AI and IoT for Digital Payment Systems and Financial Security

Abstract

The rapid expansion of digital payment ecosystems has transformed global financial transactions through the convergence of Artificial Intelligence (AI) and the Internet of Things (IoT). Smart point-of-sale terminals, wearable payment devices, biometric authentication systems, and cloud-integrated banking platforms generate massive volumes of real-time transactional data, demanding intelligent, scalable, and secure processing frameworks. Conventional security architectures struggle to address evolving cyber-financial threats, including adaptive fraud schemes, adversarial attacks, identity compromise, and decentralized finance exploits. An integrated AI–IoT security paradigm offers a resilient solution by enabling real-time anomaly detection, adaptive risk scoring, device-level authentication, and continuous behavioral monitoring across distributed financial infrastructures. This book chapter presents a comprehensive exploration of AI-driven analytics, reinforcement learning–based adaptive decision models, federated learning for privacy-preserving intelligence, and lightweight deployment strategies tailored for resource-constrained IoT financial devices. A unified Zero-Trust architecture combined with blockchain-assisted auditability strengthens transaction integrity while ensuring regulatory compliance and data governance alignment. Emphasis is placed on explainable AI mechanisms to enhance transparency in automated financial decision-making and to support accountability within high-stakes payment environments. Emerging research challenges, including adversarial robustness, energy-efficient model optimization, and cross-platform interoperability, are critically examined to establish a forward-looking framework for secure digital finance. The proposed perspective advances a scalable and privacy-aware AI–IoT integrated security architecture designed to mitigate financial risk, reduce false positives, and enhance trust in decentralized and intelligent payment systems. This contribution aims to support researchers, financial technologists, and policy architects in developing next-generation digital payment infrastructures capable of sustaining security, efficiency, and transparency in an increasingly connected global economy.