Can Gen AI Transform Payment Systems in Banks Amid Regulatory Pressure?

The widespread adoption of generative artificial intelligence (Gen AI) by banks in Europe and the US has been gaining momentum, particularly in the realm of instant payments and other payment modernization projects. This shift is not just a passing trend; it’s a strategic move driven by regulatory deadlines and an ever-increasing demand for real-time processing. More than half (54%) of these banks are planning to leverage Gen AI for these initiatives, while an additional 42% are actively considering it. This urgency can largely be attributed to stringent regulations such as the SEPA Instant Payment Regulations in Europe, as well as the growing clamor for quicker payment methods in the US and Canada. As a result, an overwhelming majority of banks, 91%, have ranked payment modernization as either essential or very important to their operations.

These modernization projects are neither simple nor cheap. Often exceeding costs of $100 million, they involve extensive teams of business analysts and require significant amounts of time. Many of the tasks associated with these projects focus on project analysis, testing, and both business and system analysis, which are areas where AI can easily be implemented to expedite processes. Thirty-eight percent of banks have already recognized the potential for AI to disrupt these tasks significantly, anticipating huge reductions in the need for human analysts. Additional projections show that 27% of banks expect job reductions within 1-2 years, and 28% foresee this happening within 3-4 years. Despite these projections, a balanced approach incorporating both human analysts and AI tools is still preferred, albeit with a slight tilt toward favoring AI technologies.

Banks’ Growing Confidence in AI Integration

Key findings from industry research reveal a bullish stance on AI adoption among banks. Remarkably, 100% of the banks surveyed are either considering or actively pursuing AI integration, with 62% already exploring specific applications for payment systems. Furthermore, 80% of these institutions claim to have an advanced understanding of AI. This high level of awareness and readiness speaks volumes about the confidence banks place in AI’s transformative potential. Nonetheless, challenges persist. Some concerns revolve around user expertise and the quality of AI inputs and outputs. Moreover, issues related to security, transparency, and algorithm accuracy remain significant roadblocks that banks must navigate carefully.

AI’s ability to disrupt traditional processes goes beyond mere cost-cutting; it enhances operational efficiencies on multiple fronts. Many banks foresee AI not only improving the speed and quality of work but also bringing in specialized payment expertise and a long-term vision that human analysts might lack. Tom Hewson, CEO of RedCompass Labs, has noted that AI can alleviate many of the workload challenges banks face, helping them maintain their competitive edges, market shares, and profit margins. However, he strongly advocates for the use of secure, private AI tools to handle vast amounts of data efficiently, especially in the context of instant and cross-border payment projects.

The Broader Implications and Future Outlook

The adoption of generative artificial intelligence (Gen AI) by banks in Europe and the US is on the rise, especially in the areas of instant payments and payment modernization projects. This isn’t just a fleeting trend but a strategic necessity driven by regulatory requirements and the increasing demand for real-time processing. Over half (54%) of these banks plan to use Gen AI for such initiatives, while another 42% are considering it.

Regulations like the SEPA Instant Payment Regulations in Europe and a push for faster payment options in the US and Canada are key motivators. Consequently, a staggering 91% of banks have identified payment modernization as either crucial or very important.

These projects are complex and expensive, often exceeding $100 million and involving large teams of business analysts. They focus on project analysis, testing, and both business and system analysis—areas where AI can speed up processes. Already, 38% of banks recognize AI’s potential to disrupt these tasks, reducing the need for human analysts. Additionally, 27% of banks anticipate job cuts within 1-2 years, and 28% foresee this within 3-4 years. Despite these projections, a balanced approach using both human analysts and AI tools is preferred, although AI has a slight edge.

Explore more

AI Makes Small Businesses a Top Priority for CX

The Dawn of a New Era Why Smbs Are Suddenly in the Cx Spotlight A seismic strategic shift is reshaping the customer experience (CX) industry, catapulting small and medium-sized businesses (SMBs) from the market’s periphery to its very center. What was once a long-term projection has become today’s reality, with SMBs now established as a top priority for CX technology

Is the Final Click the New Q-Commerce Battlefield?

Redefining Speed: How In-App UPI Elevates the Quick-Commerce Experience In the hyper-competitive world of quick commerce, where every second counts, the final click to complete a purchase is the most critical moment in the customer journey. Quick-commerce giant Zepto has made a strategic move to master this moment by launching its own native Unified Payments Interface (UPI) feature. This in-app

Will BNPL Rules Protect or Punish the Vulnerable?

The United Kingdom’s Buy-Now-Pay-Later (BNPL) landscape is undergoing a seismic shift as it transitions from a largely unregulated space into a formally supervised sector. What began as a frictionless checkout option has morphed into a financial behemoth, with nearly 23 million users and a market projected to hit £28 billion. This explosive growth has, until now, occurred largely in a

Invisible Finance Is Remaking Global Education

The most significant financial transaction in a young person’s life is often their first tuition payment, a process historically defined by bureaucratic hurdles, opaque fees, and cross-border complexities that create barriers before the first lecture even begins. This long-standing friction is now being systematically dismantled by a quiet but powerful revolution in financial technology. A new paradigm, often termed Embedded

Why Is Indonesia Quietly Watching Your Payments?

A seemingly ordinary cross-border payment for management services, once processed without a second thought, now has the potential to trigger a cascade of regulatory inquiries from multiple government agencies simultaneously. This is the new reality for foreign companies operating in Indonesia, where a profound but unannounced transformation in financial surveillance is underway. It is a shift defined not by new