Here are the biggest problems with payments, according to experts

• The payment ecosystem is full of problems.
• Payments innovation is stifled by the threat of fraud and political obstacles.
• Experts discussed the key pain points in the space.

Payments touch every part of the economy, but the system is broken, experts say.

The future of alternative payments was a focus at this week’s Empire Startups Fintech Conference in New York. Experts at the conference named time-to-money, faster payment processing that leads to faster fraud and political obstacles that inhibit innovation as the biggest challenges for payments.

On the consumer side, payments take far too long, Stephany Kirkpatrick, founder and CEO of Orum, said on a panel.

The time from when a payment is initiated to when the recipient receives it can take three to five days when it should be instantaneous, according to Kirkpatrick. Real-time payments are initiated and settled quickly, as if cash were physically handed from one person to another.

One reason for slow payment processing is the presence of “too many layers of middlemen,” said Jones Amegbor, founder and CEO of PayAngel. A single payment goes through payment facilitators, multiple payment processors, card networks and banks.

But with faster payments comes faster fraud, said Soups Ranjan, co-founder and CEO of Sardine. The less time it takes to process a payment, the less time there is to stop a fraudster intercepting it.

“One thing that we’re still not very well prepared to do is deal with when money moves so quickly that you have no way to get it back,” Ranjan said.

But fraud is not a payment-exclusive problem. Rather, it is a “social engineering problem” that has intensified as the digital world has matured, said Sophia Goldberg, co-founder and CEO of Ansa.

Social engineering refers to manipulation techniques that rely on human error. For example, social engineering scams can look like someone sharing their social security number over the phone with a fraudster disguised as a trusted person.

Still, the threat of faster fraud “shouldn’t change why we lean toward faster payments,” Kirkpatrick added. “Because this problem will exist whether we have faster payments or not.”

Simply put, bad people will always find a way to do bad things.

Washington’s hand in payments

There are also political factors that harm payments.

One reason payments have been slow to develop in the US compared to other countries is because of political influence, according to Kirkpatrick.

Kirkpatrick pointed to the lack of a national identification system in the United States.

The Swedish buy now, pay later giant Klarna was able to scale very quickly in the Nordics because these countries use national IDs, which differ from a social security number (SSN) and individual taxpayer identification number (ITIN).

For a fintech, national IDs can help reduce identity theft and fraud and allow a startup to see its customers’ comprehensive financial health.

“We don’t have anything close to that in the United States,” Kirkpatrick added. “And so I would like to see policies to get us closer to that.”

To be sure, the Federal Reserve announced plans to launch a real-time payment solution, called the FedNow Service, in July of this year. With the added security blanket of government support, FedNow could give existing real-time payment services, like Zelle, a run for their money, literally.

“I think it’s going to be very positive as we think about the coverage and the types of places we want to send and receive faster payments, and just expanding the network is a big step forward in terms of progress.” Kirkpatrick said

“But it’s not a silver bullet solution because of the way our financial system is designed,” she added.