What Are the Key Problems in Payment Systems Today?

Despite technological advancements in many sectors, the core of global payments remains stuck in the past. Let’s explore the major pain points:

1. High Transaction Fees

Financial intermediaries—from banks to credit card processors—charge significant fees for facilitating transactions. A typical international wire transfer can incur:

• Bank processing fees

• Intermediary/correspondent bank charges

• Currency conversion costs

Credit card companies charge 2–3% per transaction, while remittance services like Western Union or MoneyGram often take 5–10% in fees. These costs disproportionately affect lower-income individuals and small businesses.

2. Slow Settlement Times

While digital purchases may appear instant to consumers, the actual backend settlement process is often anything but instant. Domestic bank transfers may take hours or even a day. International transactions, on the other hand, frequently take 3–5 business days, depending on how many intermediary banks are involved.

This delay creates cash flow problems and uncertainty for both senders and receivers.

3. Multiple Intermediaries

Most payment systems involve a chain of intermediaries:

• Issuing banks

• Acquiring banks

• Payment processors

• Clearing houses

• Central banks

Each link adds time, fees, and risk of failure. Moreover, this chain makes the system opaque and difficult to troubleshoot when issues arise.

4. Currency Conversion Costs

Whenever money crosses borders, it often has to be converted between currencies. This introduces additional

• Conversion spreads (hidden in exchange rates)

• Service fees

• Regulatory friction

Users often lose 3–7% or more in conversion, not including the original transaction fee. And exchange rates can be manipulated for additional profit.

5. Lack of Transparency

Traditional financial systems often fail to offer real-time visibility into where a transaction is, who’s processing it, and how long it will take. Tracking an international wire transfer can feel like looking for a needle in a haystack.

Users are left in the dark, especially during disputes or delays.

6. Financial Exclusion

Over 1.7 billion people globally are unbanked. Reasons include:

• Lack of ID

• No access to physical banks

• High minimum account balances

• Distrust in financial institutions

Even those with access often find banking services unreliable or prohibitively expensive. The system isn't just inefficient—it’s exclusive.