CBDCs are inevitable says McKinsey as it urges firms to prepare

Karthik Subramanian

McKinsey has published its Global Payments Report where it talks about the recovery of the payments industry from the pandemic last year and how the recovery has been unbalanced so far.

The report also talks about how this gap in the traditional payments industry has been filled by stablecoins and how it would be co-existing with the CBDCs that are likely to be launched by the central banks of various countries. This co-existence is going to have a big impact on the financial ecosystem as more people embrace the notion of cryptos and this has helped to shift the mindset towards digital assets and the adoption of stablecoins by the mainstream users. This gap is likely to reduce even further in the coming months. This push has been helped by the fact that cash payments have been reduced to a great deal during the last couple of years as the pandemic forced the users to employ digital payment methods even for basic transactions.

The report advises financial services firms to take note of these changes and realize the impending advent of a new kind of ecosystem that would see stablecoins and CBDCs being used as the main payment method in different parts of the world. This would need the financial infrastructure to step up to accommodate such types of transactions and also, the merchants and other businesses would need to see what kind of infrastructure and software changes would be needed at their end.

It would also pose a very big challenge to the central banks and regulators who have to ensure that the CBDCs are studied fully and opened up to the retail banks and users slowly and steadily so that it does not disturb the existing financial ecosystem in any abrupt or adverse manner and also ensure that the industry is not crippled by over-regulation.

The report also talks about the declining payments volume in 2020 as compared to the volumes in 2019 but also points out the recovery and the resilience of the industry in 2021 which it hopes would be enough for the industry growth to get back to the pre-pandemic levels and the volumes to recover fully as well. The report also points out the growing opportunity for the payments industry in the APAC region due to the Chinese dominance and also due to the affinity of the users in this region to switch to digital payments and reduce the usage of cash.

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