AI, the future of digital payment
The proliferation of digital payment systems accelerated the shift away from traditional currency, and in recent times, the application of artificial intelligence (AI) has become a key focus for online payment platforms. Several payments companies have discovered that leveraging AI for payments can yield significant advantages. Consequently, a growing number of payment processors are adopting AI in their operations to improve their understanding, streamline transactions, and strengthen security measures. The payments industry would struggle to manage a high volume of transactions while minimising errors and fraudulent activities without the support of AI. It is evident that this state-of-the-art technology will play a critical role in the industry’s future.
Necessity of AI in Digital Payments
According to the Ministry of Electronics and IT, the total number of digital transactions crossed a whopping 90 billion mark in FY 2022-23. The number reflects the Government’s commitment towards expanding the horizons of digital payments in the Indian economy, thereby strengthening the quality and efficiency of the financial sector.
Every online transaction requires a robust fraud detection system; furthermore, it is noteworthy that the fraud detection systems need to evolve so as to tackle different types of cyber frauds. According to the Union finance ministry’s statement to the Parliament, the number of fraud cases related to Unified Payments Interface (UPI) transactions in India increased to over 95,000 during the fiscal year of 2022-23. This marks a rise from the previous fiscal year’s figures of 77,000 cases in 2020-21 and 84,000 cases in 2021-22.
Furthermore, the utilisation of AI has the potential to personalise the payment experience for customers. According to a McKinsey study, banking personalisation can reduce acquisition costs by as much as 50%, boost revenues by 5to 15%, and increase the efficiency of marketing spend by 10-30%. By analysing customer data, AI algorithms have the ability to suggest payment options that align with their preferences and behaviour. This can result in heightened customer satisfaction and loyalty.
The necessity of cutting-edge technology such as AI, ML etc. in digital payments cannot be overstated. As the number of digital payment transactions continues to grow, payment processors face increasingly complex challenges in managing and securing these transactions. AI-based solutions offer a range of benefits that can help address these challenges.
Use-cases in the Digital Payments Ecosystem
The algorithms possess the ability to scrutinise enormous amounts of data, recognise patterns and trends, and offer prognostications about future events. This empowers banks and fintech companies to pre-empt and avert fraudulent activities instead of reacting after these have occurred. Earlier, the compliance involved detecting and reporting incidents after that had already happened. Now, with AI and ML algorithms in place, the focus has shifted towards effective prevention and timely reporting. It provides the opportunity to operate in a more real-time setting compared to a conventional rule-based approach, additionally, more insights are gained into customers transactions.
Customer experience (CX) is another such area which could benefit immensely from AI.
According to a Juniper Study, the usage of chatbots will end up saving banks up to $7.3 billion worldwide by 2023, which represents a time saving of 862 million hours, or almost half a million years of work. Chatbots today are nothing but irritating answering machines which provide pre-fed answers to almost everything, arriving at no solution whatsoever.
AI has been infused with Chatbots of a lot of digital payments platforms and have greatly altered the payments experience for customers. There are numerous payment methods available today, regardless of the purpose of payment. With so many options, there is always the potential for unnecessary complexity when providing customers with their desired payment method. Chatbots are a significant aid in simplifying this process by assisting customers in locating and executing payments according to their preferred methods. Modern chatbots can also connect to bank accounts, digital wallets, and other services, significantly streamlining the process for customers.
Future of AI in digital payments
Digital payments have been evolving rapidly in India over the past few years, with the government and various private players working to create a cashless economy. From the introduction of electronic fund transfer (EFT) in 1994 to the launch of UPI – the most resilient fast payment system in the world, digital payments infrastructure has become more secure, accessible, and convenient than ever before, with millions of people using various payment methods to make transactions every day.
Some of the recent endeavours of AI in digital payments were biometric payments and voice payments.
AI is disrupting the biometric payment space by leveraging advanced technologies such as natural language processing, voice recognition, facial recognition, fingerprint recognition, iris recognition, and behavioural biometrics. These AI-powered solutions offer enhanced security and convenience, allowing users to authenticate transactions quickly and efficiently. Biometric payment solutions are becoming increasingly popular in today’s digital age, and as the technology continues to evolve, we can expect to see even more innovative solutions in the future. Similarly, with the advancement of ML, voice assistants like Alexa, Google Assistant, and Siri have become increasingly popular, and voice payments have become more accessible.
Voice payments are basically a type of contactless payment that allows customers to make transactions by speaking to a voice assistant. The mode looks far-fetched but there have been multiple pilot runs to understand the challenges and limitations of the same.
Nowadays, AI has become omnipresent in every sphere of the economy. In the digital payments world, handling large transaction volumes while minimising errors and fraud would be challenging without AI. Fortunately, AI-powered solutions have delivered numerous benefits that address these issues. Moreover, AI has become crucial in improving CX, leading to higher customer satisfaction and loyalty. As the volume of digital payment transactions grows, payment processors face increasingly complex challenges in managing and securing these transactions. AI has disrupted the biometric payment space, and voice payments have become more accessible, allowing for fast and efficient transaction authentication. Overall, the future of digital payments in India looks promising due to the advancement of AI technology in the payment industry.
Kamran Hedjri is CEO of PXP Financials