How Artificial Intelligence is improving the payment industry

When looking at the world of artificial intelligence and how it’s shaping the payments landscape there is an increasing number of different applications that are developing at a fast speed across different industries. To give you an idea about the growth of the global AI market, it was projected by the market research firm IDC that it will reach a size of over half a trillion U.S. dollars by 2024.¹

As it is in many other sectors, the payment industry is very prone to benefit from the algorithms of AI and what it can bring to the table in terms of increased performance, customer experience and personalization. What are the main areas of application for AI in payments and how fast has this market been growing? Let’s start from the beginning.

What is artificial intelligence?

Firstly, we need to define what artificial intelligence actually is. Originated in the computer sciences, AI has quickly developed in many sectors and has now become part of our day-to-day life, with use cases like voice assistance in mobile phones, digital assistants, robots for the house and many more. It refers to the capability of a machine to perform tasks by replicating human intelligence, such as decision-making, visual perception, speech recognition.

When we look at the Ecommerce world, this technology is being implemented and seen as a way to add customization for their customers. According to a 2020 survey by SearchNode, 70% of Ecommerce decision makers in North America and Europe believed AI would help their business with personalization in 2021. 24% of respondents were in in the process of implementing AI into their business and 9% had already adopted it.²

Moreover, a survey by Nvidia showed that in 2020 81% of the C-suite professionals surveyed perceived AI as a competitive advantage for the success of their company.³

There are many areas of your Ecommerce where artificial intelligence can be applied to improve your customer’s shopping experience. In this article we are going to focus on the checkout phase and payment processing and how AI can help you seal the deal with your customers.

AI in payment processing

The payment’s landscape is one of the areas where artificial intelligence can be applied to many services, by automating complex processes and improving customer service and the value of the service. Let’s have a look at the main applications of artificial intelligence for payment processing, that can directly benefit your Ecommerce.

Fraud prevention

As explained in our article on online payment fraud and our whitepaper on the topic, fraud prevention has become increasingly important for Ecommerce, especially considering the rise in fraud threats and cases in the past years worldwide and specifically in the UK. Among the fraud prevention solutions available on the market at the moment, artificial intelligence plays a big role in detecting and anticipating fraud.

One of the main use cases is to prevent false positives. Also called false declines, they refer to when legitimate transactions are denied because incorrectly categorized as suspicious by risk management filters. This creates problems not only when looking at the business revenue but it can also have a negative influence on customer experience and, as a consequence, hurt the brand reputation. Therefore, how can AI help reduce false positives? The process is called data enrichment and it involves integrating additional data points in given transactions to better track behaviors, after assigning a probability to them. The goal is to estimate whether to accept or decline the transaction based on the given data.

Chatbots

Another popular use case of AI in the payments landscape are chatbots, which can interpret the needs of the customer based on the information they are given and therefore suggest answers and solutions and even process payments for customers. Important tools to streamline customer service, AI chatbots can carry human-like conversations by using NLP, aka natural language processing, and via machine learning.

Although advanced, in order to achieve an optimal performance, these tools need to be used in conjunction with human interaction. They are extremely useful to answer to routine questions and solve common problems of customers, while saving human intervention for when needed. When the customer is ready for the purchase, they can make their payment via the chatbot, which helps them along the way with the different checkout and authentication steps. 

Personalized Shopping

Big companies like Amazon and Netflix have already invested in personalisation of their services and offer extremely customised customer experiences on their websites/ apps, such as product recommendations based on previous purchases or on similar customer’s behaviors. These processes are run by artificial intelligence, which analyses existing data via machine learning, in order to develop a better understanding of the needs of the customer.

Authentications

You are most likely already familiar with the 3D-secure authentication that is now required in Europe after the PSD2 legislation for online purchases. The most significant introduction in the new protocol is the use of biometrics for identifying the buyer. Biometric authentication is based on artificial intelligence and includes facial recognition, fingerprint scanner and voice detection. The way it works is that it takes into consideration the user’s biological traits in order to authenticate and validate a transaction. The biometric authentication market is growing exponentially and according to a 2021 MRFR study it is expected to reach almost $100 billion by 2027.⁴

Payment orchestration

Finally, the last AI application in the payment landscape we want to focus on is payment orchestration. This market has been growing at a global level at a very fast pace: according to the Global Market Estimates report, it is predicted to grow at a CAGR of 20.2% from 2021 to 2026.⁵

When we talk about payment orchestration – as we have seen in our article on the topic - we refer to platforms that integrate multiple payment gateways, service providers and different acquirers within a single point of access and are run by smart routing, which automatically switches to the best route for the transaction in order to get the best performance and cut on costs. Moreover, by using the platform, data from different providers and finances are integrated, making the process of reconciliation much easier and quicker. Smart routing is based on machine learning and by analyzing existing transactions, the engine becomes more accurate and enhances its future payment processing performance.

In conclusion, when we look at the fascinating world of artificial intelligence and the innovative changes it has brought to the payment ecosystem, it is impressive how much it has already been accomplished. From chatbots that understand your needs and work as checkout points by accepting payments, to biometric authorizations that allow you to confirm your identity and accept payments by simply tapping with your finger on your smartphone screen or looking at the camera. However, we are only at the beginning and this technology will continue to grow and enhance customer experience and make payments quicker and more secure.