AI in payment processing: current trends & future state

 

Toss a rock in any direction in the digital sphere, and chances are, artificial intelligence (AI) has made an impact. Thanks to access to massive amounts of data, the rise of machine learning algorithms, and the confluence with other powerful technologies such as 5G and blockchain, AI has exploded in the last year.

Have you ever used a writing tool to craft e-correspondence? Asked a virtual assistant to play a song? Or tapped into personalized recommendations on your streaming subscriptions? If so, you've used AI and its technologies in your day-to-day life.

There's a good reason Canada's AI ecosystems continue to grow. The Government of Quebec, for instance, has allocated $100 million in funding to AI organizations and research centres plus an additional $40 million to the Pan-Canadian Artificial Intelligence Strategy. And just this year, Google Canada announced they would be funding new research grants to back AI research in several key areas, including sustainability and the responsible development of AI.

In the fintech space, you can find AI and machine learning in robo-advising, digital trading, and open banking. So what does AI in payments look like, and what can small businesses anticipate in the near future? Let's take a look.

 

 

How is AI currently used in payments?

Industry-leading payments providers can use AI for everything from payment processing to customer service to fraud detection. In turn, innovation in AI-powered technologies enhances features and adds new offerings in the space, which benefit both merchants and customers. Here's how AI impacts the payment processing landscape.

 

Virtual assistants

Customers can interact with a virtual assistant or chatbot, which can schedule appointments, answer common questions, walk customers through basic processes, set up orders, and look into recent transactions. When AI helps handle these tasks, your team can help a greater number of customers — and generate more sales — in a shorter amount of time.

Additionally, virtual assistants can offer personalized support while allowing customer service team members to focus on more complex work or new customer-facing initiatives and projects.

 

Automation of repetitive tasks

You know those redundant, tedious tasks that eat up a lot of energy and time? From data entry to reporting and reconciliation, AI can automate repetitive payment processing tasks, which helps streamline and speed up processes while reducing the risk of inaccuracies.

 

 

Case in point: When it comes to reconciliation, machine learning analyzes large amounts of data, then automatically matches that data to corresponding transactions. Any discrepancies can be flagged for deeper analysis.

How might AI benefit payments?

Now that we've looked at the different ways you can apply AI to the payment processing space, let's go over the overarching benefits of artificial intelligence in digital payments and at brick-and-mortar establishments.

 

Fraud detection

AI can help reduce fraudulent payments by detecting unusual transactions in real time. It can also help detect questionable internal behaviour.

For instance, AI can serve as an around-the-clock watchdog by logging in to the banking system after business hours, or when there's a transaction involving a very large amount. AI can also flag transactions with companies and vendors you have no history of doing business with.

 

Customer service and personalization

Chatbots and virtual assistants can refine and tailor the customer payment journey by analyzing purchase history, browsing behaviour, past interactions, and more.

This AI-driven personalization frees up customer service representatives so they can tackle more challenging requests. It can also help them better understand their customer base, which can lead to better inventory management and greater engagement and satisfaction.

 

Acceptance rates

AI can find patterns in your payments data and pinpoint anything that could be dragging your acceptance rates down, frustrating your customers, or producing false declines. Tapping into this data means you can boost card acceptance rates and lower transaction fees. Plus, you can bolster card security. All these benefits translate to lower costs for you, which means more resources to put toward scaling your business.

 

Data review and insight

By analyzing customer data, AI can offer invaluable insight into customer behaviour, which can help you customize and optimize the payment experience.

For instance, AI can help generate an experience that's both more personalized and more convenient for the customer. By looking at a customer's payment history and preferences, AI tools can recommend payment products tailored to location, time, and type of transaction (online, in-person, or phone).

AI can also provide dynamic pricing, which can help you offer sustainable and competitive prices for your goods and services in real time.

 

 

Barriers and risks to consider

While there may be great interest and possibilities in the pursuit of AI and its integration in the payments space, AI-powered tools also bear a level of risk. And as new AI technology emerges, unknowns about certain tools — and how best to adopt them — remain. Be mindful of these possible risks and hurdles as you consider AI solutions.

 

Evolving standards

While Canada's proposed Artificial Intelligence and Data Act (AIDA) includes some governance and standards on how businesses in the country will be held responsible for AI activities, the act is still in development. Currently, the Canadian government doesn’t have specific AI regulations for its departments at the federal, provincial, or municipal levels.

This lack of oversight and standards across the board can lead to confusion and slow acceptance — not to mention setbacks in the advancement and adoption of AI technology.

 

Lack of education

With more than 1.2 million Canadian small businesses — of varying size, growth stage, and industry — it’s understandable that not all merchants know how to use AI tools. It will take time to get up to speed with the latest AI technology, adopt new software, or train staff.

 

Handling sensitive data

You might feel concerned about whether or not AI will protect sensitive financial and customer data. Because AI taps into massive amounts of data to glean insight and analyze trends, it’s important to read the fine print and understand that any information you share with an AI tool can be used to train it. It’s also good practice to ask your financial firms and payment platforms what measures they take to safeguard sensitive information.

 

Prepare for the future of AI

From machine learning to predictive analysis, AI is already transforming the payment processing landscape. What we've touched on — customer service, greater customization, and fraud detection — is just the beginning.

As advancements in AI flourish and continue to innovate the fintech industry, it's important to keep up with the latest innovations so you can find ways to fold AI into your payment processing setup and workflow. Ultimately, when used properly, AI can help your small business grow and thrive. Learn more about AI in retail and AI payment systems in our article hub.