McKinsey & Company published a new report in November 2015 that highlights the key role digital disruption is playing in redefining global payments. Entitled Global Payments 2015: A Healthy Industry Confronts Disruption, the report examines how certain inefficiencies in the payments landscape are actually creating opportunities and driving innovation.

Global payments revenue growth over the last few years has been nothing short of extraordinary.  The paper notes that in 2014, revenues reached $1.7 trillion, up from $1.5 trillion in 2013. This reflected a growth of 9%, which actually doubled 2013’s rate of growth.  McKinsey predicts that annual global payments revenues should increase at a relatively stable annual rate of 6% over the next five years, exceeding $2 trillion by 2020.

Revenue growth is great news for industry players, but it’s not the whole story. The real news in the white paper is the major role digital disruptors will play in reshaping the payments and financial services landscape. As the authors succinctly state: “Cross-border payments inefficiencies are an open door for new players.”

Digital disruption and entrepreneurial spirit are expected to fill in gaps that traditional banks have a hard time eliminating.  These gaps include customer experience, infrastructure and cross-border transactions.

Customer Experience

Consumer expectations have changed dramatically, thanks to the vast influence of digital technology in daily life over the last two decades. As the internet has become a dominant force in the average retail shopping transaction, consumers have come to expect a frictionless payment experience wherever they shop. Features such as Amazon’s one-click payments or Apple’s fingerprint authentication have irrevocably redefined payments. Industry players who don’t understand the fundamental importance of the customer experience will be left behind.

Industry Infrastructure

Increased consumer expectations drive industry innovation, but that’s not the whole story. This innovation also requires large-scale infrastructure improvements in order meet the new technological demands. New technology running on old infrastructure “rails” will not meet the payments challenges of the 21st century.

The paper notes that infrastructure improvements include anything from notification and confirmation upgrades to new clearing and settlement processes, and the benefits can range from reduced processing times to enhanced privacy and security. Massive upgrades are a major cost burden and should probably be shared at the country level.

Cross-Border Transactions

According to the report, cross-border transactions are responsible for around 40% of the payment industry’s transaction-related revenues, yet they make up only about 20% of its total volume. It’s significant to note that while the industry has developed more efficient systems and products for domestic payments over the last few decades, there has a been a lag for the same kind of attention for their cross-border counterparts. While traditional banks have pared costs and made domestic payments more efficient, they haven’t pursued the same strategies for cross-border payments.

We are not surprised by the report’s findings because a central part of the Credorax vision for 21st century payments is to fill the gap left by traditional banks. As 2015 quickly draws to a close, we are eagerly looking ahead to how we can reshape cross-border payments in 2016 and beyond.