PhonePe and Razorpay embed AI into digital payments to boost success rates and inclusion

AI-driven improvements in transaction success and fraud detection

At TechSparks 2026, PhonePe and Razorpay outlined their use of AI to tackle core challenges in India’s digital payments ecosystem. Razorpay’s Vulcan 5.2, a transaction-led foundation model, analyzes nearly 3,000 attributes per transaction to predict fraud, assess conversion likelihood, and fill gaps in real time. The model leverages transformer-based architectures to detect subtle patterns that traditional machine learning methods might miss.

PhonePe’s Kill Switch model complements this by forecasting transaction success rates. It considers factors like bank response times and recent fail rates, advising users to retry later if their bank is experiencing downtime. This reduces friction for users and improves overall success rates for merchants.

AI assistants and agents for merchants and users

Razorpay’s AI assistant, Ray, extends beyond payments to offer scalable account management for small and medium businesses (SMBs) via WhatsApp. The assistant handles queries, updates, and basic troubleshooting, reducing the need for human intervention.

For more complex tasks, Razorpay’s Agent Studio enables businesses to deploy autonomous AI agents. These agents can recover abandoned shopping carts, resolve disputes, confirm cash-on-delivery orders, and verify delivery addresses. Razorpay reported 600 brands using 12 live agents, with plans to scale to 100 agents in the next six months and reach 100,000 businesses eventually.

Expanding access for feature-phone users and micro-merchants

PhonePe is addressing barriers for users with feature phones through voice bots. These bots guide users through tasks like linking bank accounts and setting up UPI PINs, simplifying onboarding for those without smartphones.

For micro and small merchants, PhonePe’s SmartPages provides a no-code solution to create checkout pages, list products, and start selling online. This eliminates the need for technical expertise or subscriptions to platforms like Shopify or WooCommerce, lowering the entry barrier for digital commerce.

Financial inclusion as the next frontier

With over 500 million UPI users in India, the focus is shifting to bringing the next 500 million into the digital payments fold. Both companies emphasized the role of AI in not just facilitating transactions but also enabling access to broader financial products. PhonePe highlighted its use of guardrails in algorithms to ensure relevant financial product recommendations, avoiding irrelevant or intrusive offers.

Context from India’s digital payments growth

This push aligns with earlier reporting on India’s e-commerce evolution, where the focus has shifted from discovery to access for consumers in Tier II cities and beyond. As digital payments become ubiquitous, the next phase involves deepening financial inclusion and improving merchant tools to sustain growth. Unlike global platforms like TikTok or Meta, which integrate AI-driven shopping assistants into social ecosystems, PhonePe and Razorpay are embedding AI into the payment rail itself, targeting underserved users and businesses directly.

What this means

Lazyfounder analysis — our interpretation, not reported fact.

For founders and operators, PhonePe and Razorpay’s moves signal two critical trends. First, AI is no longer just a backend optimization tool—it is becoming a direct interface for users and merchants, capable of handling complex tasks like dispute resolution or abandoned cart recovery. This reduces operational overhead for businesses while improving customer retention and conversion rates. Second, the focus on feature-phone users and micro-merchants highlights an often-overlooked segment. Startups that can simplify onboarding and transactions for these groups—without relying on expensive infrastructure—stand to capture significant growth in India’s next wave of digital adoption.

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