With President Trump now in office, the fintech industry should reflect on some of the key questions concerning where the industry is heading next.
Will shift in fintech investment from the U.S to Asia continue to accelerate?
The pull effect on investment capital towards Asian fintech companies, of which the clear majority is located in China, has been well-documented. In H1 2016 investment in the Asian fintech market ($10bn) was more than double the capital invested in North America ($4.8bn), and with a Chinese public/private consortium already declaring a new $1.44bn war chest for fintech investment before the end of the first week in January, the pace of investment doesn’t appear to be slowing down any time soon.
And it can be argued that, if anything, the Trump effect is going to push more investment dollars east, or at the very least create an even wider gap between the level of Asian and North American investment as activity in the U.S dries up.
The old adage dictates that economic uncertainty curtails action from investors who are typically cautious, and as was observed in the UK post-Brexit, when there is little political plan to grasp, or a plan that promises widespread upheaval of the current status quo, the lack of clarity in what the Trump landscape will look like could act as a roadblock to investment.
President Trump’s economic plan may make sense in the eyes of investors, but in the short term at least we can expect the promised overhaul to make an impression on the market.
Remittances from the US to Mexico have surged, but could this be the beginning of the end?
The value of remittances to Mexico posted its largest jump in a decade, up 25% year-on-year, for the month of November 2016, to $2.4bn. Good news for payments companies, right? Well, it’s not quite as simple as that.
According to the Mexican Central Bank, the main reason for the swell following Trump’s election win can be pinpointed pretty clearly: It all comes down to the wall Trump has promised to erect between the two countries.
Trump’s election pledge to construct the physical barrier between the U.S and its southern neighbour, and have Mexico cover the costs, is a policy famous throughout the globe. What may be slightly less well known is the method of coercion the President has mooted to ensure the bill is paid: Invoking the US Patriot Act to stem the flow of money between the two countries until a one-off payment of between $5bn and $10bn is made.
The proliferation of payments services between the U.S and Mexico has enabled fintech start-ups and established companies to expand hugely in this area in recent years. If Trump follows through with his promise to interfere in the money flow between the two countries, either through increased taxes or outright restrictions, this will have a significant negative impact on the growth of providers who have sunk a lot of investment into servicing that specific market.
Will Obama’s call for safeguards be heeded?
The outgoing administration’s parting shots concerning new fintech companies were unmistakable: Greater regulatory requirements need to be placed on fintech start-ups attempting to access financial services, and greater care needs to be taken using data-driven algorithms for credit underwriting. Whether this advice falls on deaf ears is to be seen, with all indications pointing to a more competitive business environment and less barriers to entry under President Trump.
Financial Innovation Now, a tech lobby consisting of giants such as PayPal, Apple, Google and Amazon, penned an open letter directly to President Trump on the subject of opening up competition barriers last December, asking the then President-elect to “foster competition and innovation in financial services to better serve consumers and the economy”.
In the same address FIN pleaded the Trump administration to allow fintech companies greater access to financial data, and to “scrutinize technological barriers to payment security innovation and explore authentication methods that are truly standards-based, open, and interoperable”.
Trump’s overlying message has been that business will be more competitive under his administration than previous regimes, how his Reaganomic policies affect fintech in practice is to be seen.
Will fintech undermine Trump’s policy of delivering more jobs to the U.S?
One of the pillars of the Trump election campaign was the promise to create more jobs. And he has already demonstrated what may turn out to be his premier tactic for doing so, when Ford cancelled its plans to build a new $1.6bn car plant in Mexico in favour of developing an existing site in Michigan, following Trump’s dressing-down of its rivals GM for completing a similar relocation.
This PR coup was obviously an early win for Trump, but whether preventing the loss of jobs to overseas competitors is going to be enough to combat unemployment on its own is dubious. The great threat to employment in today's economy, as it always has been harking back to the development of farming equipment 300 years ago that made 90% of land workers obsolete, is technology.
All signs point towards AI, and the increased prevalence of mobile banking in particular, stripping what is current human-dependent jobs out of the banking sector. It is not inconceivable to foresee jobs such as bank tellers and loan officers, the number of which have already contracted, continue to evaporate as fintech innovations, and the consumer’s willingness to adopt them, build momentum. So will there be a backlash if fintech directly contributes to an umployment rise?
Will we see the end of regtech’s reign?
Regtech, the wave of technology introduced following the regulation epidemic brought on by the financial crisis, has only gone from strength to strength in the past five years. The trajectory of the regtech industry has only been projected in one direction as pressure on financial services to comply with more and more stringent regulations and scrutiny was ramped up. All that is set to change under President Trump. Or will it?
There is a belief that under Trump the weighty fines that currently threaten financial services will be eased away from, but ultimately regtech companies are banking on the alteration of policy under Trump resulting in a change of regulation, rather than the abolition of regulation altogether. When regulation is in flux the regtech industry should flourish, if the Trump administration does take financial services regulation down this route (as has been strongly suggested by Trump’s overtures of repealing elements of Dodd-Frank) then the shift may be a blessing, and not a curse, for the industry.