As every bank across Europe is currently readying its infrastructure to comply with the new Single Euro Payments Area (SEPA) Instant Payment Regulations, and as US and Canada-based banks look to meet the growing demand for instant payments, new research reveals that generative artificial intelligence (AI) is set to play a key role.
New research from payments modernisation firm RedCompass Labs, has revealed that over half (54 per cent) of banks are planning to leverage generative artificial intelligence (AI) for the shift to instant payments and other payments modernisation projects, while 42 per cent are actively considering the possibility.
This topic appears urgent for banks, as 91 per cent of banks revealed they rank payment modernisation as either important or very important.
These instant payments projects are draining time and budgets with banks spending upwards of $100million on multi-year payments modernisation projects and hiring teams of over 50 business analysts to deliver them. Two-thirds of each bank’s time and investment on these projects goes towards project analysis, testing and system analysis, areas ripe for AI disruption.
The report, ‘AI in payments: The future of payments modernization?‘, includes findings from a survey of 200 senior payments professionals at EU and US banks which examined their views on generative AI, their expertise, as well as their approach to AI in payments modernisation.
Human oversight remains ‘essential’
The research reveals that AI is already having an impact on headcount, with 38 per cent of banks believing AI can already reduce the number of business analysts needed for these projects. An additional 27 per cent anticipate this reduction will occur within the next one to two years and 28 per cent foresee it happening within three to four years.
Despite this, banks still believe human oversight remains essential. They believe in a balanced approach to human and AI collaboration, with the minimum level consisting of 49 per cent human and 51 per cent AI involvement. Human involvement is most important for strategic tasks (37 per cent), improving internal processes (34 per cent) and customer experience (29 per cent).
“From a process, skill, and expertise point of view, payments innovation and market share is being seized by a few big banking players who are widening an already significant competitive gap,” explained Tom Hewson, CEO at RedCompass Labs.
“But AI can help to close it or accelerate it. It just depends on who is first to take the opportunity. With AI, we can more than double output and maintain costs, or we can maintain output and more than half costs. It’s our choice. Banks and payment providers that don’t embrace AI in the payment modernisation space will face both cost and speed disadvantages relative to those that do, resulting in a loss of profit margin and market share. But, if they leverage the billions that have been invested into AI, make use of the tools available, and gather industry knowledge, they have a chance to keep up with the rate of change.”
Are banks being too risk-advserse?
RedCompass Labs also revealed that 100 per cent of banks surveyed are at least considering the adoption of artificial intelligence, with a significant 62 per cent actively or aggressively exploring this transformative technology.
However, banks do have concerns about AI, with the five biggest being: user expertise (29 per cent), low-quality inputs/outputs (28 per cent), security and data protection (27 per cent), transparency of decision-making (25 per cent) and accuracy of AI algorithms (25 per cent).
Tom Hewson, CEO at RedCompass Labs
“What’s stopping most banks? The banks themselves. Internal governance, trust and a misunderstanding of risk. In being risk-averse in areas such as AI, banks are creating existential issues for themselves further down the line. The ones that can adjust to take advantage of this opportunity will be the ones that succeed,” Hewson continued.
“To access the full extent of these benefits in the payments world, we need to apply AI to a very specific problem: instant and cross-border payments projects. Bank’s can’t get through their workload fast enough, leading to delays in innovation and projects. AI can help. AI tools that are secure and private to the project, yet can gather years of knowledge and produce documentation for review by humans are changing the game. These AI tools mean banks can keep up with the rate of change and the cost for change.
“Whatever your opinion of AI today, its impact may be far less than the hype in the short term, but it will be far more than you can imagine in the medium term. There is no going back. The rate of change in payments has never been this fast and will never be this slow again. It’s time to get up to speed.”
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