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 to flourish.
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 seem.