Donald Trump’s win in the presidential race in November 2016 had already caused volatility among financial markets around the globe. The Trump Presidency is also likely to impact the fintech industry.
The US draws the largest amount of fintech investment and is home to many early success stories. Despite its leading position in the fintech world, the US is being challenged.
Notably, the number of deals and total amount invested in American fintech companies has dropped significantly, according to KPMG. In 2015, North America fell behind Asia in terms of regional investments in fintech. That same year, the five largest deals went to Asian startups.
One reason for this shift can be found in the Treasury report, notes TechCrunch in a recent article. The report ranked American fintech hubs last and second-to-last in terms of “policy,” including regulatory regimes, government programs and taxation.
“One reason the report notes for the low ranking is that the US fintech hubs on either coast are subject to regulation at the state level, by the Department of Financial Oversight in California and the Department of Financial Services in New York, respectively,” TechCrunch says. “Another is the lack of government support and collaboration with businesses in innovative fields.”
Investors and founders too, have identified regulation as a main concern in the US, while in Asia, numerous countries such as China, India and Singapore, have already adjusted regulations to promote fintech growth.
Similarly, BI Intelligence predicts that fintech investment will likely slow down in the US. This typically happens during periods of political uncertainty. Trump’s economic plan entails widespread changes that would take time to implement, and the outcomes of this plan aren’t immediately clear.
BI Intelligence also notes that Trump’s immigration policies could have a huge impact on American startups, including fintechs, which source a large volume of their skilled workers and entrepreneurs from outside the country. For instance, 51% of US unicorns, or startups valued at over US$1 billion, including Stripe and Oscar, were founded by immigrants, according to a study by the National Foundation for American Policy.
Robo-advisors are likely to be left untouched. They even may benefit from the repeal or halt of the Department of Labor’s new fiduciary rule, which requires retirement account advisers to work in the best interests of their clients. Robo-advisors would be given more time to reshape their programs to comply with this rule. They could even be released from the requirement of having to do so.
Trump has stated his intention to move the student loan industry back into the private sector, a move that would likely benefit student loan and refinance providers and increase competition between lenders.
The Dodd-Frank Act
Earlier this month, Trump signed a directive asking his Treasury secretary to review the Dodd-Frank Wall Street Reform and Consumer Protection Act, reports Econsultancy.
The Dodd-Frank Act, which was signed into law in 2010 by former President Barack Obama, aims at preventing yet another financial crisis. But it has also been the source of controversy, having been blamed for a number of trends, ranging from a decline in community banks, to a decline in business lending by banks.
Trump has voiced opposition to both the Dodd-Frank Act and the Consumer Financial Protection Bureau (CFPB). For fintechs, the eventual death of the Dodd-Frank act could impact them in numerous ways.
Although freedom from Dodd-Frank may mean less regulation, it also means that fintech companies may be losing a regulatory agency that would be more friendly to them than the CFPB is if it is dissolved. Direct supervision by FINRA or the SEC may be much more rigorous, according to Investopedia.
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