Long settlement times. Intensive compliance requirements. The threat of fraud. Despite a pervasive shift to digital transactions, international payments providers and their customers are still up against a complex slate of issues.
So how can the industry tackle these challenges and mitigate delays for businesses that need to efficiently send funds around the world?
Enter: artificial intelligence (AI).
The AI difference
Whether automation is framed as a workforce revolution or an existential threat, recent developments have made it clear that the technology is here to stay.
Artificial intelligence (AI) refers to the simulation of human intelligence processes by machines, particularly computer systems. In the international payments industry, AI is relevant for its ability to streamline operations, enhance security, and optimize decision-making processes. By leveraging AI algorithms and machine learning (ML) techniques, financial institutions can automate tasks, detect fraudulent activities, and gain valuable insights into customer behavior and market trends. This ultimately helps drive efficiency and innovation in the industry
These types of advantages mean AI implementation may soon be a major advantage for traditional financial institutions and modern fintechs alike.
Read on to discover the potential benefits that AI holds today and in the future.
Fraud in the era of real-time payments systems
The advent of instant payments — such as the RTP network from the Clearing House and FedNow from the Federal Reserve — is ushering in a new level of convenience for both B2B and personal transactions at a global scale. However, this innovation adds a new layer of difficulty to preventing fraud both for domestic payments and international payments.
What makes it so hard to ensure a real-time payments platform carries out transactions securely? According to analysts from J.P. Morgan, cross-border payments are especially vulnerable to cybercrime, with criminals exploiting opaque regulations and inconsistent messaging standards across regions. There is also widespread targeting of accounts payable operations through the use of fake invoices or illegitimate supplier accounts.
These factors illustrate how the speed that businesses and customers have come to expect through near-instant payments doesn’t always square with the realities of scam mitigation.
How AI helps detect fraudulent payments
“It’s much harder to reverse payments than it is to verify them,” said Scott Johnson, VP, Program Management at Convera. “Payments providers need to be incredibly thorough upfront.”
One primary tactic to detect fraudulent FX payments is pattern recognition, such as comparing a transfer request to customers’ past behaviors, schedules, and common recipients from a bank account. Sifting through this data, though, is often incredibly labor-intensive and time-consuming — posing a serious obstacle to clearing instant payments.
But with AI and ML technologies, payments companies have the power to automate data reconciliation, in turn flagging suspicious FX payments before it’s too late. This also allows specialists to devote time and resources to requests that raise concerns, rather than each transaction.
The challenge of regulation in international payments
Compliance is another area that AI promises to simplify, speed up, and strengthen.
Traditionally, compliance and sanctions proved especially difficult for FX payment companies in refining their business models and offerings. As Grant Vickers describes in the Payments Journal, cross-border payments involve “bridging multiple currency systems and regulatory jurisdictions, and generate far more sanctions alerts.”
When Russia invaded Ukraine in early 2022, for example, sanctions screening became much more complicated overnight. The US imposed sanctions that affected roughly 80 percent of banking assets in Russia, while SWIFT also restricted access to its network.
Unlocking an AI toolkit for compliance
With ongoing geopolitical tensions and ever-changing regulations, maintaining compliance will remain a challenge. By integrating AI, however, the FX industry won’t need to be stuck playing catch-up.
As Johnson of Convera outlined, certain inputs — such as someone’s birthday or address — can quickly show that an individual is on a sanctions list. Yet there will still be many exceptions or complicated cases where analysts need to make a final decision. The more data-driven recommendations they have at their disposal, the more accurate and efficient that process will be.
“Leveraging AI has the potential to create a safer fabric of payments for everyone and empower people to make better decisions,” added Johnson.
How ISO 20022 impacts AI and instant payments
The applications of AI are still evolving, but concrete developments are set to make its capabilities in analyzing data and recognizing patterns even more valuable. Among the most promising updates is the increasingly widespread adoption of ISO 20022, a messaging standard for exchanging electronic messages attached to digital payments.
ISO 20022 makes it easier to provide rich data with every transaction and offers more detailed information about each stage of clearance among intermediaries in the payment life cycle. The standard offers greater richness and flexibility compared to older formats, enabling more comprehensive data exchange and supporting the needs of modern payment systems.
Though migration to the system among financial institutions is ongoing, estimates from SWIFT show that 79% of the total payments worldwide volume will use the standard by the end of 2023 — one development that could help international digital payments be executed with the efficiency of domestic payments.
Most importantly, a common messaging format may bolster AI systems and drastically reduce false alarms for suspicious payments and sanctions, ultimately making it easier to receive faster payments. Achieving higher accuracy at scale would be a significant advancement — especially given that, on average, each false sanction alert takes between three and five minutes to resolve manually.
The future of real-time payments
“AI could really be a self-service solution for cross-border payments companies in the long run, giving analysts relevant insights and more useful recommendations,” said Johnson.
While there’s no substitute for human expertise in the FX industry, it will take a new toolkit and a wide range of new technologies to meet the demands of global finance today.
Ready to learn more about the latest in cross-border payments? Sign up to get the latest market insights from our team of experts.
Plus, dive deeper into the trends shaping cross-border payments with our podcast, Converge.
