AI becomes new battleground for payment gateways, finds Zoho survey

As many as 78% of Indian businesses said they would switch their primary payment gateway if another provider offered the AI capabilities they expect, according to Zoho’s Indian Merchant Payments Survey 2026, based on responses from more than 700 businesses, ranging from MSMEs to large enterprises.

The finding comes as payment providers face a shift in what merchants expect from their infrastructure. Nearly 60% of businesses are already using AI capabilities in payment operations, while another 20% are evaluating them, according to the survey.

AI-driven fraud detection emerged as the most sought-after capability, followed by automated reconciliation and smart payment routing, the survey found. Risk assessment, chargeback and dispute management, and customer insights were among other capabilities businesses said they wanted from payment providers.

The demand is being driven by persistent operational pain points. Payment failures were identified as a major challenge by 56% of businesses, while 46% cited reconciliation. The burden of reconciliation remains particularly high, with 61% of businesses spending one to three hours every day on it and nearly 20% spending three to six hours. Only 14% complete reconciliation in less than an hour.

MUST READ: Anthropic’s AI researcher exits AI industry with a warning: ‘Do not underestimate its power’

Fraud is adding to the pressure. Among businesses reporting fraud, UPI social engineering scams were the most commonly reported, followed by false chargebacks, cash-on-delivery return fraud and identity fraud during customer onboarding.

“The Indian business has moved well past asking whether digital payments work, to whether their payment infrastructure is fast, reliable and intelligent,” said Sivaramakrishnan Iswaran, CEO of Zoho Payment Technologies and Global Head of Finance and Operations BU, Zoho.

But AI alone may not be enough to win merchants. Same-day settlement was cited by 62% as a reason to switch providers, followed by lower fees or MDR at 56% and better reconciliation at 50%. At the same time, 65% said pre-built integrations with accounting, billing or ERP systems with native AI capabilities were the main reason to stay with their existing gateway.

This indicates a broader shift in the payment gateway market, that merchants are increasingly evaluating providers not just on whether a transaction goes through, but on what happens before and after it.

ALSO READ: Meta launches Muse AI: A personal AI agent that can send emails, book trips, and make purchases

That is particularly relevant for smaller businesses with tighter cash flows. 83% of respondents said they would be willing to pay a fee for guaranteed same-day settlement, with micro and growth-stage enterprises forming the majority of those willing to pay.

For payment gateways, therefore, the competitive pitch is moving beyond MDR and transaction success rates to an AI-led financial operating layer, and one that can detect fraud, reduce failures, automate reconciliation and connect payments directly with the merchant’s broader finance stack.