From Black Box to Boardroom: The Significance of Explainable AI (XAI) in Reducing Algorithmic Risk and Rebuilding Confidence in Digital Payment Systems
Jul 2026· Texila international journal of academic research· 0 citations
Abstract
The wide implementation of advanced Machine Learning (ML) models in digital payment systems, especially for fraud detection and credit risk assessment, has substantially improved operational efficiency and transaction security. The inherent opacity, often referred to as the black box character, of these high-performing algorithms poses considerable and mounting issues related to algorithmic fairness, stakeholder trust, and compliance with regulations. This article analyzes the growing strategic significance of Explainable Artificial Intelligence (XAI) as an important governance tool for mitigating algorithmic risk in financial services. The paper exposes how XAI, informed by Agency Theory and Institutional Theory, is not just a technical requirement but an essential institutional mechanism for ensuring regulatory accountability within frameworks like the EU AI Act, restoring public trust and identifying and alleviating systemic algorithmic bias in credit scoring and fraud risk assessment. A conceptual framework is introduced and it illustrates how XAI; using post-hoc interpretation methods such as SHAP (SHapley Additive exPlanations) and LIME (Local Interpretable Model-agnostic Explanations)- bridges the knowledge disparity between intricate AI models and various human stakeholders, including customers, fraud analysts, and regulators. This transformation shifts AI from a hypothetical institutional liability to a responsible, auditable, and governable asset within the digital payment ecosystem. The report concluded by describing key areas for forthcoming empirical research on the organizational problems associated with XAI implementation across various regulatory jurisdictions
The integrity and accuracy of financial data are prerequisites for market efficiency; however, data anomalies and quality issues severely compromise their “fitness for use” in sophisticated decision-making processes, such as value investing strategies. This article reviews the application of advanced artificial intelligence (AI) methods to enhance quality assurance, anomaly detection, and imputation within high-dimensional financial data streams. The paper critically evaluates both statistical-machine learning hybrids (e.g., ARIMA-LSTM) and deep learning combinations (e.g., autoencoder-based GANs), alongside Explainable Artificial Intelligence (XAI) techniques, assessing their utility against the strict auditability requirements of public trust institutions. The synthesized literature suggests that hybrid frameworks can potentially outperform monolithic approaches in detecting nonlinear manipulations and creating “high-fidelity” datasets. Furthermore, the study addresses the “black box” opacity challenge—a major barrier for regulatory and statistical agencies—discussing how methods like SHAP and LIME support, rather than independently ensure, the necessary interpretability of algorithmic decisions. Conclusions indicate that the synergy between the predictive power of advanced AI models and the transparency supported by XAI is a highly valuable component for modern market supervision, enabling effective data validation while supporting institutional accountability.
Krzysztof Podgórski· Journal of Official Statisti...· 0 citations
A Supervisory Explainable AI (XAI) Toolkit is proposed, a privacy-preserving auditing platform inspired by the BIS Innovation Hub's Project Noor that equips regulators to independently probe and assess proprietary AI models without requiring firms to surrender raw data, model weights, or trade secrets.
Andrew Moore, Samuel Allen· World Journal of Advanced Re...· 0 citations
The rapid adoption of digital technologies has significantly transformed the way banks and financial institutions evaluate loan applications. Machine learning (ML) models are widely used in credit risk assessment to analyze large volumes of financial data and support faster and more reliable lending decisions. However, many of these models operate as black-box systems that provide limited explanation for loan approval or rejection outcomes. In financial environments, where decisions directly impact borrowers and institutional risk exposure, lack of transparency may reduce trust and raise concerns regarding fairness and accountability. To address these challenges, this study proposes a Transparent and Explainable Artificial Intelligence (XAI) framework for risk-aware loan approval decision support. The proposed framework integrates predictive modeling with explainability techniques such as SHapley Additive exPlanations (SHAP), Local Interpretable Model-Agnostic Explanations (LIME), Counterfactual Explanations, and Permutation Feature Importance. These techniques provide both global insights into model behavior and clear explanations for individual loan decisions. In addition, fairness evaluation mechanisms are incorporated to detect potential bias across sensitive attributes. Experimental results demonstrate that integrating explainability improves transparency and user confidence while maintaining strong predictive performance, thereby supporting reliable and responsible AI-based loan approval systems for financial institutions.
Ch.Padma, N. Bhavani, G. Prakash et al.· 2026 4th International Confe...· 0 citations
The study introduces the Stability–Transparency–Reliability (STR) model, which advances TPB, Socio-Technical Systems Theory, and the Dynamic Capabilities View by reframing XAI from a static interpretability output into a recursive governance capability, formalised through the concept of Interpretative Agility, with direct implications for financial institutions operating under the EU AI Act.
An auditing protocol is constructed that measures two properties of any post-hoc explainer: robustness (how stable the explanation is under input perturbation) and fidelity (whether the features deemed important actually drive the model's prediction).
Rosa Elysabeth Ralinirina, J. Ralaivao, Niaiko Michaël Ralaivao et al.· 0 citations
It is concluded that a holistic AI compliance framework integrating data governance, bias mitigation strategies, legal oversight, cybersecurity, and ethical accountability is essential for ensuring responsible and trustworthy AI deployment in high-stakes environments.
Joy Oluchi Nwachukwu, Thaddaeuse Odhiambo, Dorcas Akorkor Apaflo et al.· Journal of Economic, Finance...· 0 citations