Global payments activity should grow at an average annual rate of 5% between now and 2020, to $2.1 trillion, according to the latest McKinsey report. But the continuing success of this trend will depend on how well banks adapt to the digital transformation and capitalize on the opportunities it offers for revenue growth.

Payments volume growth and the adoption of digital channels is still strong, transactional account balances are higher than ever and interest rates are at historically low levels, McKinsey says.

The report, released Sept. 21, forecasts 35% growth from domestic transactions and 33% from credit card revenue — the two primary growth drivers. It also predicts cross-border payments revenue will moderate over the next five years as nonbanks try to gain share in the space, driving 4% growth (compared with 6% between 2010 and 2014); and account-related liquidity revenues will drive 16% of growth. As a result, commercial payments revenue will drop in Asia, Europe, the Middle East and Africa, which rely heavily on account-related revenue and cross-border fees.

"The global payments industry will generate over $400 billion more in annual revenue than it does today," the report says. "This growth will be more evenly distributed geographically than in the recent past, but it does does not follow that all institutions will gain an equal share of the rising revenues."

The report, "Global Payments 2016: Strong Fundamentals in Uncertain Times," is based on worldwide payments transactions and revenue data from more than 40 countries. It shows regional differences have become more prominent: Payments revenues out of Europe, the Middle East and Africa were flat from 2014 to 2015, declined in Asia after five years of 18% average annual growth and are higher in North America and Latin America.

Banking institutions currently risk losing market share to "nonbank attackers," or fintech providers, and must act on the "urgent and fundamental" need to transform the correspondent banking system. They also need to modernize their payments platforms by supporting a 24/7/365 payments environment and developing real-time fraud and risk management capabilities, according to the report.

"Banks will need proactive strategies to both defend and extend their role in the payments ecosystem" as retail commerce continues to shift from brick-and-mortar outlets to digital platforms, the report says. "They must bear in mind, however, that retail payments behaviors are far more local than global in nature, making deep local market understanding essential to success."