AI and the future of payments

Technology is revolutionising how we pay. From embedded finance and digital wallets to the integration of generative AI, the future of payments is being reshaped in real-time. But innovation alone isn’t enough — trust, compliance and operational resilience are key differentiators in a sector facing increasing regulatory and reputational scrutiny. We spoke to Dave Gardner, Head of Fintech at TLT, to explore the five questions every fintech and financial institution should be asking right now.

Key takeaways:

• Trust is a key differentiator: The future of payments will be led by firms that build customer confidence and trust in tandem with cutting-edge tech.

• Regulatory compliance is not the enemy of innovation – Responsible development is critical to sustainable success.

• Change and disruption is constant – At TLT we have the experience, insight and industry knowledge to delivery your strategy and advise you on what comes next.

1. What’s changing in payments and why does it matter now?

The payments sector is at an inflection point. We’re seeing the industry facing a confluence of changes and disruptions, including the increasing adoption of embedded finance, payment orchestration platforms, digital wallets and generative AI. Further changes are on the way, including future regulation of Open Finance Critical Third Parties and Digital Assets in the UK and EU. All of this is happening against a backdrop of rising customer expectations, macro-economic headwinds and increasing regulatory scrutiny.

The evolution isn’t just technical — it’s strategic. The most successful players no longer looking at payments in isolation — they’re broadening their focus to influence and improve the end-to-end customer journey. And with agentic AI and Large Language Models (LLMs) turbo-charging real-time decisions and personalisation, payments can become more frictionless, intuitive and integrated.

As payments become smarter, so do the expectations of customers and regulators — reliability, resilience and accountability must grow in step. You can’t deliver sustainable innovation without earning trust.

2. Where’s the opportunity — and what should fintechs and FS firms be cautious about?

The opportunity is huge: frictionless onboarding, improved customer experience, higher conversion rates and faster checkouts, real-time fraud detection and reduction, and the ability to tailor the payments experience to individual user behaviours. Payments are now a competitive differentiator.

But trust is fragile. Firms must be cautious not to innovate without appropriate governance, testing and monitoring. With AI powering more decisions — from identity verification to transaction monitoring — the risks of bias, customer harms, and over-reliance on third-party tech are real.

Regulators are watching closely. Whether it's existing regulations like the GDPR or the FCA’s Consumer Duty or newer rules around Operational Resilience and AI-related governance (including the EU AI Act for those in scope), firms need to ensure appropriate governance, use case assessments and appropriate human oversight and monitoring is built into their processes from the outset.

3. How are fintechs and financial services clients balancing innovation with regulation?

The smartest firms aren’t just racing to build or buy AI — they’re developing AI strategies and solutions to last. That means embedding good governance, regulatory compliance and operational resilience thinking into product design from day one.

Taking this approach shouldn’t be seen as a barrier to responsible innovation – our clients who have made most progress have adopted this approach, where low-risk solutions can be assessed and implemented without undue delay.

4. What are the most pressing legal and ethical questions around payments and AI?

As outlined above, a number of different regulations (and regulators!) are engaged when deploying AI and there are many questions to answer.

A good place to start would be to ask yourself the following:

Accountability: Who is accountable for deployment of AI within your organisation? How is this aligned with your strategic objectives and regulatory obligations?

Monitoring: Who has day-to-day oversight over the performance and monitoring of your AI solutions, gathering and responding to feedback, in particular any automated decision-making?

Explainability: How do you ensure that there is appropriate explainability built into your AI solutions, so their operation and decision-making is sufficiently transparent to customer and regulators?

Third Party Risk Management: How is accuracy, resilience and liability dealt with in third-party contracts for the provisions of AI systems provided by third parties?

5. What should payments firms do next to stay ahead?

First, build a robust AI governance and control framework that allows you to clearly answer those key questions. This means identifying your critical payment services, setting clear impact tolerances, and testing for disruption scenarios — especially those involving AI or third-party failures.

Second, identify clear use cases for the deployment of AI solutions aligned to your values, risk appetite and regulatory requirements.

Third (without forgetting recommendations 1 and 2!), consider how you can leverage AI to improve customer experience and make payments a competitive differentiator. We have the market insight and legal skills to help you with this.

At TLT, we help fintechs and financial institutions manage legal risk as an integral part of their innovation and growth strategies — aligning cutting-edge payments technology with good governance, resilience, and responsible growth.

Download TLT’s AI Legal Playbook to scale innovation with confidence, compliance, and resilience.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2025. Specific advice should be sought for specific cases. For more information see our terms & conditions.