There has been an enormous sense of anticipation flooding through the community and regional banks since the election. President-elect Donald Trump’s opposition to the Dodd-Frank Act, which has created a stifling regulatory environment, is well known and bankers feel that relief is on the way. By contrast, the election results have produced a sense of consternation and concern among the financial technology companies that are trying to partner and compete with community and regional banks. The regulatory picture is much more confusing under a Trump Administration for these enterprises.
One reason for this is that fintech regulation was far from a settled issue before the election. The regulatory framework for fintech is not in place to any significant degree. In many cases, it will take new regulations to allow many of the fintech lenders and payment companies to expand their operations, and that’s a problem. Trump is opposed to new financial regulations of any sort, and it may be difficult to get the new framework in place during his term in office. Rather than pass new federal legislation, he is likely to leave the matter in the hands of the state legislatures and that will not benefit fintech companies.
The creation of a limited purpose national fintech charter as proposed by the Office of the Comptroller of the Currency is an attempt to make it easier for these companies to operate and not have to deal with regulatory agencies on a state-by-state basis. But in my opinion, there won’t be that many fintech companies that are willing and able to handle the responsibilities of a national charter, so this will provide limited relief to the industry. I also will not be shocked to see the concept of a limited purpose charter unwound early in a Trump Administration as bankers have been huge supporters of the incoming president and in my experience, the average bank is not shy about asking for favors.
Fintech firms are also big supporters of net neutrality since it gives them open and even access to bandwidth to offer services to users. Trump is not a supporter, and neither are the ranking members of the GOP in the Senate and the House of Representatives. Republican lawmakers have already put forth a bill to end net neutrality that I think will pass early in the next session of Congress and I expect Trump to sign it when it reaches his desk.
Immigration policies will also be a potential negative for fintech companies. Immigrants make up a significant percentage of the skilled workforce within the financial technology industry, and anything that makes to harder for them to get here and stay here is going to create a talent challenge for the companies in that space. Fintech companies that focus on payments could be hurt as well since many of the people that Trump wants to deport use these systems to send money to family back home, and that volume could drop substantially.
The biggest threat to fintech firms from the new administration will likely come from the repeal or reduction of Dodd-Frank. A lot of the opportunities that fintech companies are pursuing were created by the handcuffs placed on banks by that legislation. If the handcuffs come off under the Trump Administration, then fintech lenders and payment companies will find that they now have to go head to head with the likes of JP Morgan Chase & Co., Citigroup and Bank of America Corp., and that will be no easy task.
The regulatory environment for financial technology was murky before the election, and it is even more so today. While we can expect the combination of a Trump Presidency and GOP-controlled Congress to be pro-business, we can also expect them to be very pro-traditional banking. That will be a big negative for fintech companies that had hoped to compete with the banks in the future.
While many expect fintech to be a major disruptor of the banking industry and some even think it will replace banking, I don’t expect that to happen—especially if banks end up with a more favorable regulatory environment. The fintech firms that prosper under a Trump Administration will be those that can partner with a bank to offer financial products and services to bank customers in a more efficient and profitable manner.