Although AI is not new, many financial institutions are only
beginning to explore its potential. Early use cases primarily focus on
chatbots, fraud detection, and reducing costs. The broader applications, such
as in payments, are just emerging.

New research from RedCompass Labs has shown that over half
of banks, 54%, are planning to implement generative AI to support payments
modernization, including the shift to instant payments. Meanwhile, 42% of banks
are considering this possibility.

AI in Payments Modernization

RedCompass Labs conducted a survey of 200 senior payments
professionals from banks in the EU and the US to understand their approach to
AI in payments modernization. Banks often outsource payments projects but face
challenges with quality control, cost management, and aligning short-term goals
with long-term strategies.

Many banks believe AI can help address these issues. Among
banks with advanced AI expertise, 57% see AI as improving long-term vision, 47%
believe it can enhance payments expertise, and 44% think it will speed up
project delivery. Banks with lower levels of AI expertise prioritize
improvements in work quality: 56% and cost management: 38%.

“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,” commented 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,” he continued. “With AI, we can more than
double output and maintain costs, or we can maintain output and more than half
costs.”

Generative AI has the potential to revolutionize finance and banking and make these services more inclusive, and, in my opinion, since AI propels efficiency and security, it can also be instrumental in bridging economic disparities.RT @antgrasso #AI #finserv #fintech pic.twitter.com/agbjmx1qAZ

— Maximum Digital Sight (@MaxDigitalSight) September 15, 2024

AI Reducing Analyst Roles

Instant payments are already common in regions such as Asia,
Brazil, and India. European banks are now preparing to comply with the SEPA
Instant Payments Regulation, which mandates that payments be processed within
10 seconds or less. This creates technical and logistical challenges, requiring
system upgrades to manage large volumes of data efficiently and securely.

However, there are still concerns about AI’s role in
banking. The most cited issues include user expertise: 29%, low-quality inputs
and outputs: 28%, data security: 27%, transparency in AI decision-making: 25%, and
the accuracy of AI algorithms: 25%. Despite concerns, many banks see AI showing
potential, especially in reducing the number of human analysts for payments projects.

Regulators Face AI Challenges

The survey found that 38% of respondents believe AI can
currently reduce the number of business analysts required. Another 27%
anticipate this will happen within the next 1–2 years. Respondents from the US
are slightly more optimistic about AI’s potential to cut headcount than those
in the EU, with 42% of US banks holding this view compared to 34% in the EU.

AI is widely regarded as a transformative force in banking,
particularly in the modernization of payments. However, its implementation
brings both opportunities and challenges. The emergence of groundbreaking tools
like AI presents a steep learning
curve for regulators who must govern these technologies effectively.

World’s First AI Treaty

In response to challenges, the US,
Britain, and EU member states are set to sign the world’s first legally
binding international AI treaty. Known as the AI Convention, this agreement was
adopted in May by 57 nations under the Council of Europe. The treaty aims to
manage AI-related risks while safeguarding human rights and fundamental values.

“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,” Hewson added.

This article was written by Tareq Sikder at www.financemagnates.com.

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