The financial services industry is increasingly looking at embedded payments, enabled by IoT devices. Imagine making payments directly from your smartwatch or home appliances. This future is rapidly becoming a reality. The embedded payments market, valued at $66.8 bn in 2022, is expected to grow at a CAGR of 25.4% from 2023 to 2032. Embedded payments offer a seamless experience, eliminating the need to carry physical cards or remember PINs. Additionally, they can incorporate advanced security features to protect data and facilitate personalised offers.
While IoT offers many benefits, security remains a concern. In this context, the Consumer Device Cardholder Verification Method (CDCVM) is a vital security protocol crucial in enabling smooth and secure payments through IoT devices.
CDCVM requires a secure pairing process between an IoT device and the user’s primary device. This ensures that only authorised devices can initiate payments. Dynamic codes are generated for each transaction, making it difficult for fraudsters to intercept and exploit. Additionally, IoT devices can incorporate biometric authentication features and, in the future, even voice-based systems, to enhance security. Tokenisation, which replaces sensitive card details with unique tokens, is often used in conjunction with CDCVM, making it even more secure.
As IoT devices become more prevalent, CDCVM’s importance will only grow. CDCVM will also be powered by AI to make payments more secure, convenient and personalised. AI is driving innovation and improving the overall payment experience, from the almost prosaic BNPL (Buy Now, Pay Later) to cryptocurrency payments and even beyond these developments.AI-driven algorithms in BNPL assess creditworthiness, personalise offers and automate payment schedules, providing a flexible payment option. Open banking benefits from AI-powered analytics, enabling data aggregation and personalised financial insights. Biometric authentication, enhanced by AI, ensures secure and convenient payment verification. Voice-activated payments offer a hands-free and intuitive payment experience.By leveraging AI, CDCVM can enhance security, streamline processes and personalise the user experience. AI algorithms can analyse vast amounts of transaction data to identify suspicious patterns and prevent fraud. Additionally, AI can generate dynamic codes, making it harder for fraudsters to intercept and exploit. Device fingerprinting, powered by AI, assists in more accurate identification and fraud prevention.
AI can personalise CDCVM based on user preferences and risk assessments. This allows for an equilibrium between security and accessibility, with more streamlined authentication for low-risk transactions.
By integrating AI into CDCVM, payment providers can create a more secure and efficient payment environment, benefiting both businesses and consumers.
The power of AI goes beyond traditional rules-based systems by:
Considering device behaviour and user context for more accurate and proactive fraud detection.
Assessing the risk of each transaction in real-time, allowing businesses to take immediate action.
Helping businesses make informed decisions regarding creditworthiness and loan approvals by analysing a borrower’s financial history, credit score and other relevant factors. This facilitates businesses in managing risk more effectively and reducing losses.
Using predictive analytics to forecast future trends and identify potential risks.
To realise the potential of these technologies, banks must establish robust data platforms and infrastructure. A centralised data backbone is essential for governing and securing data, enabling customers to analyse data sources in real-time. Additionally, organisations need standardised protocols and tools for developing, evaluating, deploying and monitoring new models in a sustainable manner.
As digital payments become more prevalent, new technologies will be essential for ensuring security, efficiency and innovation in the Indian payments ecosystem.
The writer is group executive, Axis Bank
