How AI is Revolutionising Payments & Shaping the Future of Fintech
Shree Priya Thakur | 27 August 2024
Summary
AI is transforming the financial industry through its ability to synthesise large volumes of data, detect patterns, and reduce human error, streamlining payment processing.
AI solutions can detect legacy issues of the fintech sector, mitigate financial fraud, and reshape risk management strategies to increase the efficiency of real-time payments.
90% of financial institutions have integrated Generative AI, signalling that major shifts in the industry could occur before the end of the decade.
Infusing Artificial Intelligence (AI) into payment systems is not a mere trend but a fundamental transformation reshaping the financial industry. Bloomberg predicts that Generative AI (Gen AI) can evolve into a USD 1.3 trillion industry by 2032, deriving much of its expansion from fintech. Enhanced regulatory demands and increased financial crimes have necessitated AI to shift the paradigm. This is seen through the adoption of metaverse payments (fiat or cryptocurrency payments), super-apps (apps providing multiple services like Paytm or WeChat), and embedded finance (integrating digital banking into non-financial services). While the fintech industry is evolving, it is facing challenges in the form of sophisticated financial fraud, authorised push payment scams, account takeovers, and the limitations of traditional risk management strategies. For instance, manual anti-money laundering guidelines are inefficient due to increased fraud risk, as 75% of financial institutions reported using outdated or labour-intensive practices. The conventional approach cannot keep pace with emerging threats, leaving financial institutions to resort to ex-post reactions.
What can AI do? AI’s ability to leverage complex information structures, read unstructured data, and detect human errors can potentially streamline the entire payment processing cycle.
AI can address the payment industry’s legacy issue of invoicing. Traditional invoicing methods relying on paper and email often require the manual input of bank details, resulting in human errors and delays. GenAI can extract payment information from invoices, reducing the processing time and doing wonders for supply chains, international route payments, logistics, and more.
AI can aid in fraud detection and identity verification by identifying patterns. According to a FICO survey, 77% of customers expect financial institutions to leverage AI for improved fraud prevention.
In terms of efficiency, AI can augment the customer onboarding process by streamlining the various verification processes into one, reducing the onboarding time by 30%, from 11 to 8 minutes by 2028. This translates into customer satisfaction and trust.
It is no longer a matter of when but how AI is entering the fintech industry. A recent McKinsey report indicates that by March 2024, 90% of financial institutions have integrated some form of GenAI into their infrastructure, a shift likely to become the norm. AI is at the cusp of revolutionising the payment system by addressing systemic challenges and creating seismic shifts in how we conduct real-time and cross-border payments. Spanning beyond the scope of security, AI can enhance payment management and processing while simultaneously improving customer-centric services to allow individuals to pay with precision.
Nathan Dumlao/Unsplash
Forecast
Short-term
Several Fintech companies are likely to enhance research into delivering a customised payment experience by nudging financial behaviour and facilitating financial services.
Long-term
It is highly likely that within five years, various stages of the financial payments system will be AI-powered, from identity verification and transaction processing to personalised customer experiences and fraud detection. It is likely that by the end of the decade, AI-driven security measures will significantly reduce fraud-related losses and leverage machine learning algorithms to counter sophisticated cybercrime. The AI-led growth of financial payments could possibly result in comprehensive legal frameworks.
