The Impact of the US Elections on Finance and Fintech

To say that the political situation in the US has been pretty chaotic in recent years would be the understatement of the decade. Regardless of your political leanings, the grim realities of ever-widening social divisions, barrages of legislation directly impacting the US and global economies and enduring uncertainty have undoubtedly had their impact.

The recently concluded election was perhaps one of the greatest periods of uncertainty yet. While Biden managed to secure the presidency, it was a much closer contest than many pundits expected. The margin of victory ended up being quite substantial, with Biden taking 290 electoral college votes (at time of writing, though the final count from Georgia has yet to come in) to Trump’s 219, but the race was initially a close one. It was days after the actual voting day that the result was finally declared, though that did not stop both Trump and Biden declaring themselves victorious in advance.

Any time of uncertainty inevitably has an impact on finance and, as a result, fintech. As usual, the value of the US dollar was dropping even before voting began as investors tried to determine which outcome would be the most beneficial, as well as which was more likely to actually happen.

Hope for home and abroad

Unsurprisingly, one of the most significant topics of conversation was America’s relationship with China. Trump made his attitude towards the Eastern economic giant very clear on the election trail four years ago and never wavered from that attitude throughout his time in office. That led to a game of economic ping pong, with each country trying to one-up the other with legislation and tariffs restricting the import of products from their competitor.

Given Trump’s clear convictions in this regard, it’s perhaps unsurprising that some significant hopes were pinned on a Biden victory. The belief was that such international tensions would continue to increase under a second Trump term while the Democrat would try to reverse the damage, building bridges with China. This and a substantial financial stimulus package promised for the home economy, which has been struggling in the COVID crisis, were certainly points in Biden’s favour.

Shiv Sehgal of Edelweiss Securities put it well when speaking to The Economic Times: “There are talks that if Biden wins, both the presidential election and the Senate, the number [for the economic stimulus package] could be as high as $5 trillion. That would be a big kicker, not only for Wall Street, but even the emerging markets. If you look at where FIIs have been putting money, India and China are the only two markets in the entire Asia Pacific region that are seeing positive inflows for the year to date.”

Worst-case scenario

Sadly, that predicted $5 trillion may never come. In fact, according to Bloomberg, it probably won’t even be half that amount. With the Republicans finding more success than anticipated in the House of Representatives and the Senate, the chances of the Democrats pushing a multi-trillion dollar stimulus bill through now seems much less likely. That just added to the uncertainty plaguing investors throughout the election. And investors don’t like uncertainty.

In fact, as far as investors are concerned, the end result of the elections could not have been worse. While Joe Biden may have become the 46th President of the United States of America, he will be dealing with a predominantly Republican Senate. Among the many ways Democrats and Republicans disagree, among the more significant is on economic matters. Republicans tend to favour boosting stock prices while Democrats prefer the opposite, instead preferring to redistribute wealth more evenly through social programmes and benefits. With the White House pulling in one direction and Capitol Hill the other, the end result is likely to be an underwhelming deadlock.

The only situation that could be worse would be if Trump refused to accept the result, instead choosing to expend valuable government time, attention and money contesting it, potentially even triggering a constitutional crisis. Such political drama at a time when the US economy is balanced on a knife-edge is exactly what the country does not need, yet seems highly likely to get.

What will happen to fintech?

Given the suboptimal political situation, Business Insider predicts that the three main effects on the fintech industry will be as follows:

1. Biden will likely reverse many of Trump’s measures to loosen financial regulation, adding additional oversight and scrutiny while also launching new initiatives to improve financial inclusion.
2. Consumer personal data may become more accessible, releasing the stranglehold that traditional institutions have on the banking industry, opening the doors for neobanks and other fintech solutions.
3. Trump’s initiatives to limit the number of skilled worker visas will be reversed, helping to reduce the tech talent shortage in the US.
   

These likely results of a Biden presidency provide something of a glimmer of hope for finance, offering some room for fintech to develop and unlock some potential that has so far been prevented. As an example, the US is currently the furthest behind when it comes to open banking and digitisation. While Europe, Australia, Africa and Asia are experiencing a rapid growth of neobanks and digital solutions giving unbanked populations access to financial services, the US is still stuck with only traditional banks and their many limitations.

Funding in the fintech world

The confidence being shown in fintech is evidenced by the amount of venture capital being invested in it. CB Insights found that 60 per cent of all capital raised by fintech startups in Q3 2020 came from just 25 rounds, but each amounted to over $100 million. While the number of fintech deals fell by 24 per cent year-over-year, the value of those deals skyrocketed to levels not seen since mid-2018 - up to a staggering $10.631 billion.

The data collated by CB Insights features a few more curious highlights, including an increase in the amount of angel/seed funding rounds, which grew by 20 per cent compared to last quarter - the first increase in three quarters. This trend was evident across Europe and South America, too, while funding for fintech in Asia and Australia dropped by 12 per cent and an alarming 84 per cent respectively.

Unsurprisingly, a lot of the investment activity in the US came from the big digital powerhouses - FAMGA (Facebook, Apple, Microsoft, Google and Amazon). Q3 2020 saw plenty of patent approvals, partnerships and acquisitions, including Apple buying up Canada-based Mobeewave - a mobile payments company - for $100 million. Mortgage companies and brokerages have also been snapped up by the bigger fish in the financial world, with several multi-billion dollar deals going through this quarter.

So, while the instability has certainly not settled just yet, the next four years do offer some hope for increased opportunities in the fintech world. How much of an obstacle the Republican-domninated Senate will represent remains to be seen, of course, and this discord between the White House and the Capitol will certainly make more traditional financial institutions concerned, but it seems that investors are prepared to show their confidence in fintech as the way forward with their wallets.