Gain exclusive insights into the evolving world of payments that are reshaping the banking sector and enhancing customer experiences.

Thought Leadership

Advancements in generative artificial intelligence, and in particular large language models (LLM) such as ChatGPT, have simultaneously caused mass excitement and concern about their impact on each and every industry. As an industry that has already dipped its toe into the field of AI, payments is a little-discussed yet key testing ground for the real world implementation of LLMs.

Where can we find artificial intelligence in payments today?

A decade ago, data intensive processes in payments were mostly managed by rule-based systems. As machine learning became more feasible and increased efficiency across the card payments value chain - from fraud detection to customer onboarding - rule-based systems were gradually augmented with machine learning throughout the payments industry. 

The current pace of innovation in machine learning will be significantly increased by the introduction of LLMs, as the general benefits of ChatGPT and its competitors are realised. This will include assistance for software developers as they implement new payment applications, support for product teams as they refine business models for new payment products, and much more.

Large language models driving innovation in unexpected domains

Payment operations might experience a seismic shift when LLMs enter the card payments value chain, especially in sections that have remained unaffected by artificial intelligence thus far. 

A great example of LLM’s impact on payment operations is how issuers interact with their cardholders. Currently, issuers use a combination of chatbots directing cardholders to helpful resources and humans handling all decision making. Recent advancements in LLMs will enable issuers to utilise advanced chatbots and other automated customer service channels to perform actions upon the request of cardholders, acting as agents capable of executing decisions. 

Ambitious banks, traditionally a role filled by neobanks, will further leverage the capabilities of LLMs by utilising enormous training data sets and constant improvement from past interactions with cardholders to build virtual agents that act as the designated decision maker. This could include making authorization and onboarding decisions, increasing credit limits and handling disputes.

Another exciting area would be LLM’s text understanding capabilities; LLMs are able to analyse and make decisions based upon a larger and more diverse set of data and within a shorter period of time than a human can. If implemented cautiously, generative AI could bring about a significant decrease in the rate of escalated complaints and time spent by cardholders. 

Barriers for artificial intelligence to overcome

Predictability and explainability remain significant hurdles in the path of AI and its adoption across industries. Predictability is achieved once an LLM produces the same output when prompted with a certain set of inputs, whereas explainability is achieved once an LLM’s output can be explained in a way that makes sense to a human. 

Financial institutions are required to demonstrate to auditors how every decision was taken, making the current absence of predictability and explainability a fatal flaw for LLMs in the payments industry. This predicament was encountered by the insurance industry in the past decade; AI-driven agents demonstrated better accuracy than human operators, but insurance firms were not able to move the virtual agents into production due to regulatory shortfalls.

Artificial intelligence, already in use throughout the card payments value chain, has demonstrated its value in the payments industry. The leap taken by ChatGPT and other LLMs demonstrates great potential to vastly improve many payments processes, but previous challenges persist: banks and their regulators aren’t yet ready for the implementation of advanced AI.

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The Impact of ChatGPT and Large Language Models on Payments

Are traditional payment methods losing ground in Europe? And how do the competitive positions of major international card schemes look like?

Cards continue to lead in Europe, with debit in the lead:

What do you think about these trends? Share your thoughts in the comments below.

Source: The annual review of payment data from 33 European countries, by 

Are traditional payment methods losing ground in Europe? And how do the competitive positions of major international card schemes look like?


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The European Payments Landscape

Learn about the operational challenges and risks associated with the fraud & dispute process for banks and explore strategies and best practices benefitting both banks and their cardholders.

Fraud & Disputes

Mastercard is implementing a revised standard for displaying enhanced merchant data in select European countries. Here’s what you need to know:

Starting on October 14, 2023, issuers will be required to offer improved transaction clarity and accessibility via their banking applications, mobile wallets, or Internet banking interfaces. These rules aim to reduce chargebacks caused by poor descriptive data and improve overall customer satisfaction.

Key points of the revised standard include:

As a result of this new standard, Mastercard suggests customers can benefit from:

Important to note that the enhanced Merchant 

data must only be displayed upon request by the cardholder

 (e.g. when clicking on a specific transaction).

Mastercard is implementing a revised standard for displaying enhanced merchant data in select European countries. Here’s what you need to know:


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Mastercard's Revised Standards for Enhanced Merchant Data

Visa’s Compelling Evidence 3.0 presents a positive development for merchants, but how does it impact issuers?

Over the weekend, Visa enacted its revised Compelling Evidence rules in order to provide a balance of risks shared by Issuers and merchants in the event of what Visa calls “First-party fraud”, also known as friendly fraud or chargeback fraud. By updating and standardising its dispute rules across all Visa issuers and all transactions processed via VisaNet, it is now easier for merchants to get a card-not-present transaction dispute dismissed by being able to provide more evidence to demonstrate that the cardholder was involved in the transaction.

Here is what issuers need to know about CE 3.0: 

Visa’s Compelling Evidence 3.0 presents a positive development for merchants, but how does it impact issuers?


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What Issuers Need to Know About Visa's Compelling Evidence 3.0

A recent report from ACI provides insight into online payment fraud trends in 2022. Here is our takeaway from the report:

As we continue to see a significant increase in the number of eCommerce transactions, it's important to address the growing issue of fraud and chargebacks. According to the report, mobile payment transactions saw a 13% increase in Q3 2022 compared to 2021, indicating their growing popularity and influence on surging eCommerce conversion rates.

Since, in the context of eCommerce and mobile payment, the card details are stored digitally, verifying the identity of the person making the purchase becomes more difficult. This makes certain types of fraud more popular:

➡️ eWallet fraud: eWallet breaches are more lucrative to fraudsters than other forms of fraud due to their increasing popularity of eWallets, the sensitive information stored in them and the anonymity of transactions, which make it easier for fraudsters to hide their activities and avoid being caught. While it is more difficult to breach an eWallet, it is usually done through phishing scams or other means, such as circumventing the security features.

➡️ Authorized Push Payment (APP) scams: APP scams are a growing threat in which a victim is tricked into authorising a payment to an account that they believe is legitimate but is actually controlled by a fraudster, who typically pretends to be a trusted individual or organisation.

➡️ First-party fraud (also known as friendly fraud or chargeback fraud): Occurs when a customer makes a purchase, receives the goods/services and disputes the transaction on the grounds that it was unauthorised or fraudulent. These illegitimate chargebacks may also occur because the customer genuinely does not recognise the transaction.

In short, the increase in eCommerce transactions has led to a rise in certain types of fraud and chargebacks. While financial institutions need to strike a balance between security and convenience when implementing fraud management measures, they also need to provide seamless and hassle-free dispute experiences to cardholders to ensure that cardholders are not deterred from using their payment products after an unpleasant fraud incident. In addition, in order to reduce the risk of receiving friendly fraud claims, Financial institutions can provide further insights about a transaction and offer virtual agents, guiding the cardholder and challenging them with questions about the disputed transaction in a friendly and easy way.

A recent report from ACI provides insight into online payment fraud trends in 2022.

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An In-Depth Look at Fraud in Online Payments

,  we can explore how issuing banks can optimise their value chain. 

How is the card payment value chain structured? And what are the challenges for issuing banks?

, the card payment value chain consists of several parts. Traditionally, banks viewed payments as a commodity and outsourced a large part of the card payment value chain to Third Party Providers (TPPs). 

A high degree of outsourcing causes the value chain to become longer and more complex. This results in high costs per transaction/card, long implementation timelines (as a result of multiple parties being involved) and, last but not least, very limited flexibility for the bank to drive innovation and be fast in bringing value-adding features to their cardholders.

In the past decade, though, payments have become a strategic success factor for banks to gain and retain (mainly retail) customers, causing banks to focus on ways to differentiate their payment products offerings. However, at the same time, TPPs aim to standardise and streamline their offerings to maximise economies of scale. Therefore, in the last few years, the market observed several consolidations among TPPs. 

Earlier, there was more competition among TPPs, and banks had more bargaining power to negotiate prices and influence technology roadmaps. However, with the recent market consolidations, only a handful of TPPs are left, resulting in fewer options and less negotiation power for issuing banks.

Another important point to consider is that issuing banks often provide a large range of payment products (debit cards, credit cards, pre-paid cards) under different payment schemes (international ones like Visa and Mastercard, but also domestic schemes). Interestingly, it is uncommon for an issuing bank to streamline the processes for different payment products by having one value chain used across all payment product offerings. Instead, they build distinct value chains for each payment product, and thus, they may use different TPPs for debit and credit cards, for example. This adds to the existing complexity of managing costs, services across products and the value chain.

To analyse an optimised card payments value chain, it is useful to consider a challenger bank building a card value chain from scratch to satisfy their customer’s needs and provide the best experience possible. Having started with card payment products (rather than other banking products), challenger banks have a high degree of technical infrastructure and expertise in-house (unlike most incumbent banks). This technical independence from TPPs, coupled with streamlined processes across their payment products, has provided them with a cost advantage, high speed of innovation and the ability to quickly implement new product features.

In the past decade, the technology involved across every link in the card payments value chain has changed drastically, enabling challenger banks to bring technical infrastructure in-house. Cloud technologies, in particular, are allowing businesses to in-source large segments of their value chain - and also significantly reduce costs associated with data centres. In addition, the rise of API architectures has made it easier to build in-house technical infrastructure at a low cost. 

Card payment value chains are often fragmented, with many technical and operational processes outsourced. However, issuing banks looking to optimise their value chain are increasingly insourcing such processes, leveraging modern technologies to reduce costs and increase the speed of innovation towards their cardholders.

How is the card payment value chain structured? And what are the challenges for issuing banks?


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The Card Payments Value Chain Analysed (Part II)

On first inspection, the card payments industry appears to be a mismatch of service providers covering similar functions. However, each firm has an important role in the card payment process. From customer sales to transaction bookings, a breakdown of the card payments value chain is overdue.

The crucial first step in the card payments value chain is customer solicitation. Traditionally this process was exclusively handled by banks but has recently shifted to a diversified field of client acquisition parties. Customer solicitation involves a diverse range of tasks, such as developing a product offering, marketing and sales.

Once a customer is committed to a card issuer’s proposition, the issuer completes its regulatory-driven onboarding obligations. This involves “Know Your Customer” (KYC) risk checks and sanction screenings. Upon completion of the onboarding process, the customer and issuer enter a contract. 

Before the customer can make any payment, they must have a card. Earlier, this was a more straightforward concept: a plastic or metal physical card was produced. Nowadays, physical card production is accompanied by token creation to enable the virtual cards you see in GooglePay or ApplePay, or even directly from your bank. 

To issue cards, the issuer must hold a licence from a card scheme, which allows the issuer to participate in the network and use their branding. The licences come with a list of rules and regulations that the issuer must comply with to maintain the licence (known as 

Issued with a card or a token, the customer can now make payments.

To make a payment, there are two messages sent from the merchant’s acquirer via the scheme to the issuer: first, an authorisation message and then a clearing message. 

When the payment has been initiated (the merchant has sent a real-time message - i.e. authorisation message), a risk management process is triggered, which often depends on the issuer’s payment products (whether it’s a debit, prepaid, or credit card). This process is mostly focused on 

 through transaction history analysis and other checks (e.g., checking the customer’s credit line for credit cards). If all checks are passed, then the payment is successful. 

However, the actual money movement happens only after the issuer receives the transaction details file from the merchant (i.e. clearing message). The issuer then associates them with the cardholder's account through an automated process. This is where a core banking system is used to link the transaction to the cardholder account and initiate the billing process towards the cardholder.

In case the customer has trouble with making payments or has questions regarding their accounts or bill, they can contact customer service. The issuer facilitates any questions from the customer through its customer service, which is usually handled by call centres or chatbots. Customer service has recently become its own step in the value chain with chatbot solutions to enable a self-service model, reducing call centre costs. 

In the next blog, we will explore how card issuers can optimise their card payments value chain with modern technologies. Click 

 to read part II of the Card Payments Value Chain.

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The Card Payments Value Chain Analysed (Part I)

Learn about the operational challenges and risks associated with compliance with payment networks like Visa and Mastercard and find out how to simplify this process and make it more manageable and efficient.

Scheme Compliance

Card payment operations is a highly regulated industry, with a core aspect being compliance with license rules (scheme rules and regulations) of international payment networks (e.g. Mastercard, Visa) and the management of scheme fees and interchange rates. 

Compliance is only becoming more complex, and the ever-changing requirements often demand a significant amount of manual work to administer the rule changes – although modern routes are available for accelerating and streamlining some of the processes. 

As payment players race to stay up-to-date with the latest developments, which can be subject to updates on a weekly basis, it’s worth noting the dangers of what can happen when a company violates those rules within the card payment ecosystem. 

First, the most apparent and well-known danger is being faced with financial penalties. At first glance, they may seem bearable in certain scenarios. However, it should be noted that the fees are often structured in such a way that their amount gradually rises with the increasing duration of the non-compliance status and can reach considerable financial dimensions.

Besides financial penalties, in extreme cases - if payment players are unable or unwilling to follow the rules, they also face the risk of having their license scope restricted or even losing their license with the scheme. This is only reserved for the direst of cases where rules are severely and repeatedly violated and the licensee, despite multiple warnings, fails to restore compliance. What is more likely to happen in cases where compliance is not adhered to are operational issues that could damage the company's reputation. 

A fundamental value proposition among some of the newer banking offerings is the promise of frictionless payments. If payment players fail to keep up with compliance requirements and lose their ability to be fully functional, this can have knock-on effects regarding interoperability within the broader payment ecosystem.

This, in turn, can lead to the opposite of seamless customer experiences - with delays, declined payments, and other setbacks that can instantly turn off prospective and existing customers. As well as these external risks around reputational damage, there are risks to internal operations that card payment players need to remember, too. 

What is often forgotten and underestimated is the fact that a non-compliance case resolution often involves writing statements and remediation plans to schemes, and this is a major operational effort. Performing remediation to address requirements that are not in place and providing updated reports can take hundreds of hours of effort and could require bringing on new staff who can focus solely on these efforts. As the scheme has a say in this matter and may impose additional requirements as well as tighter timelines to the remediation plan presented, other projects, initiatives and important activities might have to be postponed or experience delays. 

Lastly, there is potential effort due to Audits by schemes. Like any other Audit, these take an enormous amount of time and energy and are designed to ensure that every single process within a card payment player’s operational framework can be accounted for. 

All in all, instead of facing the dangers listed above, it is much easier to use solutions sooner rather than later that help to automate the process and lighten the operational load on staff.

Card payment operations is a highly regulated industry, with a core aspect being compliance with license rules (scheme rules and regulations) of international payment networks (e.g. Mastercard, Visa) and the management of scheme fees and interchange rates. 


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The dangers of breaking compliance rules within the card payment schemes

Rates of fraud have continued to soar in the latest 3-year period studied by the UK’s Financial Ombudsman Service (FOS), and neo-banks account for the bulk of increases. This has confused industry observers as one of the benefits of neo-banks is reportedly greater transparency and control over transactions. However, it now appears likely that these features are part of the problem. 

Banks can improve certain processes to mitigate these risks and more efficiently deal with fraud disputes - but first we need to understand the reasons behind the increase.

Fraud complaints against Starling, Revolut and Monzo have increased at a rate higher than customer growth, and higher than complaints at traditional banks. Customers are caught out by fraudsters with a few different types of tricks. The most common variety is Authorised Push Payment (APP) fraud, which sees fraudsters posing as a friendly actor and convincing consumers to make a large bank transfer which is authorised in the bank’s app. Neo-banks are taking the brunt of this increase in APP fraud - and here’s why:

Often celebrated as a key advantage of a neo-bank, an intuitive and easy-to-use app can cause customers to verify transactions too quickly or without due scrutiny - contributing to rising rates of APP fraud. Therefore, even though fraudulent transactions are verified by users directly, they are more likely to be verified than if a traditional transaction monitoring method is used. Legacy banks will typically block the flagged transaction outright, and then notify the consumer via telephone or letter. The methodology behind this difference in transaction monitoring is that the neo-bank approach shifts the responsibility onto the user to block fraudulent transactions, whereas legacy banks incur higher costs by first blocking transactions, and then reaching out to consumers directly.

Neo-banks are often reported to have weak KYC and AML practices. Although no official data suggests that neo-banks have inferior vetting processes, recent struggles to expand beyond their home markets suggests that something is askew. Therefore, fraudsters are more likely to onboard with a neo-bank, as their application processes are app-based and take minutes, as opposed to the legacy bank’s requirement of visiting in-store. Banks also do not always inspect internal bank transfers with the same scrutiny as transfers to an outside bank, making customers of neo-banks interesting targets for APP fraud as the fraudsters are able to circumvent KYC checks to also create an account at those banks.

It has become clear that fraudsters do not commit random and spontaneous attacks. In an effort to increase the success rates of their campaigns, fraudsters assess potential victims by the audience’s willingness to deal with financial matters online. The typical legacy bank’s audience is unlikely to comply with fraudsters' requests without speaking to a staff member at their bank - whereas customers of neo-banks are far more likely to comply with digital requests and are therefore systematically targeted by fraudsters. Therefore, digital-first neo-banks are targeted at a higher rate than legacy banks, increasing their number of fraud cases.

How can banks mitigate the risk of increased fraud

The key concept when settling fraud disputes is to decide which party is liable - the consumer, the consumer’s bank or the fraudster’s bank. The Lending Standards Board has laid out a voluntary set of guidelines - the 

 (CRM) - to settle this question. This set of guidelines has been adopted by 

 and one neo-bank (Starling). The CRM was a large shift for the banking industry when introduced in 2019, providing consumers with greater protections whilst sending fast transfers and shifting the liability from consumers to banks concerning APP fraud.

Herein lies the problem - not all banks have signed up to the standard. An industry-wide set of guidelines would simplify the process of fraud disputes resulting from APP and reduce costs associated with lengthy claims for both sides. However, a shift in the voluntary nature of the CRM is unlikely in the short term, and neo-banks such as Revolut and Monzo are unlikely to voluntarily sign up - a move which would shift a large amount of liability from their customers to themselves. 

In the meantime, financial institutions are able to mitigate the risks of increased fraud by implementing better technologies to manage the fraud dispute process. These systems automate the fraud dispute process, drastically reducing the cost of handling fraud disputes, all whilst providing the customer with a faster and more insightful complaints process. Using such systems can also mitigate the risk of non compliance for banks which have signed up to the CRM.  It’s a win-win situation for banks and consumers - and a great excuse to tap into the world class payments innovation that’s designed to help financial institutions focus on what’s truly important - putting customers first.

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Fraud increases among neo-banks - what’s going wrong - and how can banks mitigate risk?

Simplifying payment operations for banks — scheme compliance, dispute management, fraud recovery and industry trends.