MW How Visa and other fintech stocks can get a boost from AI

By Emily Bary

Fraud losses represent a huge expense for payment-technology companies, but one analyst thinks AI will help them better respond to incidents

Are financial-technology stocks the next big artificial-intelligence beneficiaries?

Piper Sandler analyst Arvind Ramnani thinks companies like Visa Inc. (V), Mastercard Inc. $(MA)$, Block Inc. $(XYZ)$ and PayPal Holdings Inc. (PYPL) are in a unique spot to take advantage of the technology, thanks to their massive troves of data and their need to stamp out fraud at scale.

The companies already employ artificial intelligence and haven't been shy about talking up what they do. But Ramnani thinks that generative AI "revenue and upside are underappreciated for our covered companies."

"Fraud losses associated with payment scams are a significant operating expense for players in the payments space," Ramnani wrote. For instance, at PayPal, it amounts to more than $1 billion a year, he said.

Read: Amex customers have been spending big on first-class and business-class seats

Ramnani believes generative AI can be helpful here due to the real-time nature of fraud events. Companies can use generative AI to respond and offer support almost immediately.

"While investment is likely necessary for most, given the significant dollars spent on losses associated with scams/fraud, we would expect AI to benefit most payments players through improved customer experience, and ultimately reduced operating expenses and healthier margins," he wrote.

Ramnani noted that Visa has spent $10 billion in the past five years on various aspects of technology development. In the past decade, it's allocated $3 billion toward AI and data infrastructure. The company also recently closed its deal for Featurespace, which does antifraud work.

"We expect the deal will expand Visa's fraud-prevention tech stack and use cases for embedded AI," Ramnani said.

Block, the parent company of Square and Cash App, uses AI as well to mitigate risk in peer-to-peer payments.

But perhaps the fintech company that's using AI most visibly is privately held: Buy-now-pay-later operator Klarna conducts two-thirds of customer-service chats with AI and also uses the technology to recommend shopping items to customers.

"If customer satisfaction and retention metrics improve, we expect severalfintech players to accelerate their GenAI-related investments to build out operations similar to those of Klarna," Ramnani said.

See also: Why Visa's stock could be a better play than Mastercard's this year

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

January 24, 2025 15:34 ET (20:34 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.