TCH Says AI Bridges Payments Innovation Gap Between Banks and Merchants

Artificial intelligence (AI) is gearing up to transform payments and commerce.

Peter Davey, senior vice president and head of product innovation and labs at The Clearing House, noted that AI, as a category, is quite expansive — spanning everything from robotics and process automation to cognitive automation.

In other words, it’s not all about ChatGPT.

AI is already being used in financial services, and improvements are already being realized, especially in back-office automation. At a high level, by helping eliminate some repetitive tasks, he said financial institutions (FIs) “have been able to free up resources and move those resources to more sophisticated job functions.”

AI is still new to being harnessed to aid an urgent issue confronting FIs: fighting fraud, especially as payments move inexorably toward real-time status.

“The challenge has been the amount of data that we’ve been able to feed these AI models,” Davey told PYMNTS.

But as FIs get better at harvesting and centralizing that data, by using cognitive computing and algorithms to make decisions with AI layered on top of it all — what he likened to a “layered approach” — fraud rates will continue to wane.

As FIs and other enterprises start to incorporate AI into the real-time transaction flow, the models can examine customers’ behaviors — whether they’ve sent similar-sized payments before, or if behavior is proving anomalous. AI can alert third parties that are helping FIs monitor fraud and capture that payment before it “leaves the door,” he said.

Improving the Customer-Facing Interactions

AI will evolve to become a key component of what Davey said is the customer service side of financial services, including loan applications. That will be a boon for smaller FIs (and even larger firms) that are already using models to pre-approve loan applicants but need some help to make decisions faster, and around the clock. Speeding things up and improving credit decisioning overall will help the banks compete more effectively with FinTechs that are already using AI engines.

“They just don’t have the resources, or staff, to make decisions 24/7,” Davey said of the traditional banks. “And we’re in an economy where everyone wants to have an answer right now.”

Banks are already benefiting from having a hybrid model in place, where AI “passes” a loan, for example, “to a smaller set of folks when it cannot answer the questions anymore,” he said. “The FIs get a better sense of who their customers are, how their customers are transacting across retail and wholesale transactions, and they start to build better customer profiles.”

Changing the Retail Landscape

AI will continue to evolve, and as we move toward cloud-based infrastructures, the potential is there to transform the retail commerce experience across online and in-store channels. Larger merchants and merchant platforms are already using AI and data models to help steer customers toward products they may want to purchase, and to craft targeted offers to incentivize them to buy. The models have been widely deployed online but are increasingly becoming useful for in-store settings.

As real-time payments become more prevalent, Davey predicted merchant processors can bring this consumer-level data directly to the point of sale to help steer customers to one payment type over another or help fine-tune in-store apps and loyalty programs.

“All of this is going to be powered in real time with the AI engines,” he said.

The positive impact of combining AI with advanced analytics will be felt up and down supply chains, noted Davey. Companies including Home Depot, Walmart and Target have been using advanced analytics and models for years to help with inventory/stock and supply chain management. With AI in the mix, enterprises of all sizes will be better equipped to manage inventory and fulfillment.

“You’re not necessarily having people on floors counting the amount of merchandise there and then reporting back into a central engine,” he said, adding that firms will be able to “put resources where they are needed … and make real-time changes to inventory and pricing.”

Back-office accounts payable (AP)/accounts receivable (AR) functions become streamlined, too, as the procure-to-pay cycle is automated in ways that eliminate manual invoice processing, inventory stockouts and exceptions, with minimal human interaction.

“This frees up capital for companies of all sizes as they participate in the real-time economy,” said Davey, who added that AI will help FIs and merchants meet their ultimate goals. “We’re all searching for better customer experiences, we’re searching for better processes, and we’re all searching for more efficiency.”