How the U.S. Fintech Landscape Could Change Under the Biden Administration

As President-elect Joe Biden officially begins the transition to a new U.S. government, fintech companies can expect several overarching impacts. Specifically, there are three ways in which the new administration will influence the fintech sector – here’s our analysis. 

Joe Biden and Kamala Harris have just released their first public schedule, officially signaling the transition to a Democrats-led administration. Given that Donald Trump and the new President-elect differ on most issues, analysts expect several sweeping changes in the country’s fintech sector. Can fintech companies gear up for a period of unbridled growth under the new administration? What are the checks and balances they could be facing if any? 

The Good News: Fintechs Will Have More Reason To Work Out of the U.S.

As several industry analysts have pointed out, getting high-quality talent was a major challenge under the Republican government. Since the Silicon Valley boom in the early 2000s, it was under the Obama administration that American technology companies became household names and aspirational workplaces for professionals around the world. But the Trump administration suspended the H-1B visa for skilled workers, 69%Opens a new window of which fill up technology-related positions, effectively reversing this progress.  

As a recent policy document announcedOpens a new window , “Biden will support expanding the number of high-skilled visas and eliminating the limits on employment-based visas by country, which create unacceptably long backlogs.” This is excellent news for fintech companies, as 82%Opens a new window plan to scale, but over 3 in 5 companies face a talent shortage.

Better diplomatic relationships with foreign countries under the new administration could also bode well for fintechs. The U.S. stock exchanges are open to foreign IPOs, ideally inviting fintechs from around the globe. But this wasn’t the case under Trump. Tense Sino-American relationships meant that one of the world’s largest fintech players – Alibaba-owned Ant Group – had to consider an IPO on the Hong Kong and Shanghai stock exchanges. 

In November, the Ant Group run into regulatory roadblocks by the Chinese government. Now, under Biden, there is a greater possibility of a U.S. IPO for the fintech giant. 

This would set a precedent for fintechs worldwide, potentially positioning the U.S. as a fintech investment hub regardless of company HQ location. 

Checks and Balances: Expect Regulatory and Taxation Burden to Increase

Another impact area for fintech under Biden is taxation and regulatory norms. The Democratic party is known for its relatively high taxation policies for businesses and corporates, and the new administration is no exception. Biden plans to raise corporate taxes from 21% (as established by 2017’s Republican tax overhaul) to 28%. 

Additionally, a typical fintech will have a global presence and will support transactions via multiple non-U.S. channels. This gives rise to global intangible low-tax income (GILTI), a common asset for nearly every technology company, as they aren’t bound by physical operational premises. 

Tax on GILTI will nearly double under the Biden administration, from 10.5% to 21%. 

The third element of the Biden taxation policy impacts insurance specifically, which includes insurtechs as well. A minimum tax rate of 15% will be imposed on book income, making a big difference in insurance. This is because, in insurance, there is a significant timing difference between book income and taxable income, according to S&P GlobalOpens a new window . 

In other words, fintechs could be looking at a complex taxation structure from 2020, depending on their nature and scale of business. 

Another important element that will change under Biden is the regulatory norms applicable to financial institutions. There are three changes in the works: 

1. Under Trump, the Office of the Comptroller of the Currency (OCC) announcedOpens a new window that it would start taking applications from non-depository fintech companies engaged in the “business of banking” who wanted to acquire a national bank charter. This made it easier for fintechs to compete alongside traditional banks. 

The Democrats have consistently opposed OCC’s decision, and a court in the state of New York said that the OCC lacks the authority to issue charters to fintech companies. Therefore, under the Biden administration, fintechs might find it harder to reach the full scale of national banking operations. 

2. In the U.S., private agencies like TransUnion, Experian, and Equifax dominate the credit reporting market. But the Biden administration believes that these traditional agencies are skewed against disadvantaged groups, leveraging racially profiled risk data to assess credit-worthiness. This blocks a large portion of the middle class from receiving affordable credit. 

Biden plans to establish a government-run credit reporting agency under the freshly-empowered Consumer Financial Protection Bureau (CFPB). For fintechs, this means added competition from a government-run financial services provider. Also, they might have to relook their credit risk assessment datasets in line with the new administration’s inclusive and bias-free policies. 

3. The Biden administration could tighten the laws around consumer financial data. In the U.S., there are no federal-level regulations governing financial data rights like PSD2 in the E.U. The Trump administration was strongly vocal about its criticismOpens a new window against data privacy rights like the GDPR, setting very few federal-level regulations. This could change under the Biden administration. 

He has previously statedOpens a new window that the U.S. should have its equivalent to E.U. standards. So, the next few years could bring in regulations around consumer data rights, particularly surrounding financial data. 

The Bigger Picture: A Climate of Financial Inclusion Could Mean Big Wins for the Fintech Sector

Zooming out a little, the Biden administration is consistently focused on financial inclusion for all, upliftment of the middle-class, and the return to a strong economy. 

Over 6%Opens a new window of Americans (20.5 million people) are unbanked, which is something that Biden plans to change. Nearly 50 million more Americans are underbanked, which means that they regularly rely on pay-day loans and check cashers outside an organized system. Fintechs could step in and offer a smarter banking alternative that is accessible at the grassroots level. From this perspective, the larger fintech vision for success intersects perfectly with the Biden administration’s goals for social equity, consumer rights, and regulated growth. 

It is probably not a coincidence that Biden has confirmedOpens a new window that Gary Gensler, a well-recognized authority on cryptocurrency and fintech, will lead the new government’s financial policy transition team. Several other experts on crypto, blockchain, and other emerging areas are part of this recently-assembled group. 

Overall, the next four years hold promise for the U.S. fintech sector, spurred by grassroots-level financial inclusion, steady economic growth (as predicted by Moody’sOpens a new window ), and the opening up of new markets. Fintechs might have to watch out for added regulations, investing more in compliance than previously, but there are chances of sustained growth on the other side. 

What are your thoughts on the impact of Biden’s win on the fintech sector? Comment below or let us know on LinkedInOpens a new window , TwitterOpens a new window , or FacebookOpens a new window . We would love to hear from you!