Artificial Intelligence (AI) isn’t just a buzzword anymore – it has tangible, transformative impacts on everyday processes today, like digital payments. Reports say that 71% of banks turned to AI-powered solutions to speed up digital payments and detect fraudulent transactions in 2024.
Imagine a world where your payment never fails, where fraud is detected before it has even occurred, and checkout feels like a personalized experience. This is just the tip of the iceberg regarding what AI can accomplish.
Digital payments today are in flux as technologies like AI, machine learning, and data analytics enhance security and bring forth measures to simplify digital payments further.
In recent times, generative AI (GenAI) has introduced conversational payments, with chatbots equipped to help users complete transactions and perform various other jobs through natural language interactions.
AI has also automated payment routing, which refers to dynamically selecting the optimum path for payment. In this blog, we explore how AI is redefining checkout processes and everything in between that businesses need to know to prepare for this change.
Use of AI in payment fraud detection and risk scoring
As the use of e-commerce increases globally, so do the instances of payment fraud online. Losses from global e-commerce fraud reached $41 billion in 2022, but that scenario is set to improve with the increased integration of AI.
AI is able to process huge amounts of data quickly and efficiently—making it much better than traditional methods at recognizing fraudulent activities in real time. While previously, the manual review was required to identify fraud, AI uses machine learning to quickly identify abnormal activities that may point to fraud.
The payment gateway offered by Plural by Pine Labs further offers dynamic risk scoring. Its AI model quickly scans through thousands of transactions per second and assigns risk levels. It is even able to flag suspicious activities that may suggest payment fraud.
As per an e-commerce service provider, chargeback disputes have been reported to have declined by 40% through the use of AI for fraud detection. By analyzing multiple data points like user behavior, transaction history, and device fingerprinting, AI can help enhance fraud detection significantly.
For example, J.P Morgan, a well-known financial services company, has been using AI for payment validation screening, achieving a reduction of 15-20% in account validation rejection rates in two years.
Personalised checkout through predictive analytics
The use of AI in payments is revolutionizing different aspects, with a primary focus on the following aspects:
1. Enhancing end-user experience
Predictive analytics helps personalize checkout by analyzing past payment behavior to predict preferences in terms of checkout methods and modes of payment.
Companies are already adopting these mechanisms into their checkout pages, delivering a personalized experience to customers by offering preferred payment methods based on their payment history.
For example, Netflix offers personalized checkout experiences by displaying preferred payment methods derived from user history.
2. Reducing cart abandonment
Through AI-powered personalization, businesses can drastically reduce checkout abandonment by users. It can generate personalized offers and discounts in seconds to prompt a customer to make a repeat purchase based on their purchase history.
Additionally, AI can help optimize the checkout flows using methods like guest checkout, offering diverse payment options, a mobile-friendly UI, clear triggers for next steps, etc., to reduce friction while paying and improve checkout rates.
3. Improve payment success rates with smart routing
Smart routing refers to the automation of finding the most beneficial route for payment to optimize its chances of success. With the advent of AI in payments, smart routing is set to become the norm in digital payments. AI can help with:
- Real-time decision making to determine the most suitable payment processor depending on current conditions.
- Learning from payment history to understand payment patterns that lead to higher success rates.
- Dynamically routing payments based on fluctuating factors like performance of current gateways, geolocation of the issuer or payee, currency, etc.
Based on a user’s payment history, the system determines which of the user’s payment methods are most likely to be approved and authenticated.
For example, a global e-commerce brand sells products in Europe and Asia. When a customer in Germany makes a purchase, the system automatically smart-routes the payment through a German processor, which typically delivers higher success rates and low transaction fees for local payments.
AI algorithms also leverage Redundant Routing, a failover mechanism that ensures a transaction goes through using a backup payment gateway when the primary route fails. This enhances success rates and improves customer experience.
AI-Powered Payments in Different Industries
Since the emergence of AI in different industries, payment methods are all set to be transformed.
- Read below to learn about the evolutions likely occurring in payments across various industries:
- E-commerce: Based on user behavior and payment history, AI suggests the fastest checkout methods. It also reduces cart abandonment by providing personalized offers during checkout. Plus, it simplifies the process by auto-applying preferred payment methods.
- Travel and Hospitality: AI leverages users’ browsing details to add ideal tickets to a cart and facilitates contactless payments through chatbots after planning an itinerary.
- Retail and D2C: AI can enable, authenticate, and verify payments through facial recognition to facilitate smooth buying experiences.
- Banking and Fintech: AI can power digital wallets and other innovative fintech-enabled payments for quick payment authentication, smart processing, and auto-debits for EMIs or BNPL.
Conclusion
AI has the power to solve multiple business problems, but the most critical use case it has the capability to address today is streamlining and securing digital payments. Reports say that by the end of 2025, 70% of the financial institutions are estimated to rely on AI-powered technology providers for fraud detection and prevention tools.
You can get ahead of the curve by leveraging Plural by Pine Labs – a cutting-edge digital payments infrastructure that powers secure and swift payments in a few steps. Plural’s AI-powered platform provides modernized solutions like secure payment gateways, tokenizers, payout solutions, payment links, and much more to help you expedite and safeguard your digital transactions.
Plural’s tokenizer is a PCI-DSS and RBI-compliant solution that empowers your business to fortify its digital payments effortlessly. It is especially helpful for subscription-based businesses with customers making repeat payments on the platform. Visit the Plural website today to explore more exciting features.