wallets. Wallets have high monthly revenue per user have risen, with more than
adoption; more than 70 percent of the respondents a million monthly active users since the launch of
to a recent survey13 said they use digital wallets, the super app in 2021.16 In Latin America, Rappi—a
with an average of three different wallets each. Colombia-based, on-demand delivery service with
However, frequency of use and volumes transacted more than 30 million users and a presence in more
remain stubbornly low. In Brazil, half of the than 100 cities in nine countries—has expanded
respondents to a McKinsey payments survey said its super app into offerings such as e-commerce,
they spent no more than 300 reais ($56) a month insurance, and loyalty points.
through their digital wallets.14 Despite heavy
investment in rewards to acquire customers, wallet Wallets that are not part of an ecosystem involving
providers apparently have yet to create a value e-commerce, social media, or ride hailing will find
proposition strong enough to significantly change it tougher to succeed, since capturing customer
usage levels. mindshare is difficult when use cases are limited
(Exhibit 2). Exceptions can be found, however, in
Meanwhile, banks and wallets are shaping a markets where wallets have a significant first-mover
variety of partnerships to access capabilities, advantage, such as MoMo in Vietnam.
enhance their value proposition, and extend
their geographic reach. In Africa, for instance,
M-Pesa has partnered with KCB and NCBA to Profitability remains a challenge in
offer overdraft and microloan products, while the digital payments
Tanzanian mobile remittance provider NALA has Margins for digital payments providers are already
partnered with Equity Bank to gain access to the wafer thin and are likely to be eroded further by
Kenyan market.15 competitive intensity and declining fees. In many
cases, payments are more a means to cross-sell
Successful wallets will be part of ecosystems other products than a profit center in their own
Wallets are more embedded in customers’ right. Some services, such as peer-to-peer (P2P)
daily lives when they are part of ecosystems. payments, are usually offered to users for free
This enables them to grow by extending into in most markets. In Brazil, for instance, Pix is
e-commerce, ride hailing, food delivery, messaging, pushing margins down by offering P2P payments
travel, and other adjacent categories. For instance, for free and person-to-merchant (P2M) payments
13 McKinsey Brazil Payments Survey, December 2021, n = 4,023.

14 Ibid.
15 “Tanzanian App, NALA, Partners with Equity Bank Kenya for Remittance Transfers,” BitKe, July 25, 2022, bitcoinke.io.
16 See “Driven by purpose: 15 years of M-Pesa’s evolution,” McKinsey & Company, June 29, 2022.

Exhibit 2
Social-media, e-commerce, and ride-hailing platforms are well placed to scale up
Social-media,
into e-commerce,
digital payments and ride-hailing platforms are well placed to scale
ecosystems.
up into digital payments ecosystems.
User engagement vs potential payment value for different digital ecosystems
Likelihood
of successfully
scaling to
Messaging and Sweet spot for payments
social media scaling up
High High
payments
Gaming platform Medium
Low
Ride hailing and

User food delivery
Medium
engagement
E-commerce
Public
transportation
Low
Travel and
hospitality
Low Medium High

Potential payment value,
frequency x ticket size
at low cost. One of the few providers charging However, they are exploring monetization paths to
for P2P payments is M-Pesa, but it is coming create profitable income streams and introducing
under increasing pressure to reduce its charges, innovative new features to broaden and deepen
especially after adjusting its fee structure as part of their customer base.
pandemic-relief efforts.17
Wallets are exploring several monetization paths
Not only do digital payments providers face To create profitable income streams, wallets
squeezed margins, they also incur high acquisition are entering other payment arenas, such as bill
and engagement costs because of the constant payment, merchant services, and remittances.
promotions needed to attract new customers and They are offering a more comprehensive range of
encourage more frequent use among the existing financial services, including investment and wealth
base. In addition, the cost of cash remains a management, lending, and insurance. And they are
challenge for wallets, though it is starting to come providing lifestyle services, including transport,
down as banking penetration improves. Globally, the e-commerce, and food delivery to become a one-
majority of mobile wallets continue to post losses. stop shop for consumers (Exhibit 3).18
17 “M-Pesa tariff reduction,” press release, Safaricom, December 2020.

18 “Mobile wallets: Southeast Asia’s new digital life hack,” McKinsey & Company, May 25, 2022.

Web <year>
Exhibit 3
<article slug>
Exhibit <x> of <y>
Successful wallets are extending into a range of payment types, financial services,
Successful
and consumerwallets are services.
lifestyle extending into a range of payment types, financial
services, and consumer lifestyle services.
Services offered by digital wallets, by region
Asia Latin America Africa

Distance
from the core Alipay GCash PicPay RappiPay M-Pesa Wave
Core P2P payment
Bill paying
Merchant
services
Extended
payments E-government
payments
Remittance
Investment
and wealth
management
Financial Lending
services
Insurance
Transport
E-commerce
Consumer
lifestyle
services
Food delivery
Travel and
hospitality
Source: Company websites; McKinsey analysis
Extended payments. In extended payments, inventory management, and reconciliation. For

wallets are offering a range of services, including example, MoMo offers merchants a set of tools
merchant services such as universal payments to improve discoverability, access a voucher
acceptance, business digitization, loyalty programs, marketplace, and integrate loyalty programs.

Financial services. Wallets’ offerings span several trend most advanced in Asia. In the Philippines,
types of financial services: the recently launched Maya app integrates
Maya Bank’s digital savings, credit, and other
— Investment and wealth management services banking services with PayMaya’s wallet and other
include micro investments for mass and upper- cryptocurrency, micro-investment, and insurance
mass markets, money-market funds, and offerings. In India, Paytm obtained a bank license
linked high-interest bank accounts with easy from RBI and transitioned into Paytm Payments
onboarding. In the Philippines, for instance, Bank. Though becoming a bank subjects wallets to
GCash partnered with CIMB Bank to launch higher capital requirements and greater regulatory
GSave, which allows users to open a savings oversight, it also allows them to monetize their
account from inside the GCash app without surplus balances and offer their customers a broad
an initial deposit or maintaining a balance. suite of lending products.
Launched in 2018, GSave had a reported
5.3 million digital deposit account holders by Consumer lifestyle services. Wallets are also
May 2022.19 In 2019, GCash launched GInvest expanding into consumer lifestyle services in areas
to offer users opportunities to invest in money- such as transport, e-commerce, entertainment,
market funds and listed unit investment trust travel, and discount vouchers. In addition, they
funds (UITFs) for a very low initial investment. provide data services that enable mini-app
By 2022, it reported having more than a providers to personalize their advertising. Being
million registered accounts, a 7 percent share part of a super app gives these mini-app players
of domestic UITFs, and 77 percent of UITF access to an extensive customer base in return for
accounts.20 a share of the revenues generated.
— Lending can take place through partnerships Some wallets are generating large income streams
or by using the wallet’s own balance sheet. from distributor licenses for prepaid phone
In Indonesia, OVO has bought a P2P license airtime or vouchers for video games and other
to overcome its lack of a lending license. In services. After its launch in 2014, MoMo’s mobile
Africa, M-Pesa has taken advantage of its wallet gained most of its early revenues through
large subscriber base to pursue partnerships airtime top-ups, having partnered with every
with banks to offer microlending and telecommunications network in Vietnam. These
overdraft facilities. Wave, a wallet focused relationships have since expanded to allow MoMo
on Francophone West Africa, has recently users to buy movie tickets, airline tickets, and
received a regional e-money license that will online-gaming credit.22
enable it to extend its product portfolio by
offering credit through partners. In the future, some emerging-market wallets may
wish to take advantage of their payment rails and
— Insurance offerings include travel, health, credit-scoring systems by offering a platform-
personal accident, and other forms of coverage. as-a-service solution, as global remittance
In Brazil, for instance, PicPay has launched player Wise has done with its Wise Platform. This
customizable insurance to protect users from would allow wallets to monetize their underlying
unauthorized Pix transactions, money transfers, technology and contribute to the development of
and purchases made using cards registered in other payments ecosystems.
users’ e-wallets.21
Innovative features are being introduced to add
As wallets extend their offerings into a wider range more value for customers
of payment solutions and financial services, some From our conversations with industry leaders and
of them are transitioning into digital banks, a experts and our work with payments providers
19 Darwin G. Amojelar, “GCash reports 5.3-million digital savings base,” Manila Standard, May 20, 2022.
20 Paul John Caña, “Investments for as low as P50: GCash democratizes investing with GInvest,” Esquire, April 8, 2021; “Financial services are
experiencing massive adoption in the Philippines through GCash,” press release, GCash, September 28, 2021; “Mobile wallets,” May 25, 2022.
21 “Brazil’s PicPay expands financial services with digital wallet insurance,” Latin America Business Stories, March 28, 2022.
22 “How a fintech outgrew banks in the mobile wallet market in Vietnam,” Asian Banker, September 12, 2018.

globally, we have identified innovative features and giving red packets of cash for Lunar New Year
functions that wallets are introducing to create by offering a digital equivalent. Launched in
added value. The following are a few examples: 2014, the service grew to more than 800 million
users by 2018. Similarly, MoMo’s “lucky money”
— Green initiatives. Some wallets address program enables users to exchange digital gifts
customer and societal desire for action on and win rewards redeemable at partner stores.
environmental sustainability and climate
change by supporting eco-friendly initiatives. Meanwhile, some wallets are pursuing innovations in
For example, G-Forest offers GCash users cross-border transfers, which have remained costly
green energy points for using cashless services and slow. In Africa, Chipper Cash has targeted
or accessing their health app via GCash. By specific remittance corridors; other players, such
accumulating points, users can plant a virtual as MFS Africa, are looking to take advantage of
Find more content like this on the tree, which GCash matches by planting a real intracontinental switches. Still others are using
McKinsey Insights App one. GCash reported that by January 2022, the blockchain applications to reduce fees, as seen
scheme had attracted nine million registered in Flutterwave’s partnership with the Stellar
users and “virtually planted” a million trees.23 network to power corridors between Africa and the
Some global apps are starting to include carbon- European Union.
tracking features. ING, for example, is working
with fintech Cogo to allow customers to measure
the carbon footprint of their expenditures.24 As
consumers in emerging markets become more
Scan • Download • Personalize sensitive to sustainability issues, more wallets
are likely to offer environmental features like Digital payment services have become an attractive
these. and dynamic feature of the payments landscape
in emerging countries. In particular, some new
— Loyalty programs and rewards for meeting fintechs providing payment solutions have been
personal goals. To drive customer adoption and able to grow rapidly during an era of cheap funding.
use, wallets offer loyalty programs or reward But in the absence of a clear path to profitability,
customers for meeting their own goals. For they may lose out to banks and other incumbent
instance, users of the Toss app in Vietnam can payments providers over time unless they can build
set targets for the number of steps they will take a successful ecosystem around their core business.
each day. Those who hit their daily target receive In a tighter funding environment, new entrants
loyalty points they can redeem for discounts. would be well advised to give careful consideration
to market structures, monetization paths, and
— Products with social features. In China, WeChat opportunities for innovation before venturing in with
and Alipay have extended the tradition of offerings of their own.
Reet Chaudhuri is a partner in McKinsey’s Singapore office, Carolyne Gathinji is an associate partner in the Nairobi office,
Gustavo Tayar is a partner in the São Paulo office, and Evan Williams is an associate partner in the Sydney office.
The authors wish to thank Krutika Dharmadhikary, Mohammed Ismaili, Nuno Madeira, Blessing Omene, and Priyanka Ralhan
for their contributions to this article.
23 Richmond Mercurio, “GCash users plant milestone 1 million virtual trees in GForest,” Philippine Star, March 19, 2022.
24 “ING trials carbon tracking app from Cogo,” Finextra, August 4, 2022.

October 2022
Copyright © McKinsey & Company
www.mckinsey.com
@McKinsey
@McKinsey

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Global Banking Practice

The 2022 McKinsey

The 2022 McKinsey

4 The chessboard rearranged: Rethinking the

16 Embedded finance: Who will lead the next

22 Sustainability in global transaction banking: A

33 Central bank digital currencies: An active role

42 Sustaining digital payments growth: Winning

2 The 2022 McKinsey Global Payments Report

The 2022 McKinsey Global Payments Report 3

The chessboard rearranged:

Global payments revenues, 2012–26F, $ trillion

Asia–Pacific North America EMEA¹ Latin America

Share of 2012 2016 2019 2020 2021 2026F

5 The chessboard rearranged: Rethinking the next moves in global payments

Global payments revenues, 2021, %

$286 $1,424 $399 $324

Cross-border payment services (B2B, B2C) and documentary trade finance.

The chessboard rearranged: Rethinking the next moves in global payments 6

7 The chessboard rearranged: Rethinking the next moves in global payments

Payments revenues,¹ 2021, revenues per capita, $

The chessboard rearranged: Rethinking the next moves in global payments 8

Composition of growth in regional payments revenues, 2021–26F, %

Asia–Pacific North America EMEA Latin America

9 The chessboard rearranged: Rethinking the next moves in global payments

The chessboard rearranged: Rethinking the next moves in global payments 10

11 The chessboard rearranged: Rethinking the next moves in global payments

Total shareholder returns (TSR), Index (Jan 1, 2020 = 100)

Market¹ Attacker² Incumbent³

2020 2021 2022

The chessboard rearranged: Rethinking the next moves in global payments 12

13 The chessboard rearranged: Rethinking the next moves in global payments

The chessboard rearranged: Rethinking the next moves in global payments 14

Copyright © 2022 McKinsey & Company. All rights reserved.

15 The chessboard rearranged: Rethinking the next moves in global payments

Embedded finance: Who will lead

by Andy Dresner, Albion Murati, Brian Pike, and Jonathan Zell

17 Embedded finance: Who will lead the next payments revolution?

Embedded-finance distributors Embedded-finance products

Traditional Offer attractive financial Transaction and deposit accounts that

OEMs Simplify ownership and financing

Source: McKinsey analysis

Embedded finance: Who will lead the next payments revolution? 18

Types of Traditional retailers, software Fintechs and banks Banks

Source: McKinsey analysis

19 Embedded finance: Who will lead the next payments revolution?

Embedded finance: Who will lead the next payments revolution? 20

Build and enable a modern developer experience.

Copyright © 2022 McKinsey & Company. All rights reserved.

21 Embedded finance: Who will lead the next payments revolution?

Sustainability in global transaction

Buyer-led and supplier-

Cards³ 3 6–8 3–4%

Account-related 3 5–7 4–5%

Total sustainable GTB 15 28–35 6–8%

Total GTB⁶ ~370 ~470

A best-in-class sustainable GTB

How to define sustainability for GTB products

25 Sustainability in global transaction banking: A market imperative