Are payment intermediaries just historical baggage?

Payment intermediaries have grown so ubiquitous that we almost fail to notice them. Whether you’re buying coffee at a local café or running a multinational e-commerce store, there’s usually a string of participants between buyer and seller—acquirers, processors, card networks, and possibly more. 

All these layers originally served critical functions, ensuring security, convenience, and trust in a world where payment technology had significant limitations. But as digital advances offer more direct and efficient solutions, a key question emerges: 

Are these intermediaries still genuinely necessary, or have many of them become vestigial holdovers from an outdated era?

The rise of middlemen in payments

The story of payment intermediaries starts well before the digital revolution. In the mid-twentieth century, banks and credit card companies recognized that transactions were risky endeavors. 

Merchants couldn’t always trust that a buyer’s check or card was valid, and consumers needed reassurance that their money would reach the intended destination safely. Establishing a network of middlemen who handled authorization, settlement, and clearing made perfect sense: it spread risk, enforced rules, and created consistent standards. 

For consumers, these middlemen offered convenience and protection against fraud; for businesses, they provided access to broader pools of customers. In a world of analog records and slower communications, these intermediaries solved real, pressing problems. Imagine an era when a credit card charge involved physically mailing transaction slips or using phone lines to confirm a purchase. 

With so many moving parts, a robust framework was necessary to ensure funds flowed properly. Over time, these measures became standardized through card network bylaws and global banking norms, creating what is now a tightly interwoven system across continents.

Layering upon layers

As the financial sector modernized, new challenges emerged: cross-border transactions, internet commerce, micropayments, and digital wallets, to name a few. Rather than replacing or pruning older processes, the industry often added new layers to address these evolving needs. The patchwork approach allowed businesses and consumers to adopt online shopping at an unprecedented scale. 

Yet each new integration brought fresh costs and complexities. Instead of a single path from buyer to seller, many transactions now hop between multiple gateways, risk engines, and clearinghouses, often without the merchant or consumer fully realizing it. In many ways, these additions made sense at the time. 

Companies sought flexible solutions that wouldn’t disrupt existing operations. But fast-forward to the present, and you may have a transaction that bounces across three or four different intermediaries before a merchant sees any revenue. 

Each participant adds a fee, and each step introduces a potential point of failure. Worse still, the core objectives—settling funds safely and verifying authenticity—haven’t really changed, even though our technological capacity has grown enormously.

The cost of complexity

For merchants, the most visible impact of these intermediaries appears on monthly processing statements. Interchange fees, gateway fees, assessment fees, and more can chip away at margins. In e-commerce, these costs become especially burdensome, as high volumes can magnify tiny percentage differences. 

On top of that, each intermediary has its own set of requirements, customer support channels, and risk models. This can lead to confusion and misaligned incentives, with merchants often feeling they have little choice but to accept the status quo. Consumers, too, bear a cost, though it’s usually less explicit. 

Slower transaction speeds, potential errors in billing, and the inability to use certain payment methods in certain regions all stem from the system’s complexity. Ironically, the very protections that intermediaries once championed—secure authorizations, chargeback rights, and global acceptance—could be provided just as effectively (or more so) by more direct, technology-driven approaches today.

Inertia versus innovation

One might ask: If the technology exists to streamline payments, why hasn’t the system changed more aggressively? The short answer is inertia. Financial institutions and card networks have enormous capital invested in their existing infrastructures. 

Changing these structures is complicated, risky, and often unappealing to large stakeholders making steady income from the current setup. Moreover, the global nature of commerce means that any major overhaul requires collective agreement among thousands of banks, networks, and technology providers. Regulation is another factor. Many of these intermediaries play a compliance role, ensuring that transactions meet anti-money-laundering standards or card network rules. 

Governments and agencies can be slow to acknowledge that simpler, more direct methods might still fulfill these obligations. Consumers and merchants often don’t demand change because the incremental inefficiency isn’t always visible. They see a final price tag or a brief wait for funds to clear, not the labyrinth of steps hidden behind the scenes.

Historical baggage in the digital age

A telling illustration of just how outdated some layers have become is the reliance on overnight batch settlements. In a time when you can communicate with someone across the globe in a heartbeat, why should funds have to wait until the next business day to move? 

This practice dates back to physical batch processing, when clearinghouses had to manually reconcile accounts. Today, financial institutions still follow these steps, even though software could theoretically handle 24/7 settlements. 

Another relic is the hold on deposits for checks or card payments. While some holds are sensible to mitigate fraud risk, the length of these holds can often be traced back to older verification methods that no longer apply at scale. Meanwhile, digital IDs and real-time risk assessment technologies have become more sophisticated, making extended waiting periods less necessary. 

From a consumer’s point of view, it feels surreal that you can stream a TV series instantly, but your paycheck might be stuck in a three-to-five-day clearing process.

Shifting consumer expectations

As technology races forward, consumers have become accustomed to immediacy in every aspect of life—instant messaging, on-demand ride-shares, streaming movies with a single click. Payments are starting to catch up through peer-to-peer apps and some advanced merchant solutions, but the underlying rails remain slow and layered in many cases. 

When people discover that a portion of every transaction fee goes to intermediaries performing tasks that technology could handle instantly, dissatisfaction grows. Younger generations, in particular, may find the entire system baffling, having grown up in an era where everything else is frictionless and digital. 

Merchants who cater to these audiences are increasingly motivated to explore solutions that reduce complexity—especially as more nimble fintechs and even large tech companies push for streamlined transaction flows.

Security, trust, and the balancing act

One crucial point in favor of intermediaries is the issue of trust. Whether it’s a chargeback process or a dispute resolution mechanism, third parties do play a valuable role. They protect consumers from unscrupulous merchants and ensure that merchants aren’t left holding the bag when fraudulent activity occurs. 

But the question remains: Does each separate layer truly add distinct value, or could a more unified approach still offer the same protections without so much overhead? Technology has come a long way since the birth of these processes. Encryption, tokenization, AI-based fraud detection, and real-time analytics can offer robust security. If integrated properly, these tools could replace multiple intermediaries and centralize risk management in a more efficient way. 

It may take time and coordination, but from a technical standpoint, there’s little preventing modern solutions from encompassing all the consumer protections currently scattered across multiple organizations.

A chance for radical simplification

Imagine a simpler model where a merchant’s settlement account is credited in seconds, a consumer’s bank balance updates equally fast, and risk management happens concurrently in real time. In such a scenario, the merchant pays a smaller fee because there aren’t four or five entities nibbling away at the total. 

Meanwhile, the consumer receives a frictionless, transparent experience, trusting that if something goes awry, robust mechanisms exist to address it immediately. While not every intermediary can or should be eliminated, many middle layers may be surviving more out of habit than necessity. 

The future of payments might not be about cutting out all third parties but rather consolidating roles in a way that’s more transparent, less expensive, and more aligned with the current state of technology.

The pushback from vested interests

Naturally, those who benefit most from the status quo—such as card networks earning billions in interchange fees—are likely to resist any drastic simplification. Even if the average merchant and consumer would save money with direct payment rails, it’s challenging to uproot an infrastructure that has been profitable for decades. 

That said, consumer pressure and emerging fintech innovations could accelerate change if enough people demand clearer, cheaper, and faster payment routes. Additionally, regulators and policymakers may support modernization if they see it as a means to drive financial inclusion and economic growth. 

Real-time payments can have a significant impact on underbanked communities, giving them quicker access to funds and fewer burdensome fees.

A step toward the future

Many experts argue that we’re on the cusp of a payment revolution fueled by digital wallets, open banking, and real-time settlement solutions. Will we look back in ten years and see today’s complexities as relics, just as we now look back on manual credit card imprinters with mild amusement? It’s entirely possible. 

As consumer expectations shift, and as more companies opt for streamlined digital infrastructure, the gravitational pull of simplicity could outweigh the entrenched interests in maintaining the old chain of intermediaries. Ultimately, the question is not whether we can remove intermediaries, but whether the value they bring is still worth the complexity, cost, and time lost. 

The modern ecosystem suggests many of these middle layers are hanging on because they haven’t yet been forcibly displaced by more efficient rivals. But as more flexible, real-time, and secure options take hold, the old guard may find itself with less and less justification for sticking around.

Evolving beyond the patchwork

So, are payment intermediaries just historical baggage? In some ways, yes. They arose to solve genuine problems—trust, risk, and convenience—in an era of limited technology. As we propelled ourselves deeper into the digital world, we never fully replaced these structures; instead, we stacked new solutions on top. 

Now we face a labyrinth that often adds costs without delivering commensurate benefits. That doesn’t mean these entities can’t adapt. Some intermediaries are already reinventing themselves to offer integrated, technology-driven services that truly enhance transaction flows rather than hinder them. 

Others might fade into obscurity or consolidate into more comprehensive platforms. What’s clear is that the status quo, built on a patchwork of decades-old processes, is ripe for a reexamination. Whether the push comes from merchants, consumers, startups, or regulatory bodies, the writing on the wall suggests that a leaner, faster, more direct payments future is on the horizon. 

Embracing it may mean letting go of certain timeworn habits and letting technology lead the way toward a more efficient, cost-effective ecosystem—one where intermediaries aren’t just survivors of a bygone age, but active facilitators of modern commerce.