According to RedCompass Labs, European and US banks are turning to generative Artificial Intelligence (AI) to help with modernised payment projects.
RedCompass Labs’ report has unveiled its findings from a survey of 200 senior payments professionals at EU and US banks, which examined their views on generative AI, their expertise and their approach to AI in payments modernisation.
The company found that over half (54%) of banks are planning to leverage generative AI to support the transition to instant payments and other payments modernisation projects, while four in ten (42%) are actively considering the possibility.
These figures are perhaps unsurprising to industry stakeholders, given the pivotal moment the sector finds itself in. The report highlights this, with 91% of banks ranking payments modernisation as either important or very important.
For instance, European banks are preparing infrastructure to meet the SEPA Instant Payment Regulations deadlines, which many believe are unrealistic.
Additionally, banks in the US are trying to meet the growing momentum for instant payments, while Canadian banks are preparing for the launch of their instant payments scheme as early as 2026.
This pressure has led many banks to explore the benefits of AI in recent months. Spanish bank BBVA more than doubled its AI workforce, recruiting 230 new staff to join 200 employees currently working in its AI divisions and new ‘AI Factories’.
Benefits of AI
Efficiency and optimisation are two key elements that banks look to AI for help with, using the technology to help with small, tedious tasks that take up employees’ time.
Tom Hewson, CEO at RedCompass Labs, commented: “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.
“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.”
Modernised payments projects, as important as they drain time and budgets with banks spending upwards of $100m on multi-year projects and hiring teams of up to 50+ business analysts to deliver them.
Additionally, two-thirds of a bank’s time and investment on these projects is directed towards project analysis, testing and business/system analysis, areas in which AI can be implemented easily.
While some banks are increasing headcounts at the moment as they employ AI engineers. RedCompass Labs’ research reveals that AI is having the opposite impact on some banks’ headcounts.
Findings show that 38% of banks believe AI can already reduce the number of business analysts needed for these projects. An additional 27% predict this reduction will occur within the next 1-2 years and 28% anticipate it happening within 3-4 years.
Hewson said: “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.”
The risks around AI adoption
Although 100% of banks surveyed are at least considering the adoption of AI, some concerns around the sector are hindering the adoption of the technology.
Banks’ five biggest concerns when it comes to generative AI are user expertise (29%), low-quality inputs/outputs (28%), security and data protection (27%), transparency of decision-making (25%) and accuracy of AI algorithms (25%).
While all these reasons seem rational on the surface, Hewson believes that being overly cautious will leave firms behind the curve – something they can’t afford to do as the pace of innovation continues to speed up.
“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 added.
“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. Innovation and projects are held up because banks can’t get through their workload fast enough.
“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.”
As Hewson mentioned, AI can produce documentation for review by humans. This is a very important aspect that is overlooked in conversations around technology, with many people raising issues about AI working without human assistance.
In addition to regulation never allowing AI to work without a person, banks believe human oversight remains essential. The report shows that they believe in a balanced approach to human and AI collaboration, which is slightly tipped towards AI.
The minimum level consists of 49% human and 51% AI involvement. This balance changes depending on the task, with human involvement most important for strategic jobs (37%), improving internal processes (34%) and customer experience (29%).
Another hurdle that stands in the way of banks utilising AI is regulation. Last week, the Council of Europe, signed the first legally binding international agreement on AI, aiming to create a unified global approach to managing the risks of the technology in line with shared values.
While this is a significant step, Lord Chris Holmes, who advocated for AI regulation by supporting the passage of the Artificial Intelligence (Regulation) Bill, believes the UK and other countries are moving “too slowly”.
Hewson concluded: “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.”
