Artificial Intelligence (AI) has been around for many years, but all the buzz is happening now. This technology is not new to the payments industry, applications like digital wallets and super apps have been utilizing AI by implementing machine learning algorithms to provide insights on consumer spending habits, enhance security and identify payment frauds. However, the concept of AI has re-invented itself, especially with the advent of Generative AI – the attention is shifting from predictive models to models that can generate intuitive content. AI in payments is expected to not only enhance consumer journey by streamlining payments and providing personalized conversational experiences, but it will also impact operations including sales, compliance, marketing, and support. Majority of the payment and fintech companies have jumped in the AI rushto seize the moment. Initially, companies in the payment value chain are experimenting with AI to streamline internal operations but AI driven services are also transforming merchant business models, risk profiling and fraud detection models, and customer acquisition strategies.
On the operational side of payment value chain, AI based models can be largely used to improve payment processing, enhance fraud detection, and credit models. It can be applied to existing models for scoring consumer transactions to improve authorization rates, thus influencing revenue of both the payment processer and merchant. Generative AI is set to make a profound impact in customer service – incident resolution, customer onboarding, and handling claims, as significant productivity can be achieved by leveraging smart AI enabled tools and reducing human interference. Fraud detection is another major area where machine learning algorithms are being used to analyze large data sets including user behavior, to identify unusual patterns, generate real-time fraud reports and reduce cancellation of genuine transactions. Traditional credit models can be a barrier for lenders to assess creditworthiness of customers. AI based algorithms are being used to analyze alternative data such as social media, past bill payments, and demographic data for creating more accurate risk profiles.
On the client-facing side of business, AI will be leveraged to provide smooth checkout experience and tailored solutions by analyzing consumer behavior and preferences. Merchants are offering customized reward programs and dynamic pricing to optimize sales conversions. Future spending patterns and preferences can be identified with Generative AI which can be effectively utilized for targeted campaign generation and inventory management. Checkout experience can be enhanced – smart AI enabled chatbots can suggest specific recommendations based on analyzing consumer behavior and a payment plug-in can be linked to the chatbot so suggested products can be purchased without leaving the chat interface.
AI presents vast potential opportunities in the payment industry, but its implementation strategy is vital in achieving expected results. Enterprises must design a goal-oriented AI strategy, develop the required technical and data infrastructure, and foster an AI adoption environment among the workforce to successfully leverage this technology. The payments industry has a lot of sensitive consumer data which is fed to AI models to provide accurate insights and personalized services. Compliance with regulatory frameworks and implementation of robust cyber security measures will be the key pillars to ensure data privacy requirements are met. Generative AI can also be exploited by fraudsters, making security a critical parameter for maintaining consumer confidence in the business. The regulatory landscape varies from country to country, thus payment companies operating in international markets need to be aware of the regulatory changes in each of their operating nations.
As AI is evolving and becoming more sophisticated with advancements in machine learning, its adoption will move from just fraud prevention to more consumer facing services in the payments sector. AI is providing a transformative opportunity to payments companies to move ahead in the competition curve and expand beyond traditional value propositions to create new revenue streams. Organizations will be leaner as a major part of the workforce will be engaged in more complex processes rather than what they might be currently doing. In the coming years, Agentic AI is anticipated to drive the next wave of payment innovation. These models will move a step ahead from only automating tasks to automating decision-making by taking unsupervised actions.
(The author is Yuvraj Moudgil, Senior Director- Business Strategy, Fiserv Global Services. The views expressed here are of the author.)