Artificial Intelligence (AI) seems to be everywhere. It is being applied to a growing range of activities, including Farming, Medicine, Manufacturing, Education — and credit cards are no exception. This article explores how AI is impacting the way credit cards are being issued and the way transactions are being processed.
Artificial Intelligence (AI) refers to a machine’s ability to carry out tasks that normally require intelligence to perform effectively. Many use the term interchangeably with machine learning, which is a form of AI in which computer algorithms build predictive models by analyzing and learning from data. Predictive models can be used to enable process automation, improve efficiency, enhance the quality of decision making, uncover new opportunities and to identify problems that require attention. Machine Learning has taken off in recent years as technological advances have made it possible to analyze large data sets quickly and cost effectively. Natural language processing and voice recognition are other fields of AI that are increasingly being used in a broad variety of activities.
AI based tools are being used throughout the credit card ecosystem, starting with the marketing of credit cards to consumers all the way through to the settlement of transactions.
Marketing
Card issuers use AI to enhance the effectiveness of marketing campaigns. It enables the creation of more sophisticated models that help marketers better segment the universe of prospects and target individuals with specific products (e.g., rewards card vs cash back card) and customized offers (e.g., free miles vs lower introductory APRs). By matching individuals with offers they find compelling, marketing campaigns are more successful.
Application Review and Underwriting
AI helps card issuers better assess the risk profile of credit card applicants. When an individual submits a credit card application, AI powered risk scoring models help the bank decide whether to issue a card and what credit limit to set. If an individual has a short credit history or a low credit score, AI can incorporate alternative data to provide a better understanding of the risk of default. Additionally, AI helps reduce identity theft related new account fraud.
Customer Service
AI is being used to enhance customer service in a number of ways. For example, Discover has used AI to provide faster, more intuitive messaging in its mobile app. Voice recognition, natural language processing and machine learning are also used to route customer service calls and help agents respond to customer questions more rapidly and with personalized information.
Detecting Fraudulent Transactions
Visa, Mastercard, American Express and Discover all use AI to proactively identify and block fraud. Before AI tools were available, rules-based approaches were used to identify suspicious patterns that might indicate fraudulent activity, but as fraudsters adapt their methods rapidly, fraud was often detected after it had happened. AI has enabled the creation of fraud detection models that monitor transactions and update in real time, enabling real time fraud risk decisions. This has made fraud detection more effective by enhancing the ability to identify and decline suspicious transactions before they happen. Better fraud detection reduces fraud losses for merchants and banks. It also benefits merchants and consumers by reducing the likelihood that a legitimate transaction is declined because it is incorrectly flagged as suspicious.
Risk controls can also be customized at a merchant level. Fiserv has developed an AI based tool for its global commerce platform that allows merchants to determine their own risk acceptance level and leverage transaction scoring to determine which payments should be automatically rejected.
Transaction Processing
AI can help ensure seamless transaction processing. Leveraging AI, Visa has developed an algorithm that can predict how a cardholder’s bank is likely to respond when a transaction is submitted for approval. If there is a service disruption at the cardholder’s bank, this algorithm can prevent the transaction from being declined. AI can also help speed up the settlement of transactions.
Machine learning, voice recognition and natural language processing have helped the credit card industry enhance risk management, fraud prevention, transaction processing and customer care — critical functions that make the credit card ecosystem safe, efficient and effective for millions of people worldwide. AI tools will continue to play an important role in the credit card ecosystem as card networks, banks, processors and fintechs continue to explore ways AI can be leveraged to further improve processes, product offerings and customer experience.
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Verisave is a third-party cost-reduction firm specializing in merchant accounts and credit card processing fees.
Verisave is not a payment processor, and is not affiliated with any processors, card brands, or banks.
Verisave has more than 20 years of experience optimizing and monitoring the credit card processing industry.