Regulators Play Catch-up as Payments Providers Race to Embrace AI

  • Mike Woolfrey, Chief Executive Officer at Vixio Payments Compliance

  • 20.11.2023 09:45 am
  • #payments #AI

While the disruptive arrival of conversation-based generative artificial intelligence (AI) sparked a global debate about whether it is a force for good, payments firms have been racing to implement it. It’s left regulators playing catch-up as they push to implement new rules.

As momentum has gathered, governments have become more competitive in their response to AI regulation. There is a concerted effort to ensure it will be used for the greater good of society as a primary outcome.

Policymakers and regulators cannot afford to wait for things to go wrong before stepping in but, equally, over-regulation might inhibit future innovation, therefore a balanced approach must be achieved.

Industry Practice

Payments giants Mastercard and Visa are already leveraging AI capabilities to fight real-time payment fraud while the European Central Bank is looking to invest in Chat GPT-type models to support its work and the UK’s financial regulator, the Financial Conduct Authority (FCA), believes there is a safe and responsible way to implement AI innovation, which can support regulation.

Regional developments

Meanwhile, the EU is already on its way to implementing the first legal framework for AI, which has been in the works since 2021. It will determine the amount of regulation required, depending on the risk levels posed to the end users, and, once approved, will form the basis of global regulatory rules on AI. 

In August, Spain jumped ahead of its neighbors in creating a specific AI regulator to implement the EU rules once transposed. It is the first of its kind in the bloc and will focus on consumer protection. 

The British government, which has stated its intention to become a “science and technology superpower by 2030,” recently held a global AI summit at Bletchley Park in November which was declared a diplomatic coup because it successfully brought so many powerful people together in agreement. 

Attendees included US vice-president Kamala Harris, European Commission president Ursula von der Leyen, award-winning computer scientists, and executives from leading AI companies – however, some key figures were notably missing including Elon Musk. Emmanuel Macron and Joe Biden.

An international declaration backed by more than 25 countries and the EU was signed, recognizing the need to address AI risks, and world leaders also shared concerns about AI spreading disinformation. Kamala Harris made it clear that the US would take regulation seriously, announcing the establishment of an AI safety institute in her speech,  which was followed by a multi-nation announcement of government testing of AI models.

The UK Payment Systems Regulator meanwhile announced that it will continue to monitor the wider payments horizon to understand developments in AI and its potential impacts. It stated that nurturing competition and innovation is a priority while making sure payment systems offer access, protection, and transparency for consumers and institutions.

Until the summit, the US government had taken a lighter touch than the EU and UK. The Federal government worked constructively with organizations like Meta, Amazon, Google, Open AI, and others to secure voluntary commitments to ensure AI technology is safe, secure, and transparent. The blueprint for an AI bill of rights is a further step to safeguard its citizens. At the state level, California’s Governor Gavin Newsom has signed an executive order to prepare the state for the progress of artificial intelligence, aiming to capture the wider benefits for society while protecting consumers against potential threats. 

The White House and the federal government have also announced various measures to address the enthusiasm for AI across multiple industries in certain areas, evidencing a lighter touch than the EU. It has issued executive orders asking agencies to implement artificial intelligence in their systems “in a manner that advances equity.”

The US government also announced it would invest $140m in seven new national AI research institutes to pursue AI advances that are “ethical, trustworthy, responsible and serve the public good”, releasing a blueprint for an AI bill of rights. Furthermore, the National Telecommunications and Information Administration, part of the US Department of Commerce is seeking public comment about how best to regulate the use of AI.

This AI bill of rights could potentially affect the payments industry in the same way as GDPR affects all companies because of its five principles to guide the design, use, and deployment of automated systems, including payments, to protect the general public in the age of artificial intelligence. 

What lies ahead

The big question for payment firms now is whether regulations proposed by governments around the world will hurt the areas where AI is being used positively, and we will soon have the answer as proposed regulations become a legal reality.

Payment firms implementing AI now face the challenge of balancing their enthusiasm for this disruptive technology with the need to protect consumers, while regulators must now implement these safeguards without stifling innovation in payment processes, products, and services.

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