Instant Impact: AI’s Role in Advancing Real-Time Payments

Real-time payments are a boon to consumers and companies alike, but they are not without their hurdles. These include the need for rigorous onboarding procedures and anti-money laundering (AML) checks to safeguard against fraud. Even an instant payment as simple as a friend paying another for dinner over a peer-to-peer (P2P) app can create anxiety when the transaction is falsely declined for fraud.

Solving these problems has long been a top priority for financial institutions (FIs) and payments companies of all kinds. Recently, with the increased focus on consumer data privacy, multifactor authentication (MFA) and advancements in artificial intelligence (AI) and machine learning (ML), there is progress being made. Applying these tools can make payments even safer and faster, including — and perhaps especially — those made in real time.

Real-Time Payments Face Challenges

AI Helps Strike the Sweet Spot Between Speed and Security

FIs Adopt AI to Accelerate Fraud Detection

Why AI Is Critical for Improving Real-Time Payments

Real-Time Payments Face Challenges

Perceptions about risk are hindering the adoption of real-time payments, as many companies and consumers are hesitant to leverage these rails for fear of fraud and cybercrime. AI offers the potential to effectively manage these complications.

Perceived issues keep companies from utilizing real-time payments.

Worries about potential risks are creating impediments to the wider adoption of real-time rails among corporates, despite the fact that instant payments are safer than other types of payments because they constitute “push” payments and must be authorized by the user. In comparison, for instance, an automated clearing house (ACH) payment can be pulled from an account without the account owner’s authorization.

75%

of financial firms conduct AML checks manually.

In a recent survey, organizations cited increased fraud risk as the second-largest obstacle to their implementing real-time payments, at 44%, following only system development issues, at 64%. Despite these perceived risks, three-quarters of firms surveyed expected to use real-time payments by 2028. Implementing AI systems could be crucial to overcoming these obstacles as real-time rails grow more popular among corporates.

AML checks are a key source of payments drag.

A recent report reveals that three in five firms in Ireland outsource AML checks to lower-cost locales like India or South America, and three-quarters of firms surveyed say they conduct these risk assessments manually. Of those that leverage automation, 90% encounter issues with fragmented systems, necessitating manual intervention. Meanwhile, nearly 90% of firms note that further automation could significantly streamline their customer due diligence processes, which could likely facilitate faster payments overall.

AI Helps Strike the Sweet Spot Between Speed and Security

Balancing the need for security with a fast and convenient customer experience is a constant challenge for any payments provider, especially one that intends to operate in real time. AI can be a key tool to deliver on this promise.

46%

of FIs say AI can aid in risk reduction.

AI can help reduce onboarding times for a smoother customer experience.

Experts project that implementing AI for identity verification during customer onboarding will reduce the average onboarding time from more than 11 minutes in 2023 to less than 8 minutes by 2028, resulting in a 30% time savings. This integration can improve customer retention with faster onboarding and reduce financial losses to advanced cybersecurity crimes such as synthetic identity fraud. AI achieves this by leveraging sophisticated pattern recognition techniques to detect discrepancies in customer profiles that could potentially result from a stolen or fabricated identity. Moreover, it accomplishes this task in far less time than it would take a human.

AI may improve security and accuracy in the payments space.

A recent survey of financial services leaders indicates strong optimism concerning AI’s role in their organizations in terms of enhancing security. Forty-six percent said the technology could aid in risk reduction from data processing, while 37% said it could improve data management and accuracy. AI could also be beneficial for value-added applications like marketing, with 38% of respondents saying it could help create personalized offerings for customers and tailor experiences to their past activities on payments platforms.

FIs Adopt AI to Accelerate Fraud Detection

FIs and payments providers are recognizing AI’s potential to eliminate payments roadblocks and accelerate the transaction process by improving fraud detection. Firms that have integrated AI into their systems are reporting numerous successes.

Payments professionals are leveraging AI primarily for fraud detection.

In a recent survey examining the growing use cases of AI and ML in the payments industry, 94% of respondents emphasized the role of these technologies as fraud detection solutions. Additionally, 67% identified their use for personalized customer service, and 65% noted their application for chatbots and virtual assistants. Another promising use case for AI in payments is predictive analytics, where AI analyzes user patterns to identify potential instances of fraud or cybercrime. Many of the professionals surveyed recognize that the technology is still nascent, and while they envision even more use cases for safeguarding and accelerating payments, they acknowledge that specific solutions are yet to be determined or understood.

94%

of payments professionals say that AI and ML can be used to improve fraud detection.

Customers want FIs to use AI to combat fraud.

According to a 2023 survey, 77% of customers want FIs to improve fraud detection, including by leveraging AI and ML to detect anomalies and prevent scams. AI can enable banks to issue real-time alerts when suspicious activity is detected during a transaction. In fact, 65% of customers expressed a desire for FIs to provide more timely warnings about emerging scams when making payments, with 57% seeking alerts about scams as they conduct real-time transactions. Banks should exercise caution to avoid sending excessive alerts and notifications, as an abundance of messaging can negatively impact the customer experience.

Why AI Is Critical for Improving Real-Time Payments

AI can potentially play a critical role in the real-time payments ecosystem, enhancing security measures to combat fraud and simultaneously elevating the overall customer experience. AI-powered systems employ advanced algorithms and ML models to detect anomalies in real time by analyzing various data points, including transaction history, user behavior and geolocation. This allows the system to establish patterns and identify deviations that may indicate fraudulent behavior.

Moreover, AI-driven fraud detection systems enhance real-time payments by minimizing false positives. Traditional fraud detection methods often flag legitimate transactions erroneously, causing inconvenience and frustration for customers. AI, through its capacity to analyze and understand intricate patterns, distinguishes between legitimate and fraudulent transactions more accurately, reducing false alarms and improving the customer experience. As the technology continues to evolve, the synergy between real-time payments and AI will continue to redefine the landscape of secure and seamless financial transactions.