Donald Trump’s stunning election victory may have a substantial impact on the financial industry in many ways. Trump’s supporters have stated that he intends to repeal the Department of Labor’s new fiduciary rule as well as overhaul the tax code. Another area where Trump may quickly make his presence felt: the financial technology arena. Fintech companies constitute a recent movement in the financial industry towards all-digital platforms that clients can access from anywhere at any time.
While it's still too early to tell, Trump’s influence upon this sector may be both good and bad, depending on his policies. Read on for more about how he might impact fintech. (For more, see: How a President Trump Would Disrupt Technology.)
Trump’s Initial Thoughts
Trump has voiced opposition to both the Dodd-Frank Act and the Consumer Financial Protection Bureau. This could be a double-edged sword for financial tech companies, as freedom from the Dodd-Frank Act may mean less regulation. However, 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. The CFPB could also be considered a good resource for fintech companies when they need clarification on rules and regulations. But Trump has stated that he intends to either dissolve the agency or, at least, replace its director as well as put a halt to all new nonessential financial regulations as soon as he gets into office.
Trump would also like to reinstate the Glass-Steagall Act, which created a division between commercial banking and investment banking. This action could have a substantial impact on lenders, as commercial banks would have to look to new avenues in which to grow if they are separated from their investment divisions. Many of these banks may look to digital lending as the solution, which could lead to either increased competition in this area or a wave of mergers or takeovers as banks partner up with digital lenders instead. There have already been several partnerships in this arena, such as between J.P. Morgan Chase & Co. and Regions Financial Corp.
Fintech companies may also see a reduction in investments such as venture capital and funding by institutions. This typically happens during periods of political uncertainty. When Brexit occurred earlier this year, venture capital funding in the U.K. dropped drastically within a short time compared to its levels from the previous year. Data showed that activity in this sector was down by about one-third compared to the third quarter of 2015. (For related reading, see: Why Trump Fears Are Hammering Techs.)
Robo-advisors are likely to be left largely untouched at this point. They may also benefit from the repeal or halt of the DoL fiduciary rule, as robo-advisors would be given more time to reshape their programs to comply with this rule, or else be released from the requirement of having to do so at all.
Student loan and refinance providers may benefit more from a Trump presidency than any other sector of fintech. Trump has stated his intention to move the student loan industry back into the private sector, which could lead to a spike in the number of originations as well as a broader array of products and services due to increased competition between lenders.
Perhaps the most threatening area for fintech lies with labor. Trump has stated that he intends to limit overall immigration to this country, and many startup companies including fintech firsm rely heavily on entrepreneurs and skilled workers from outside U.S. borders. Many fintech leaders will be closely watching the Trump administration's immigration policies as they take shape.
The Bottom Line
Time will tell how Trump’s presidency will impact the fintech industry. One of the keys to implementing the changes he wants will be whether he is politically able to accomplish any of his platform promises, that is, whether or not Congress will back him on such measures. The only thing that is certain at this point is that the financial industry is in the midst of a huge period of change, and Trump’s plans may either accelerate or diminish the trend in many ways. (For related reading, see: Investors Share Their Fears After the Election.)