By Ilya Dubinsky, Vice President of the CTO Office at global cross-border payments provider Finaro, outlines how patent developments in artificial Intelligence and customer authentication will determine the future direction of payments.

Fintech is meshing human ingenuity and technological leaps to create the innovations that today’s consumers and businesses take for granted. Contactless cards removed the need to carry cash, and now phone-based digital wallets are removing the need to carry cards. Biometrics are taking the place of passwords, and artificial intelligence is paradoxically giving consumers the intuitive payment journeys that make them feel valued as individuals.

As consumers and merchants demand faster, better payment methods, fintechs, banks and other payment providers hunt for lower costs, operational improvements and dynamic products that will generate more revenues. The global fintech market is set to grow at a compound annual growth rate of 19.8% to reach a value of $332.5 billion by 2028, so payment players are scrambling to innovate and deploy new services at much faster speed to market.

But these exciting innovations don’t emerge fully formed overnight, created by one visionary individual. Every fintech innovation begins as a patent application, and the pace of new ideas coming to market is remarkable, with more than 5,000 fintech patents were filed in the US between 2011 and 2021. It’s patent development that determines the future direction of payments.

How patents move from concept to consumers’ hands

So, what’s driving this frenetic research and development activity? Fintech patents are hot commodities. Alongside creating new revenue streams, on a broader scale, the new services that spring from them become valuable assets that often attract investments or trigger mergers and acquisitions. But the journey from patent to proof-of-work can be slow and costly.

The painstaking process of getting a patent from concept to consumer involves many moving parts and players. Typically, the first step is idea generation, followed by the daunting task of convincing C-suite executives to pursue it, and engaging expert engineers and technical experts to develop the technology. Often this process can take months or years, and that’s even before a patent application is ready to be filed.

A patent application is hugely expensive – data shows that the median asking price in 2021 for a US-issued patent was $163,000 and cost as much as $500,000. The sheer amount of time, money and effort involved, from writing the initial application through to issuance, can prevent many organizations from taking their ideas to fruition

Once a patent application is filed, it falls into the hands of examiners who evaluate reams of software documentation, technical papers and company files, with no clear timeframes for completion. And even with all that groundwork laid, there’s no guarantee that a patent will be approved.

In the race to innovate, the nimble agility of fintechs is pitted against the sluggish might of banks. Weighed down by their sheer size, and held back by tight regulation, banks have long lagged behind fintechs in new service development. In 2008, 80% of all fintech patents came from tech companies – by 2018, the figure was less than 50%. Even so, by that point, tech giant IBM owned five times more fintech-related patents than all the big US banks put together. But in a sign of how competition is heating up, Bank of America tipped the scales with a record-breaking 512 fintech patents granted in 2021.

How new fintech patents are strengthening the fight against fraud

As companies pivot to adapt to the future, there are still present-day challenges that continue to vex fintechs. In 2021, ecommerce fraud topped $20 billion, with many merchants struggling to cope with the surge in digital payment volumes as locked-down consumers headed online.

Merchants are trapped between a rock and a hard place – putting stronger fraud defenses in place protects customer data, but this means more friction in the payment process and leads to more abandoned transactions from impatient online shoppers. As fraud mutates into new shapes to evade detection, two-factor strong customer authentication (SCA) has been implemented widely, but there’s no doubt conversions have been affected.

According to the European Banking Authority (EBA), issuer fraud rates dropped between June 2020 and April 2021 due to high SCA compliance adoption, with the average value of fraudulent card transactions falling by 50%. But across the board, customer abandonment rates went up by more than 30%, costing merchants an estimated £74 billion in lost sales.

Artificial intelligence combined with behavioral biometric authentication could be the answer to merchants’ prayers and bring wide-ranging benefits for the entire payment ecosystem. It’s clear to see why – AI drives down operational and human resource costs, can provide a wealth of dynamic data insights, and can adapt to whatever the future brings.

With bold patent developments now on their way to market, payment players now have the potential to create the strongest possible digital armor to protect against fraud.

Finaro: a fresh, inclusive approach to payments R&D

Because Finaro is a fintech and a licensed bank all in one, we occupy a unique space in the payment ecosystem, recognizing the differing needs of merchants, banks and consumers involved in making transactions, and developing tailored solutions to match.

Our patent program has been running for nearly three years now and is open to everyone in the organization. This patent program, driven by the spirit of collaboration, is something that’s unique to Finaro, and is a disruptive change from the rigidly hierarchical R&D processes typically used in other companies. By encouraging and harnessing the ideas of every team member, we can develop new, dynamic technology and ensure everyone can participate and play a part in the company’s success.

Finaro is renowned as a fintech pioneer because we’ve broken the mold in patent development. With typical patent application costs running into hundreds of thousands of dollars, Finaro’s costs are a fraction of that – and, as an owning company that actually operates in fintech, our value per patent is multiplied tenfold. We are thus securing our intellectual property, positioning the company as a tech leader, and are also generating significant value.

Thanks to the program, several Finaro patents have recently received approval by the US Patents Office, while other applications are pending.

One approved patent related to authentication involves matching bank authentication methods with biometric alternatives intuitively tailored to individual customer profiles and their favored biometric method, such as fingerprints, to avoid the traditionally high abandonment rates caused by friction in the checkout process.

Meanwhile, an artificial intelligence patent developed by Finaro predicts transaction flows, detects potential problems relating to fraud or operational disruptions, and corrects anomalies in split computer networks. In essence, this patent helps to detect possibly fraudulent transaction attempts as the transaction is routed through third-party networks – and a way of correcting it.

One patent application pending approval involves authenticating a transaction by scanning a website to identify a plurality of products sold at a website, calculating a set of transaction costs based on things like product and shipping prices for combinations of products, and generating authentication scores for the transactions. In a nutshell, this patent will make online shopping more secure, enabling faster detection of suspicious online shopping transactions.

As technology gets more complex, our mission is to make payments brilliantly simple. These innovations are quantum leaps ahead of current anti-fraud and authentication services, and are testament to the success of Finaro’s unique technology strengths underpinned by its collaborative culture.

Our relentless curiosity about what the future of payments could look like is driving us to create levels of personalization in customer authentication that have never been seen before. By removing as much friction as possible from the checkout journey, without compromising security, these services can offer unmatched agility – and deliver the best possible payment experience for consumers and merchants.