Revenue from emerging markets, including China, will account for 47 per cent of all banking industry revenue in 2020, projections by McKinsey & Company show. At present, these markets account for 33 per cent of revenue.Of this, 16 percentage points of industry revenue in 2020 will be generated by banks in China and 31 percentage points will be generated by other emerging markets, the consulting firm says.The McKinsey projection thus suggests that 58 per cent of all growth in banking industry revenue over the decade to 2020 will be derived from emerging markets.McKinsey estimated worldwide banking revenue in 2010 at US$3.0 trillion. The firm estimates this will balloon to US$6.8 trillion in 2020. The firm published the estimates in a report entitled "The state of global banking".The share of this growth over the 10 years for the four banking markets that McKinsey groups as "other developed" - which include Australia, Canada, Japan and South Korea - the firm estimates at seven per cent.This line of analysis may lend weight to the merit of banks' strategic efforts to expand their activities in Asia. In Australia this means ANZ and Commonwealth Bank are potentially exposed to the profits that may flow from this growth in revenue.Exploiting this revenue surge in emerging markets will be a challenge for many banks, which are still dealing with the aftermath of the financial crisis.The chief challenge cited by McKinsey is that of earning an acceptable return on capital at a time of rising demands from regulators that banks operate under higher capital ratios.The firm suggested that US banks would need to grow their net profits from US$121 billion in 2010 to US$312 billion in 2015 to achieve a return on equity of 12 per cent on the new capital levels.European banks will need to increase profits from US$166 billion in 2010 to US$328 billion.These nominal targets, are, McKinsey writes, "a significant stretch" since, "if profit growth tracks nominal GDP, the ROE of the US and European banking industries will actually fall between now and 2015."Banks in developed markets with their eye on growing revenue in emerging markets must thus "focus on transforming their business models", McKinsey says.The firm advocates "cost reductions of up to six per cent per annum between now and 2015" as one way of hitting the low-ball profit target used in the analysis.Even this is "a tall order given that only around 1 in 50 banks achieved annual cost reductions of four per cent or more over the 2000 to 2010 period."An alternative lever, McKinsey says, is "large-scale M&A". According to the firm, "banking remains one of the most fragmented industries globally and, depending on the stance of national regulators, some players could pursue large-scale M&A in fragmented markets. "M&A can be a powerful cost-reduction driver, particularly where the acquirer is a high-performing bank."