Monthly Archives: December 2015

McKinsey Report: How the payments industry is being disrupted

The management consultancy McKinsey & Co. released its predictions for 2016 and the changes that will occur within the payments industry.

The article highlights the following 4 areas in which payments will be disrupted in the coming year:

  • Digital entrants from a non-banking background: McKinsey identifies threats from Uber-like companies, which might offer a fantastic new product and customer experience, which will lure customers away from the traditional banks. We agree that the risk from these attackers are increasing, but we would warn against arguments where other industries (such as hospitality and transport) are being compared with financial services. Customers in banking have traditionally been very sticky and unwilling to switch banks. Furthermore, we would argue that the pain points companies such as AirBnb and Uber addressed were much more severe than currently exist in banking. However, high service fees and poor customer experience/engagement are points which new entrants could exploit.
  • Modernisation of domestic payments infrastructure: McKinsey argues that due to the high costs involved with upgrades on the systems and bank levels, banks would need to find innovative ways of building products and services on top of existing infrastructure. At Causal Nexus, we play firmly in this space with our next of breed payment infrastructure, such as our Payment Bus, which can either replace or sit on top of existing bank infrastructure. Even though we can run on top of existing legacy systems, this is often merely a Band-Aid and banks should reconsider their approach to managing and maintaining technology. More often than not, systems are merely bought to address current problems and over time they become legacy problem due to neglect. We advocate a  more contemporary approach to technology management whereby systems are constantly evolved and grown alongside the organisation.
  • Cross-border payment inefficiencies: McKinsey’s argument here is that high cross-border remittances costs are largely due to legacy systems. Even though we agree that a portion of the costs can be attributed to the systems costs, this is not the primary reason. The high costs are largely due to the high barriers to entry in this industry, which in turn is due to the intricate and risky regulatory environment in which these players operate. The problem is therefore not technological, but legal. At present, a large number of startups are entering this space, in part because they are able to reduce the systems cost, but they are also able to sidestep the legal issues by operating in grey area through the use of BitCoin and other cryptocurrencies. As soon as more countries formulate legislation around cryptocurrencies, we hypothesise that playing field will be levelled, with systems becoming one of the primary cost contributors.
  • Digitising and the implications for transaction bankers: In this instance, McKinsey argues that the digital revolution observed in retail banking, will lead to higher customer expectations from commercial/transaction banking divisions. We agree with this view, and again feel that all divisions within banking should have a strong focus on digital and evolving the technologies to keep up with both internal and external expectations.

Global Payment Growth

In closing, the image above illustrates the moderate yet robust payment industry growth McKinsey & Co. anticipates for the next five years. This growth will be fuelled in part by disruptions in the aforementioned four areas.

Local Network Capture and SSL/TLS Decryption

With the year coming to an end, we thought we might share with you what new exiting technical features we are working of for payments analytics system.

One of the most elegant and accurate ways to get hold of your payments data is through the capture of the transactional network data. By inspecting the network traffic, you get a real-world view of payment systems performance. This approach is similar to the way Wireshark inspects network traffic, but our system does all the heavy lifting for you by decoding the network data up to a transactional message-level, which would make sense to you.

Originally, our system was designed to run on a standalone server with network traffic being analysed remotely. However, a number of our clients prefer the system to be installed on their main processing servers, such as Base24, Postilion and Connex. In these cases, we need to capture the local network data stream. Furthermore, in some instances these data streams are encrypted using SSL (Secure Socket Layer) or TLS (Transport Layer Security), which naturally makes decoding the data impossible.

To address these challenges, we are developing two new components:

  1. A local loopback network capturer.
  2. A SSL and TLS network traffic decrypter.

Our loopback network capture device is already up and running and we are currently developing an SSL/TLS decoder device, which decrypts a secure stream, allowing other devices to monitor clear application data. This can take place unobtrusively on the host where the SSL/TLS server is running, thereby minimizing the security exposure.

Given the utility this could offer network and payments operators, we shall make this functionality available in standalone utility in the future.

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