AI in Payments: Innovation, Illusions, and Legal Risk

Artificial intelligence is transforming the financial world—and the payments industry is no exception. In this episode of The Payments Experts Podcast, produced by Global Legal Law Firm, we examine both the breakthrough opportunities and critical blind spots AI presents for payment professionals.

The Hidden Risks of AI-Drafted Contracts

The discussion opens with a cautionary trend: merchants and agents using generative AI tools to draft payment processing agreements without legal oversight. While these contracts may appear polished, they often miss vital industry-specific nuances—especially in areas like residual compensation, liability allocation, and ISO-agent structure. The result? Agreements that fail to protect the interests of key parties and create unnecessary exposure to disputes and financial loss.

As the legal team points out, the payments ecosystem is highly specialized, and today’s AI tools lack the contextual understanding to navigate these complexities. Relying on AI for contract generation without expert review is a growing and dangerous misstep.

Where AI Shows Real Promise in Payment Operations

Shifting to the upside, we explore how AI is being leveraged by advanced payment organizations to enhance underwriting, risk modeling, and fraud detection. We also delve into AI's potential role in residual reporting, highlighting a real-world case where an ISO transitioned from a transparent system to a limited reporting platform—coinciding with agent residuals dropping by 10 to 25 percent. This example underscores the opportunity for AI to bring much-needed transparency and accountability to agent compensation.

Understanding AI’s Limits and Legal Implications

Perhaps the most important insight from this conversation is understanding what AI can’t yet do. We address the well-documented issue of AI hallucination—where systems confidently generate false or misleading content. In an industry governed by compliance, regulation, and contractual accuracy, this presents a significant risk.

As one host notes, "AI is just a word predictor that often hallucinates to please you." That sobering reminder drives home the central thesis of this episode: AI is a powerful tool, but not a replacement for domain expertise and legal due diligence.

Who Should Listen

Whether you're an ISO building tech-enabled solutions, a merchant deploying AI across operations, or a payments attorney advising clients on risk management, this episode offers critical guidance for navigating AI’s growing role in our industry—intelligently, responsibly, and profitably.

Have you encountered AI-generated errors in your payment documents or agreements? The team would love to hear your experience.

**Matters discussed are all opinions and do not constitute legal advice.  All events or likeness to real people and events is a coincidence.** 

A payments podcast of Global Legal Law Firm