Change and uncertainty create opportunity. This maxim, popularized
by businessman and blogger Mark Cuban, has come to mind
several times in the past few weeks, because these are
surprising and unpredictable times. But given the macrolevel
scale of the uncertainty we face, I’m not sure
it’s a maxim that still makes sense.
The S&P 500, Nasdaq Composite, Dow Jones Industrial
Average, and Russell 2000 indexes all recently achieved record
highs on the same days (November 21 and again on November 25).
The Dow closed above 19,000 for the first time ever on November
22. Commodities are rallying. Right now the market is pricing
in a certain kind of regime under the future president, Donald
Trump: one of increasing growth and, even more so, of
increasing inflation. However, it’s unclear how
this hoped-for new economic regime will play out —
critics say Trump’s plans lack detail.
But what do the current state of markets and the
unpredictability of the Trump administration mean for fintech?
In my mind the fintech industry, with its many fledgling
companies, will face some difficulty, especially when it comes
to financing. Despite financial markets’ recent
uptrend, venture capitalists and other investors may be
hesitant to invest in such an uncertain environment,
particularly as venture capital funding to fintech companies
has already begun to slow down, according to a
November report by KPMG .
In North America, VC-backed fintech companies raised a total
of $900 million in the third quarter of 2016, a 68 percent
decrease compared with the same quarter last year. VC-backed
funding for New York–based companies fell to a
five-quarter low, and for the second quarter in a row: In all,
these companies raised just $119 million. Uncertainty may not
create opportunity for fintech companies. It may just dry up
vital funding sources.
But there is a silver lining in the KPMG Q3 report: For the
second straight quarter, 30 percent of VC-backed fintech
funding deals worldwide included the involvement of
corporations, up from 23 percent in the third quarter of last
year. It looks like larger companies are continuing to invest
in smaller fintech businesses, which could be good for the
burgeoning industry’s longevity. Not only does
corporate backing give young companies a stamp of approval, it
also helps them navigate the highly complex regulations of the
financial services industry.
Another difficulty that young fintech companies may face is
a perhaps more surprising one: Trump’s
antiregulation stance, if as wide-ranging as the
president-elect suggests, could be beneficial or detrimental to
growth. Less financial regulation could be a boon because banks
might have more money to invest in fintech. It might also help
new business models to emerge. At the same time, a regulatory
rollback might mean that regtech companies, which fall under
the fintech umbrella, might not be needed. Also,
it’s unclear if and when banks would spend their
freed-up cash on fintech. And ultimately,
as I have written before, transparent regulations are
crucial to supporting fintech’s advancement.
Regulatory bodies need to have a hand in the
industry’s progress with well-designed rules that
create structures like sandboxes and thereby permit creativity
So it may not be that uncertainty breeds opportunity but
that it stifles innovation. Whether this is proven true remains
to be seen. I hope, for my industry’s and our
country’s sake, that a Donald Trump presidency
won’t be as unpredictable as his critics make it