The Next Step in AI Innovation PayPal is applying AI-derived insights from its vast customer base to optimize the checkout process for merchants and consumers. Specifically, PayPal AI significantly reduces both false negatives (declines) and false positives (fraudulent charges) during the checkout process. - A false negative occurs when a card issuer declines a transaction, even though the cardholder has a sufficient credit or cash balance available for the purchase.
- A false positive occurs when a card issuer approves a transaction that is fraudulent.
Both forms of false readings cause billions of dollars in lost revenue. A 2022 study conducted by checkout.com and Oxford Economics found that false card declines cost merchants in the U.K., the U.S., France, and Germany about $50 billion in 2022 – a 150% increase in three years.
But PayPal’s platform is moving that needle in the other direction; it is significantly reducing both false positives and false negatives.
The secret sauce that makes this industry-leading error prevention possible is a PayPal solution that combines the company’s AI and machine-learning capabilities with extensive data sets.
PayPal’s machine-learning models help predict in advance if a card issuer will decline a specific cardholder’s transaction. If the model anticipates a decline, it creates a custom solution in real time for the cardholder to remedy the problem and produce a completed transaction.
For example, PayPal can propose an alternate payment method within a user’s PayPal wallet that has been successful in the past. The company can also prompt a secondary form of authentication to validate the transaction.
To detect and nullify fraudulent transactions, PayPal leans heavily on its adaptive machine learning solution called PayPal Fraud Protection Advanced.
Based on the 24 billion transactions PayPal processes annually, it gathers vital intelligence about both the merchant and the consumer on each transaction. The company’s machine-learning model then interacts with that data during the checkout process to identify anomalies or suspicious patterns that indicate fraudulent activity. The Future of AI PayPal also expects AI to play an increasingly important role inside its own operations.
As PayPal CEO Dan Schulman says… We are just at the beginning of a multi-year efficiency journey…With the new advances of generative AI, we will be able to accelerate our productivity initiatives. We expect AI will enable us to meaningfully lower our costs for years to come… I think there’s no question that A.I. is going to impact almost every function inside of PayPal, whether it be our front office, back office, marketing, legal, engineering, you name it. So, I expect PayPal’s current discounted valuation to disappear as the company enters a new growth phase – and as its AI capabilities fatten the profit margins on that growth.
Like I said before, PayPal was not a popular idea at first. In the late 1990s, when most people were still mailing checks, Musk’s idea of making payments over the internet was unimaginable. Now, though, PayPal is a promising contender in the ever-competitive and ever-advancing AI boom.
Really, it seems that everything Musk has done throughout his career sounded insane at first. Which leads me to his latest, strange invention…
It’s an AI device that could be the most powerful technology ever created. This new idea is set to shock the world once again – and this time, you don’t want to be a nonbeliever.
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Regards, |
| Eric Fry
Editor, Smart Money P.S. My colleague and 20-year market veteran Jonathan Rose wants to share his trading strategy with you… and it works in all kinds of markets.
In his Masters in Trading Summit this week, he revealed results of a live experiment that lasted about six weeks, where he closed seven out of seven trades for an average gain of 125%.
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