The future of financial services is unfolding like a classic Prisoner’s Dilemma. In game theory, this describes how two or more players must choose between cooperating for modest but mutual benefit, or defecting to pursue outsized rewards while risking significant loss. Everyone knows cooperation is safer, but the temptation to break away first can be irresistible, and hesitation often guarantees failure.
Every major player in financial services knows artificial intelligence will transform the industry. They also know that waiting too long could be fatal. Yet moving first is costly, uncertain, and fraught with risk. That is the trap FinTechs, banks, retailers, and technology firms now face.
Safwan Zaheer, a FinTech veteran who has scaled platforms from the ground up and led AI-driven transformations across lending, payments, and banking, sees the dilemma playing out in real time. “Prisoner’s Dilemma teaches us three things: Coordinated action benefits everyone but may not deliver massive wins. The player who breaks first takes the greatest risk but can unlock outsize gains. And indecision is the most expensive move of all.” For financial services, this is not just an abstract exercise. It is shaping who survives the AI revolution and who gets left behind.
Lessons from History
Finance has lived through this cycle before. When ATMs emerged in the 1970s, incumbents stalled, only to watch competitors capture early trust. In the 1990s, banks hesitated on online banking, opening the door for digital-first challengers. And when Apple Pay and Alipay redefined mobile payments, retailers and card issuers scrambled to catch up. The pattern is consistent: first movers rarely have the smoothest path, but those who hesitate often never regain lost ground. AI is the next chapter of this same story – only faster, riskier, and more irreversible.
The Four Players in the AI Race
Safwan frames today’s market as a contest among four groups.
FinTechs. These companies, ranging from early-stage disruptors to well-funded scale-ups, are the natural innovators. With product-first cultures and user-focused design, they’re best positioned to experiment with AI in underwriting, fraud defense, compliance, and personalization. Yet the stakes differ. “Early-stage FinTechs risk their existence if they move too fast with AI,” Safwan notes. “But mid-stage firms that have capital and scale are incentivized to act first. For them, AI is existential.”
Banks. The incumbents command trust, capital, and regulatory credibility. JPMorgan already employs thousands in AI research. Still, Safwan is skeptical they will lead. “Their strength is scale and trust, but their curse is bureaucracy and slowness,” he says. Instead, banks are likely to coordinate cautiously, adopting AI only after clear proof points emerge.
Retailers. Giants like Amazon and Walmart already embed lending and payments into their platforms. Their AI play will be pragmatic: make it easier for customers to consume financial services, deepen loyalty, and defend market share. They may not redefine financial services, but they will use AI to reinforce their ecosystems.
AI Innovators. Technology firms such as OpenAI and Anthropic are wild cards. With billions of users, they could integrate payments or lending directly into large language models. Yet Safwan stresses that scaling trust in money is not the same as scaling models. “These firms are on the cusp of redefining what financial services might become,” he says, “but their advantage in algorithms doesn’t erase the challenges of compliance and trust.”
Consumers and Regulators: The Two Forces That Cannot Be Ignored
This isn’t just a corporate chess match. AI will reshape the day-to-day experience of consumers. From underwriting that expands access to credit and finds more ways to say yes, to fraud defense that protects people before they even notice a suspicious charge, to payments and lending embedded so naturally into apps and platforms that finance becomes invisible. Once consumers taste this, they will not go back.
At the same time, regulation will heavily influence adoption. Governments may mandate AI transparency or restrict its use in credit and fraud decisions, slowing some firms. Conversely, regulators may reward those that deploy AI responsibly, granting them early trust advantages. Either way, regulation will not shield laggards. It will reveal who can balance innovation with discipline.
Who Breaks First?
In the Prisoner’s Dilemma, the defector is the one who dares to move first. In financial services, Safwan believes that honor – and risk – belongs to mid-stage FinTechs. “Banks will play it safe. Retailers will defend. AI firms will innovate but wrestle with compliance. It’s the mid-stage FinTechs that will break out first,” he argues. Their combination of urgency, resources, and product agility makes them best positioned to place bold bets on AI, whether in lending, payments, or embedded finance. These firms, Safwan says, may even outmaneuver native AI companies. “Their deep knowledge of financial products, consumer behavior, and regulatory frameworks gives them a foundation that even the most advanced model cannot replicate.”
The Cost of Indecision
The implications are clear. Waiting is the riskiest strategy of all. “Indecision will be costly,” Safwan warns. Once the first breakout occurs, rivals will scramble to catch up, resetting the competitive baseline. Those that hesitate may find themselves permanently behind.
Safwan expects that within five years, AI will be embedded naturally into financial services, powering interactions in ways consumers take for granted. The question is not whether this shift will happen, but which group has the conviction to defect first and change the game.
The winners will not be those with the biggest budgets or the most advanced models. They will be those with the courage to move first and the discipline to build trust while doing it. In this AI prisoner’s dilemma, indecision is the costliest move of all.
Connect with Safwan Zaheer on LinkedIn to learn more about his work at the intersection of AI and financial innovation.
