After weeks of controversy, lawsuits, and general chaos, the 2020 U.S. election is finally coming to a close. On November 24, 2020, after a very close race and weeks of vote counting, the U.S. General Services Administration (GSA) recognised Democratic Party leader Joe Biden as the official winner.
However, with a majority Republican senate and many Democratic ideals at odds with current policies, the next few months are likely to bring about confusion and disruption to markets worldwide.
If senators struggle to find a middle ground on important issues and mission-critical decisions drag out for too long, investors will lose faith and stocks will probably fall. On the backdrop of an ongoing global pandemic, what will this transition mean for the global economy and, subsequently, the fintech industry?
Prior to the elections, Republicans in the Senate were resistant to a renewed $2 trillion financial stimulus package to combat the ongoing effects of the global pandemic. In early November, Shiv Sehgal of Edelweiss Securities told the Economic Times that a Biden win could bring about a financial stimulus package as high as $5 trillion to combat the economic downturn.
Either of these numbers would have been a welcome relief to struggling businesses and communities but now it seems the final amount may be even lower.
Failure to make a powerful impact in the Senate on election day has left Democrats with even less influence over stimulus discussions. Now, senate majority leader Mitch McConnell, who has advocated for a package lower than $2 trillion, may have more power to push his agenda. Failure to secure a large relief package could reduce consumer spending and damage the economy, leaving investors wary of funding critical US-based fintech developments.
US/China Trade War
One of the biggest issues affecting the fintech industry is the ongoing US/China trade war, instigated by President Trump in an effort to quell what he believes are unfair market practices by the Chinese government. Due to strict policies enacted by China to protect its own economic interests, financial industry giants like Visa and Mastercard have struggled to enter China’s massive $27 trillion market.
There was some improvement in February this year when Mastercard won approval to set up a Chinese bank card clearing business but the global pandemic seems to have stalled any further talks.
Biden’s policies regarding China aren’t wildly different to Trump’s, so while his administration may usher in a more rational discussion it’s not likely to ignite swift progression.
He is, however, opposed to the heavy tariffs that the Trump administration imposed on Chinese imports, saying in August that he will scrap them if he wins. With Biden in power, we may see the formation of a coalition with China’s neighbours in the Asia-Pacific region and renewed attempts to develop a resolution to the trade dispute.
The trade war has also spread to data restrictions in the US, with Trump issuing a block on social media apps like TikTok and WeChat, both owned by Chinese companies. Since WeChat supports payments via its app, the ban would have restricted Chinese users from making mobile payments had a judge not halted it. Now, they will likely scrap it altogether, heating up competition within the mobile payments industry.
Vice President Kamala Harris
Incoming Vice President, Senator Kamala Harris, is relatively supportive of the ‘big tech’ companies like Amazon and Google, which have come under pressure lately due to their overbearing market presence.
The US Department of Justice (DoJ) is already investigating whether the ‘Big 4’ (Facebook, Amazon, Google, and Apple) have negatively affected consumers by pushing out competition and ‘stifling innovation’. Recent talk regarding stricter antitrust regulations hints at a potential ‘break-up’ of these multinational corporations.
The Trump administration's bilateral trade agreements are already motivating its foreign competitors to support local talent and attempts to break up US tech giants would further fuel this growth.
While this would negatively affect the US economy, it could be good for fintech on a global scale as smaller, more innovative companies enjoy an easier route to success. Harris is also more supportive of digitising government processes than both Trump or current VP Mike Pence were, so US developments in automation are likely to gain traction in the new year and spread globally.
The International Remittance Market
The Trump administration has been tough on immigration, enacting strict orders to curtail the influx of foreign workers entering the US. Bans on popular tech-related work visas like the H-1B and L-1 has reduced the number of engineers and programmers entering the country.
Not only does this have a negative effect on fintech development in the US, but also the international remittance market. With far less foreign workers sending money home from the US, enthusiasm for the development of international remittance technology has fallen largely to UK and EU-based startups.
Biden’s approach to immigration is far less strict, in particular his opposition to extreme measures like the Mexican border wall and remittance ban. The global fintech industry will now likely benefit from a fresh injection of innovative new ideas coming from US tech giants regarding international remittance.
Cryptocurrencies and Blockchain
Leading cryptocurrency Bitcoin has had a stellar year, making exceptional gains and attracting the interest of financial institutions like Grayscale Investments and PayPal. Like gold, many see Bitcoin as a safe store of value during economic hardship, which may explain its recent rise in popularity.
However, its future relies heavily on favourable regulation from world governments and its loss may negatively impact the development of blockchain, a key tool in the fintech space.
Trump has previously said he was ‘not a fan’ of Bitcoin and that cryptocurrencies ‘aren’t money’ but didn’t show any specific signs of banning or restricting them. Similarly, Biden has not revealed any specific plans regarding their use but did accept Bitcoin donations to his presidential campaign.
A top financial advisor to Biden, Gary Gensler, is “viewed as friendly towards cryptocurrencies” according to analyst Edward Moya of OANDA brokerage, which is a signal that mainstream acceptance is not far off.
Overall, the new Democratic Party administration looks set to loosen US restrictions on international trade, improve foreign relations, and create a more positive environment for fintech development. The degree to which these aspects come into play remains to be seen and will rely heavily on the US government's response to the devastating economic effects of the pandemic.
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