If the AI Bubble Bursts: What Happens to Fintech and Payments?

We're living through the AI gold rush right now. Every fintech company, payments processor, and digital wallet is racing to slap "AI-powered" on their marketing materials. But here's the uncomfortable question nobody wants to ask: what happens when the music stops?

The signs are already there if you know where to look. Companies are quietly scaling back their AI ambitions, and the gap between AI promises and reality is getting harder to ignore. So let's dive into what an AI bubble burst would actually mean for fintech and payments, and why it might not be the disaster everyone thinks.

The Cracks Are Already Showing

Before we talk about what happens if the bubble bursts, let's acknowledge it's already happening in slow motion. By early 2025, 42% of companies had scrapped the majority of their AI projects, that's up from just 17% a year earlier. Even more telling? Between 70% and 85% of AI deployments are falling short of their expected returns on investment.

Only 47% of AI initiatives are actually turning a profit, while 14% are generating negative returns. That's not exactly the revolutionary transformation we were promised.

The fintech world has been particularly aggressive with AI adoption, betting big on everything from chatbots handling customer service to algorithms managing lending decisions. But reality has a way of catching up with hype, and the results haven't been pretty.

Take Klarna's experience as a warning shot. Their AI assistant was initially handling two-thirds of customer chats with lightning-fast responses. Sounds great on paper, right? But customers were getting inaccurate answers, dealing with robotic interactions, and struggling when they needed to escalate issues to humans. The CEO later admitted they'd prioritised cost-cutting over customer experience, a mistake that's become all too common in the rush to implement AI.

What Would Actually Happen If the Bubble Bursts?

Let's paint the picture. If the AI bubble truly bursts, think dot-com crash levels of devastation, the immediate impact would be brutal. Companies that have invested billions in AI infrastructure would see those investments evaporate overnight. CEOs who bet their companies' futures on AI-first strategies would face some very uncomfortable board meetings.

The economic ripple effects would be significant. AI-related spending has actually overtaken consumer spending as a driver of economic growth in recent periods. A widespread crash would likely trigger broader economic contraction, with data centres that expanded to support AI operations needing to downsize or shut down entirely.

But here's where it gets interesting for fintech specifically. The companies most vulnerable aren't necessarily the ones you'd expect.

The Fintech Fallout

Smaller fintechs that have made AI their entire value proposition would face existential threats. These are the companies that promised to revolutionise banking with AI-powered everything, from loan approvals to investment advice. When the technology fails to deliver and customer satisfaction plummets, venture capital funding, the lifeblood of fintech growth, would dry up faster than a puddle in the Australian outback.

The payments sector would face its own unique challenges. Many payment processors have integrated AI into their fraud detection systems, customer service operations, and transaction routing algorithms. If these systems were hastily implemented or poorly designed, their failure could create serious security vulnerabilities and operational instability.

Imagine trying to rebuild human customer service teams after you've just downsized them to make room for AI chatbots. You're looking at doubled costs and damaged customer relationships, not exactly a recipe for survival during a market downturn.

But Here's the Plot Twist

Not everything would be doom and gloom. History gives us a blueprint for what happens after tech bubbles burst. Remember the dot-com crash? It wiped out hundreds of overvalued companies, but it also cleared the way for Google, Amazon, and other tech giants that had solid business fundamentals beneath the hype.

The same filtering process would happen in fintech. Companies with genuine value propositions and sustainable business models would not only survive but potentially thrive as weaker competitors disappear and talent becomes more available.

Some AI applications in fintech have actually delivered real value and would likely survive the shakeout. Fraud detection is a perfect example, AI genuinely has improved the ability to spot suspicious transactions in real-time. Back-office automation and compliance monitoring are other areas where AI has proven its worth with clear, measurable ROI.

These aren't flashy applications that make for exciting press releases, but they're the nuts-and-bolts improvements that actually move the needle for businesses and customers.

The Rise of Hybrid Models

The biggest shift we'd likely see is the emergence of hybrid human-AI models as the new standard. The recognition that AI works best when augmenting human judgment rather than replacing it entirely would reshape how fintech companies approach customer service and complex financial decisions.

This hybrid approach balances efficiency with the empathy, trust, and contextual understanding that customers demand, especially when dealing with their money. Let's be honest: when your card gets declined while you're trying to pay for groceries, you don't want to argue with a chatbot about it.

We'd also see a shift toward more practical, cost-effective AI solutions. With proprietary AI systems failing to deliver promised value, the market would pivot toward cheaper, open-source alternatives that have been optimised for specific fintech use cases. This would democratise AI access and reduce dependency on expensive vendor relationships.

What Smart Companies Are Already Doing

The smartest fintech and payments companies aren't waiting for a bubble burst to adjust their strategies. They're already moving toward targeted AI deployment with clear ROI metrics, focusing on applications like fraud detection and payment security while resisting the temptation to chase every AI trend.

These companies are also investing in robust human operations alongside their AI initiatives. They understand that in financial services, where stakes are high and customer trust is paramount, having knowledgeable humans available when things go wrong isn't optional, it's essential.

The Payments Sector's Silver Lining

For the payments industry specifically, a bubble burst could actually create opportunities for more sustainable growth. The sector would likely become more conservative and pragmatic, favouring incremental, proven improvements over transformative claims that don't deliver.

Yes, this might slow innovation temporarily. But it would also create a more stable foundation for long-term growth. Companies that maintained balanced, human-centred operations during the downturn would emerge stronger, with restored customer trust and without the legacy debt from failed AI projects weighing them down.

We might also see consolidation in the payments space, with stronger players acquiring distressed competitors. While this could reduce competition in the short term, it would also create opportunities for new entrants to emerge with more realistic approaches to AI integration.

The Bottom Line

An AI bubble burst wouldn't be the end of the world for fintech and payments: it would be a reality check. The companies that survive would be the ones that focused on solving real problems for real customers, rather than chasing the latest technological trends.

The payments sector, in particular, has strong fundamentals that extend well beyond AI. People still need to move money, businesses still need to process transactions, and the underlying infrastructure for digital payments will remain valuable regardless of whether AI lives up to the hype.

If you're working in fintech or payments, the smart move isn't to panic about a potential AI bubble burst: it's to build a business that doesn't depend entirely on AI to succeed. Focus on the fundamentals: great customer experience, reliable operations, and genuine value creation.

Because when the dust settles, those are the things that will still matter, bubble or no bubble.