Emerging AI Trends: An Untapped Opportunity in Sustainable Payments [Advance Cash ]

Emerging Ai Trends: An Untapped Opportunity In Sustainable Payments

By Lucie Fonseca

Several governments and companies have dubbed the next ten years the “decade of results” for tackling climate change. Next-generation technological solutions are the cornerstone of these attempts to prevent or reverse adverse weather conditions. Smart products, new applications of existing technologies or entirely new business models are emerging to increase energy efficiency and reduce overall energy consumption.

With constant technological innovation, Artificial Intelligence (AI) is at the heart of sustainable practices. AI is disrupting every industry today, and the payments arena is no exception. Artificial intelligence is rapidly transforming the payments industry and its potential for sustainable development is enormous. Here are some means of payment that it will revolutionize!

Payment Processing Transaction Routing Optimization

AI can optimize the routing of payment processing transactions to minimize energy consumption and hardware equipment. Harnessing the power of machine learning algorithms, the models can analyze network traffic data and route transactions in the most efficient way. It could also help reduce the number of servers and data centers used for payment processing and reduce their energy and water consumption.

As we know, data centers and other storage and payment processing hardware can have a huge carbon footprint. The International Energy Agency has estimated that data centers use about 200 terawatt hours (TWh), or about 1% of global electricity demand. Additionally, another study found that by 2025, data centers could be responsible for 3.2% of all global carbon emissions. Therefore, using AI and reducing the number of data centers and other hardware used to store and process payments may not be an option but a must. Google, one of the most forward-looking organizations, is applying AI to drastically reduce electricity consumption in data centers. Beginning its ingenuity as early as 2016, the organization harnessed AI to reduce data center energy consumption by 15%. Other companies can follow suit by using AI to reduce their carbon footprint and create a more sustainable payment ecosystem.

Assessment of carbon footprint calculations and carbon offset claims

AI can be used to assess carbon footprint calculations and carbon offset claims to avoid greenwashing and steer consumers and banks towards truly sustainable businesses. E-commerce giants like Amazon are already using AI to recommend products to customers. One day, they may be able to recommend more sustainable products in the same way, considering the end-to-end product lifecycle and shipping footprint. Big data and AI also have the potential to translate data from financial transactions into individual carbon footprints. When this information is combined with digital banking services, it becomes possible to demonstrate the environmental impact of purchases in real time. As consumers become more aware and seek environmentally friendly products and services, this will encourage investment in greener production.

Financial inclusion

Extending financial inclusion with Know Your Customer (KYC) and credit scoring is another way AI can drive sustainability programs in payments. By enabling more people to pay digitally and avoid less sustainable practices, such as long journeys to make cash payments, AI can help reduce carbon emissions. This already exists in many countries where mobile payments are becoming the norm.

Robust Fraud Assessment

Detecting fraud while avoiding false positives is a constant battle in the payments industry, costing billions of dollars a year. AI has the potential to revolutionize fraud detection, enabling businesses to quickly identify and prevent fraudulent transactions. Machine learning algorithms can analyze large amounts of data to identify patterns and anomalies that may indicate fraudulent activity. The technology can detect fraud in real time, allowing businesses to act before significant losses occur. Additionally, AI can learn from past fraudulent transactions and adapt to new fraud patterns, making it a powerful tool to prevent future fraud. Vigilant fraud assessment will ultimately eliminate additional costs and waste associated with the need for card replacement, additional transaction processing, and paper trails for refunds/recharges. Which brings us to one of the essential elements of introducing any payment mechanism -

Create a great customer experience

Sustainable practices and an increased focus on environmental causes are among the top priorities for customers today. AI relies on the potential to create an unparalleled customer experience for dematerialized payments using tokens instead of less sustainable means of payment like cash, physical cards and crypto. Tokens are digital representations of means of payment that can be easily transacted without the need for physical cash or cards. This reduces the environmental impact of printing physical cards and handling cash, both of which require energy and resources to produce and transport.

Customer service is an essential part of any business, and AI is transforming the way companies interact with their customers. AI-powered chatbots are becoming increasingly sophisticated, providing customers with fast and efficient support. AI-powered bots can provide customer service at all stages of a cardholder's lifecycle, reducing the number of branches needed for customer service. This reduction in physical infrastructure will reduce land, water and energy consumption and the need for employees to travel to work, resulting in a more sustainable ecosystem.

Another interesting use of AI could be to better assess the real needs of cardholders, allowing banks to avoid sending cards to people who do not need them. An estimated 20% of bank cards are never activated, and that's a huge amount of plastic that ends up in landfills never to be used. Accurate assessment will allow banks to reduce the number of cards sent, thereby minimizing waste.

However, organizations should be aware that operating AI consumes a significant amount of energy and water. Financial institutions and businesses need to consider the environmental benefits of using AI in commerce and payments, but also the environmental cost of using that same AI. While the future is indeed artificially intelligent, it is not a panacea but an effective way to strengthen human judgment and amplify the effectiveness of sustainability programs.

The author is Global Head, R&D, Giesecke+Devrient

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