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 surveyed 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.”

AI Reducing Analyst Roles

Instant payments are already common in 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.