Congressional election, act one: Fintechs will have to wait for clarity on policy

Control of Congress was still in play late Tuesday, as the Democrats retained control of the House of Representatives while neither party gained the necessary seats to control the Senate.

At stake is the political power that will decide the direction for issues such as cash access, the role of the Postal Service in financial services, how involved the government will be in disbursing stimulus funding and cannabis banking law. The coronavirus and economic crises weigh heavily, since much of the work for the lame duck Congress and early work for the next Congress will involve the pandemic and economic recovery.

For financial services, that includes stimulus packages with payments to individuals, and improvements in government disbursement and small business protections. The next round of stimulus will need to address inefficiencies in government transaction processing, a problem that has not been addressed thus far.

Another early issue for the next Congress is the influence of large technology companies such as Amazon, Facebook, Google and Apple. All three of these companies have an interest in expanding their e-commerce, financial services and payments businesses, and are under bipartisan scrutiny over alleged monopolistic practices.

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In the House, Democrats favor a stronger distinction of business lines for technology firms, which could make it harder for Facebook to tie itself to its affiliated Libra stablecoin; or for Apple and Google to integrate their mobile wallets with other services the companies offer, such as streaming content or advertising. Republicans favor stronger antitrust regulation, but mostly through stronger enforcement of existing laws.

Democrats are also pushing for stronger laws to protect cash access, through bills requiring businesses to allow cash without charging more and by providing a role for the Postal Service for withdrawals or ATM access. Republicans would prefer these services be provided by banks in partnership with the Postal Service network.

The push for a central bank digital currency also has also drawn lines between Red and Blue, with Republicans again preferring a bank intermediary to enable government payments directly to consumers. Democrats would prefer a direct link between consumers and the government to support “digital dollars” or a public P2P app.

Additionally, a more Democratic House and Senate would give a stronger push for cannabis banking, and subsequently the political cover for banks and the card networks to process payments for dispensaries. The GOP-controlled Senate has largely stalled such efforts, and a transfer in control would make it easier to pass legislation. On election night, voters in New Jersey chose to legalize the recreational use of cannabis in their state, though it could still take some time to work out the details of issuing licenses and permits, according to The New York Times.

Writing for PaymentsSource, Nigel Morris, co-founder and managing partner of QED Investors, said both Democrats and Republicans are pressured to favor the growth of fintech companies, but take a different angle. The Democrats' focus on financial inclusion would push investment in fintechs, while the growing popularity of digital commerce during the pandemic is likely to be permanent, making political opposition to digital diversification unlikely, Morris said.