9 new AI moves in the payments industry

November 3, 2023 10:10 AM

Even with concerns over a bubble and potential regulatory restrictions, payment technology firms are racing to develop products that use generative artificial intelligence, betting on robust demand in the near and long term.

Generative AI, which refers to newer forms of AI that can produce original content, has become one of the largest trends in technology over the past year. In the payments industry, firms are making investments and deciding on strategies while still looking for the best ways to use new AI.

While much of the early uses for generative AI inside of companies, there's also a lot of attention being paid to small businesses, with Block (formerly Square) and Stripe deploying several new generative AI products in October alone.

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"There is absolutely demand from small businesses for this sort of technology, but with the big caveat is that a lot of people are still figuring out what this technology is and how it works, and where do they begin with it?" said Gilles Ubaghs, strategic advisor for commercial banking and payments at Datos Insights. "We've seen a lot of kids use chat GPT to cheat on their homework. But I think we have yet to see the data on how people are using this technology day to day in their business life."

Here are some examples of generative AI projects that have launched in the payments industry since the start of September.

Lionel Ng/Bloomberg

Mastercard

Mastercard expanded its consulting business in late October by launching practices dedicated to AI and economics. It attributed the formation of the AI practice to the "democratization" of generative AI and a complex economic climate, which the card network contends requires new expertise in AI and updated go-to-market strategies.

"AI has become part of the public consciousness over the past year, and there have been a lot of questions from firms around 'what do I need to do to stay?' " said Les Matthews, executive vice president of services for North American at Mastercard.

Generative AI is a good fit for Mastercard's diversification strategy, which relies on services, Matthews said. Mastercard, over the past few years, has focused on gaining revenue from consulting, technology and risk management, as regulatory and economic changes pressure card fees.

The card network uses AI models to provide security for more than 125 billion transactions annually, and is extending that work to other areas tied to AI and machine learning.

Mastercard's consulting group will identify and integrate uses of generative AI to improve customer experience, treasury management, product testing and general business problems such as improving personalization of communication and reducing bias in credit decisions and marketing. It will also engage with partners such as small businesses to provide education on new forms of AI.

"There's also a lot of confusion over what AI is," Matthews said. "What we're really trying to convey is how we can improve data collection and draw better insights from the data across a broad spectrum of businesses."

While much of the early use of generative AI across the payments industry has been for internal tasks, such as aiding IT requests or managing internal expense reporting, Matthews envisions external uses such as aiding conversions businesses have with clients and consumers.

"How do people interact with a website? Or what is their borrowing history?" Matthews said. "The more we can know about what people are doing, the more helpful that is to our partners."

Stripe

The payments company has added several new AI tools over the past two months, including some through a partnership with OpenAI, the Microsoft-backed lab that develops ChatGPT. Stripe has connected its payments technology to OpenAI to process the development lab's payments. Stripe's generative AI clients include Moonbeam, which uses generative AI to help content producers write blog posts, essays and other articles. Other clients include Diagram, an AI-powered design company, and Runway, which generates video from text.

Stripe recently added GPT-4, a new update to ChatGPT, to detect service violations including potential fraud, and to help scale the payment company's support functions.

Stripe referred questions about AI to a CNBC interview with David Singleton, Stripe's chief technology officer. "Stripe has been using AI since the very early days to detect patterns of bad behavior and help protect the millions of businesses that run on Stripe. Today we use machine learning to enhance fraud prevention and detection, but we also aim to use it in various areas across our business to optimize our products," Singleton said, adding that humans and AI will "work together."

Even with the uncertainty over how generative AI can be used currently, the potential uses are profound, according to Ubaghs. They encompass "everything from marketing campaigns to email templates, and now things like menu design and better integration behind the scenes of a business," he said.

Block (formerly Square)

Block introduced 10 generative AI features in late October that sellers can use to automate operations, workflows and other processes. The deployments are part of an initiative launched in March to provide small businesses with new AI tools. The October deployments include an AI menu generator for restaurants and a photo feature that helps businesses add AI-generated backgrounds with images available through a photo studio. Other generative AI tools released in October include personalized email marketing that helps craft subject lines and email content and a team announcements tool, which helps employers using Square Team Communications to generate announcements to staff via AI-generated copy.

"A company like Square building these tools directly into their platform, in the context of daily operations, will likely help bridge that connection for many," said Ian Benton, a senior analyst at Javelin Strategy & Research,

Block's clients at launch include Fuddy Duddy, a candle store in Kansas City that is using Block's photo studio app to transition to selling online. The store has used the photo studio, which has created more than 14,000 AI images to replace props and backdrops, saying it has saved hundreds of dollars in marketing expenses.

"If we can shrink the time it takes a seller to write a website description from 10 minutes to just two or three minutes, that's an important efficiency in the world of small business ownership where the demands are countless and every moment is valuable," Block's public relations office said in an email.

While ChatGPT's writing ability is impressive, it is also pretty banal, Ubaghs said, adding that's not a bad thing for small businesses.

"It is good at doing mundane and rote writing. It's good at summaries such as technical manuals and FAQs, marketing messages, etc.," Ubaghs said. "So it's easy to see how a lot of small businesses could make good use of it. The cost savings alone of using GenAI over hiring a menu designer is pretty notable."

Commonwealth Bank of Australia

CBA is examining how it can use generative artificial intelligence to create "digital consumers" to test new products.

Speaking at a technology conference in Sydney in October, Dan Jermyn, CBA chief decision scientist, said generative AI processes and interprets language patterns from groups of human users, and thousands of messages and other content to create "new outputs." The bank will use this information to build chatbots that will perform experiments on products to gauge how these products may sell or connect with an audience.

"By drawing on simulated experiences of daily life to emulate behaviors, we're testing whether these GenAI chatbots could provide qualitative and quantitative understanding of how customers might respond to changing contexts, everyday financial challenges and new products," Jermyn said in a release reporting on his speech. The bank plans to use the bots to enhance other research and product testing and contends it does not plan to replace humans in market research.

Brex

Brex applied generative AI to corporate employee expense reporting and payments for activities such as travel. Travel is one early use for generative AI, given the mix of booking trips, reserving hotels, ordering ride shares and filing expenses. The payments company says that new AI can reduce the amount of labor required to fill out corporate forms to receive reimbursement, in addition to making it easy to schedule trips.

Brex envisions an autonomous AI agent that can access an employee's corporate calendar and internal data to automatically process payments and reimbursements in real time.

Visa

Visa launched a $100 million fund in October to invest in companies that are building generative AI.

The card network can use the fund and its own scale as an international payment network to develop new language models that can streamline payment processing, combat fraud and create services for merchants, issuers and consumers.

The fund can also plug into other Visa programs that encourage fintech development, such as Visa's Fintech Partner Connect, a networking site for fintechs and Visa's clients.

It's still too early to know how many business owners are using generative AI, but consumer use is substantial, according to Benton, citing data from Salesforce that found that over half of the U.S. adult population has at least experimented with AI.

"I think there's emerging curiosity among business owners for how GenAI could help with operations," Benton said.

Amazon

Amazon in late September agreed to invest at least $1.25 billion, and as much as $4 billion, in generative AI startup Anthropic and take a minority stake in the company.

Amazon is competing against Microsoft, Google and Meta to gain AI clients and financial institutions that often work with all three of these companies on projects that require cloud technology, among other uses.

Anthropic will use Amazon as its primary cloud provider, potentially connecting AWS clients to Anthropic's AI technology. In June, Amazon launched AWS Payment Cryptography, which enables cloud-hosted payment technology, in competition with firms such as IBM and Microsoft. These firms enable payment upgrades to be executed remotely rather than using hardware, which can allow faster adjustments as payment technology accelerates.

Klarna

Klarna in late September adopted ChatGPT Enterprise, a form of ChatGPT designed for corporate use.

The Swedish financial services company uses an application programming interface to connect its staff to ChatGPT, which uses the technology to inform their work, including programming, customer service and some sales.

Klarna provides a range of banking services in Sweden and is known globally for its installment lending and shopping technology. Klarna uses ChatGPT to curate product recommendations for consumers who ask the platform for advice on shopping. The program is designed to also enable consumers to ask for general items such as "shoes" and receive a personalized offer from a Klarna client that is based on that consumer's shopping, buying and payment history.

Ant

Chinese e-commerce giant Ant in September began testing two new AI programs designed for financial services.

Zhi Xiao Zhu 1.0 supports analysis for professionals that work within finance, supporting insights for investments, wealth management and other functions for higher end or institutional clients. Zhi Xiao Zhu 2.0 is designed for consumer use, using new forms of AI to enable insights for individual investing, budgeting, retirement savings and other financial products.

Ant is affiliated with Alibaba and Alipay, forming a financial superapp that provides a wide range of payments and other financial services for consumers in China, as well as Chinese consumers who live in or travel to other countries.