The payments and financial services industry has enjoyed an unprecedented wave of invention, but the fruits of that labor are threatened by an ideologically driven political climate that complicates the evolution of global, interoperable, mobile-driven commerce.
The 2018 midterm elections split the U.S. legislature between Republicans and Democrats, creating an environment that will slow deregulation for payment processing rules, create an increased focus on consumer protections and a spark a change in committee leadership that’s sure to create more stalemates.
The resulting policies — on both sides — claim to promote innovation but are more likely to cancel each other out.
Developers using blockchain, mobile, the cloud or application programming interfaces may not be thinking about “U.S.-first” or “reining in excess” when pursuing new ways to conduct cross-border payments and e-commerce, but it’s something they will need to consider now.
When drilled down to fintech and payment technology, the U.S.’s macro political divide offers competing visions of what constitutes technological progress and innovation, since the Democratic posture toward more oversight is likely to harm GOP-led efforts to push market-based development, while Republican isolationism hinders international cooperation and an open internet.
For example, Treasury Secretary Steven Mnuchin has proposed the U.S. government offer regulatory relief to fintech startups. Generally referred to as a “sandbox,” the light-touch regulatory approach has shown progress in the U.K., sparking advancements in areas such as identity security technology. In the U.S., a stronger Democratic influence will likely counter efforts to waiving regulations even temporarily.
But at the same time, the Trump administration has ended net neutrality, which a large portion of new and existing technology companies see as vital to innovation. Democratic-leaning states such as California have attempted to push net neutrality, resulting in legal pushback from the federal government. Democratic control of the House gives congressional action on net neutrality extra life, though any effort in the House would stall in the Senate or face a veto. The likely result is a prolonged battle in legislatures or the courts in which nether vision wins.
Battles over the Trump administration’s immigration stance could also muddy the path forward. The administration’s attempts to curtail skilled tech worker immigration could result in less diversity in development, hurting America’s competitiveness in the global tech market. But in contrast, a Democratic push to protect the skilled-worker visas could slow business for international gig economy companies.
Data protection is another area where a political stalemate would impair fintechs that rely on APIs and open data sharing. European rules such as GDPR and PSD2 are expected to be taken up in some form in other countries, but political gridlock has already diluted the desired impact, with Australia’s move to open banking not going as far as Europe’s, hampered by political concerns.
Open data rules are considered “left of center,” and in the U.S. would fall into the predictable red/blue fault line. However, the analysts PaymentsSource contacted for this week’s political coverage suggest congressional leaders were not yet aware enough of the open banking trend to make it a near-term issue in the U.S.
The political drag on payments innovation goes beyond this week’s midterm elections in the U.S., and beyond the U.S.
The successful U.K. sandbox is itself a result of a political crisis, as the U.K. government seeks to keep fintech companies from fleeing after the U.K. leaves the European Union. Brexit’s uncertainty still hangs over fintech and payment startups, which have to decide to stay in the U.K., leave for other parts of Europe, or migrate portions of their business. That said, Lithuania has also set itself up as a fintech hub, capitalizing on the uncertainty surrounding the U.K.’s Brexit plans.
Both Brexit and Trumpism have a core of isolationism that favors domestic development — including sandboxes — while pushing international policies that slow globalism such as Brexit and tariffs. But western payment companies, which rely on international transactions to boost growth as the U.S. market matures, face headwinds from isolationist policies in important markets such as India and China.
India and China both require a substantial local presence to offer domestic payments, with India’s requirement for local data storage a more recent development. These rules are positioned as security measures, though they have the effect of helping local payment companies such as Paytm build mobile payment markets.
India’s move has created an ironic response, as the U.S. government lobbies India to ease the data storage rules and become more “open” to outside companies. But for these companies — card brands such as Mastercard and Visa, fintechs such as Stripe and PayPal, and retailers such as Walmart and Amazon — the uncertain political environment is another hurdle to both technology and market development, where stalemate is a greater foe than any particular vision.