New research from RedCompass Labs, a world leader in payments modernization, has revealed that over half (54%) of banks are planning to leverage generative artificial intelligence (AI) for the shift to instant payments and other payments modernization projects, while four in ten (42%) are actively considering the possibility.

The report, AI in payments: The future of payments modernization?, includes findings from a survey of 200 senior payments professionals at EU and US banks which examined their views on generative AI, their expertise, and their approach to AI in payments modernization. 

The report comes at a pivotal point in payments. Every bank in Europe is currently readying its infrastructure to meet the SEPA Instant Payment Regulations deadlines, which many think are unrealistic. Meanwhile, banks in the US are trying to meet growing momentum for instant payments, while Canadian banks are preparing for the launch of their instant payments scheme as early as 2026. There is also the global shift to ISO 20022 messaging standards. 

This urgency is reflected in the research, which reveals a substantial nine in ten (91%) banks rank payments modernization as either important or very important.

However, these projects are draining time and budgets with banks spending upwards of $100 million on multi-year payments modernization projects and hiring teams of up to 50+ business analysts to deliver them. Two-thirds of a bank’s time and investment on these projects is directed towards project analysis, testing and business/system analysis, areas ripe for AI disruption.

The research also reveals that AI is already having an impact on headcount, with 38% of banks believing AI can already reduce the number of business analysts needed for these projects. An additional 27% anticipate this reduction will occur within the next 1-2 years and 28% foresee it happening within 3-4 years. 

Despite this, banks still believe human oversight remains essential. They believe in a balanced approach to human and AI collaboration, which is slightly tipped towards AI, with the minimum level consisting of 49% human and 51% AI involvement. Human involvement is most important for strategic tasks (37%), improving internal processes (34%) and customer experience (29%).

Other key findings include:

• Banks are bullish on AI - 100% of banks surveyed are at least considering the adoption of artificial intelligence, with a significant 62% actively or aggressively exploring this transformative technology.
• High level of AI knowledge - 28% have a very high level of knowledge of AI, while just over half (52%) describe their knowledge as high, meaning the vast majority (80%) of banks believe they possess an advanced understanding of AI.
• Biggest AI concerns - Their five biggest concerns are user expertise (29%), low-quality inputs/outputs (28%), security and data protection (27%), transparency of decision-making (25%) and accuracy of AI algorithms (25%).
• AI to improve collaboration with consultancies - Working with partners on payments projects is a common practice for banks. The top five areas AI can improve when outsourcing payments projects are quality of work (46%), payment expertise (44%), long-term vision (40%), speed (38%) and cost (36%).

Tom Hewson, CEO at RedCompass Labs, comments: “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.

“But AI can help to close it or accelerate it. It just depends on who is first to take the opportunity. With AI, we can more than double output and maintain costs, or we can maintain output and more than half costs. It’s our choice. Banks and payment providers that don’t embrace AI in the payment modernization space will face both cost and speed disadvantages relative to those that do, resulting in a loss of profit margin and market share.”

“But, if they leverage the billions that have been invested into AI, make use of the tools available, and gather industry knowledge, they have a chance to keep up with the rate of change.

“What’s stopping most banks? The banks themselves. Internal governance, trust and a misunderstanding of risk. In being risk-averse in areas such as AI, banks are creating existential issues for themselves further down the line. The ones that can adjust to take advantage of this opportunity will be the ones that succeed.

“To access the full extent of these benefits in the payments world, we need to apply AI to a very specific problem: instant and cross-border payments projects. Innovation and projects are held up because banks can’t get through their workload fast enough. AI can help. AI tools that are secure and private to the project, yet can gather years of knowledge and produce documentation for review by humans are changing the game. These AI tools mean banks can keep up with the rate of change and the cost for change.

“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. The rate of change in payments has never been this fast and will never be this slow again. It’s time to get up to speed.”