10 ways fintech, payments are on the ballot in the 2020 House election

As the House of Representatives enters the 2020 election season, the outcome stands to encourage or rein in a group of technology companies that are encroaching deeper into financial services.

The representatives voters send to Congress in 2021 will play a role in deciding how much of a “bank” big technology companies like Facebook can be, and how much power Amazon and Google can have over data, marketing and digital commerce. There’s a general consensus that these companies have a concerning amount of power, but Republicans and Democrats have different views on how to regulate the world’s technology giants.

The Red/Blue divide will also help determine the role government plays in enabling cash access, delivery of coronavirus stimulus, a central bank digital currency, enabling financial inclusion, cryptocurrency, cannabis and a host of other issues that guide how merchants and consumers conduct business.

Unlike the presidential and Senate races, where the basic power divide hangs in the balance, there’s probably not as much drama in the overall House election. Most of the issues that affect financial services are championed by members of the House whose seats are not in immediate jeopardy.

The House of Representatives has 232 Democrats, 197 Republicans, five vacancies and one Libertarian. All 435 seats are up for election, and the polling favors the Democrats holding their majority. 538.com projects the Democrats have a 94% chance of keeping control, with an 80% chance of holding between 221 and 253 seats. So the overall House bent toward stricter regulations for financial institutions and more power for the Consumer Financial Protection Bureau, for example, will likely stay the same.

The financial services industry is more conservative than liberal, and while both sides prefer a sweep for their own party, they predict some form of divided government is the likely outcome of the 2020 election, according to a survey by Arizent, which publishes PaymentsSource and other financial services publications.

Tech on trial
Silhouettes of Facebook users
The most immediate issue for the House is a congressional investigation into Amazon, Apple, Google and Facebook.

Channeling the era of big railroads and telecommunication monopolies, The House Judiciary Committee contends the four companies serve as unfair gatekeepers over channels of distribution, controlling access to markets and picking winners and losers throughout the economy. “They not only wield tremendous power, but they also abuse it by charging exorbitant fees,” said the committee's report.

The report portends legislation and regulation, up to and including a potential breakup of the companies, but the balance of power between Republicans and Democrats will determine what that looks like. The Judiciary report was bipartisan, but Democrats favor stronger measures than Republicans, making the size of the Democrats’ majority and the makeup of the Senate and White House key in determining policy toward the larger firms.

Democrats, led by a subcommittee chaired by Rep. David Cicilline (D, R.I.), are calling for a “Glass Steagall for the Internet,” which would require the technology firms to separate their lines of business — similar to the Depression-era separation of investment banking and consumer banking. The Democrats also want to remove limits on class actions and arbitration, as well as create stronger rules to prevent “self preferencing” by the technology companies.

Republicans have rejected those proposals, claiming the business line separation is a veiled call for the technology firms to be broken apart, while agreeing in principle with the idea that the large technology firms are harming competition.

Rep. Ken Buck (R, Colo.) issued a counter proposal that includes more resources for anti-trust investigators and a heavier antitrust burden of proof for mergers and acquisitions. Both Buck and Cicilline are heavily favored to keep their seats in the upcoming election, and Buck has expressed a willingness to negotiate on policy for large technology firms.
Apple pays
Apple store exterior
A Democratic sweep of both chambers of Congress and the Presidency would put the separation of lines of business in play, though it would be far from certain. At the very least, the bipartisan nature of the antitrust report suggests more stringent regulation.

That could endanger Apple’s power in the mobile wallet market. Apple already faces antitrust pressure in the European Union and Switzerland, and a more liberal U.S. government would make similar pressure in the U.S. more likely. The EU is concerned that Apple’s limitation of the iPhone’s NFC chip to Apple Pay makes it harder for other mobile wallets to compete. That fits with the Judiciary Committee’s “gatekeeper” argument in its report.

Apple and Google are also in the midst of similar disputes over app store payment processing, facing complaints that allege they are using their own policies to ensure payment fee revenue. The political momentum suggests it will be harder for Apple and Google to argue their position if the dispute between Epic against Apple and Google, or the dispute between India's Paytm and Google, become models for other companies to follow.

“If Apple and Google were forced to open up payments on their app stores, 30% fees wouldn’t be sustainable,” said Eric Grover, a principal at Intrepid Ventures.
Dealing with data
Google U.K. headquarters sign
Google also drew controversy following a reported deal with Mastercard to track retail sales, ostensibly to give Google greater insight into the links between online ads and sales.

Issues of privacy always draw political attention, since consumers default to a concern about personal information being used without their knowledge for marketing or other purposes — and it’s an easy issue for politicians to lean into.

Data is also at the forefront of e-commerce strategy at firms like Facebook, Apple and Google. The companies seek to enroll consumers in mobile wallets, gaining access to data that can generate additional revenue streams. Most of the Congressional activity to update data privacy laws has been in the Senate, though there is bipartisan support for stronger data privacy laws. There are also regulations outside the U.S. that govern data privacy, such as GDPR, which influence other countries.

“Big tech wants a greater role in payments to boost engagement and commerce, capture monetizable data, and generate fees on their already powerful platforms. If those platforms were broken up, forced to open up to third parties, and/or subject to increased antitrust scrutiny, big tech’s enormous potential in payments would be diminished, dramatically,” Grover said.
Facebook payments
Libra Facebook zuck buck
Facebook draws a lot of political attention, whether it's about its reported connection to the 2016 election hack, its management of political ads or its overall data privacy and security record.

The social network has myriad commerce initiatives that use all or parts of its network to enroll consumers or process transactions. Facebook in August unveiled Facebook Financial, an umbrella over Facebook Pay, WhatsApp's payment projects and transactional features from Messenger, Marketplace and Novi (the digital wallet that's tied to the Libra cryptocurrency project).

The Libra stablecoin is not directly connected to Facebook, but it's heavily associated with the social network and has been a lightning rod for political opposition globally. In the House of Representatives, Rep. Maxine Waters (D-Calif.) and Alexandria Osasio-Cortez, (D-N.Y.) have been vocal opponents of Libra. Ocasio-Cortez, who has become one of the most visible new Representatives, has linked the public's ability to trust Libra to Facebook's ties to the 2016 election controversy.

One of the primary criticisms of large technology companies in the Judiciary Committee report is the firms' ability to link different activities together, in effect controlling different parts of a business such as consumer enrollment, advertising, shopping, payment authorization and fulfillment. Requiring Facebook to spin off these activities would challenge Facebook's ambitions to grow its payments franchise.

“If, for example, Facebook’s platforms were separated, Facebook Pay’s and Libra’s potential would be reduced," Grover said, adding the large four technology firms have “managed to make enemies on the left and the right.”
Cash out
amazon go store
Amazon has already enabled its Amazon Go checkout-free stores to accept cash, partly as a result of mostly local state laws mandating businesses accept cash. There are bills in both chambers to mandate cash access, with Sens. Robert Menendez (D-N.J.) and Kevin Cramer (R-N.D.) sponsoring the Senate bill.

In the House, Rep. Donald Payne (D-N.J.) has proposed a bill that would make it illegal for a business to refuse to accept cash, post signs barring cash or charge a higher price for cash-paying customers. Payne is expected to easily win his election, according to 538.com.

There are several Democrats in the House that have stated support for cash mandates, including Rhode Island's Cicilline, Yevette Clarke (D-N.Y.), IIhan Omar (D-Minn.) and Ayanna Pressly (D-Mass.). These representatives' seats are safe, but would need more liberal support in the House and Senate to move cash protection bills forward.
The check is in the mail
US mailbox
Two other representatives from blue districts, Bill Pascrell (D-N.J.) and Marcy Kaptur (D-Ohio), helped lead a successful push of a bill to provide $2 million for a pilot postal banking program.

The USPS is embattled as part of the Presidential election fight, but its potential to support cash access and promote financial inclusion in underserved regions is recognized by both Republicans and Democrats. The postal service is used in the U.K., Italy, Australia and other countries as a venue to ensure financial access for a wider population.

But there are differences between the vision of Democrats and Republicans, who prefer a role for banks as an intermediary between consumers and accessing financial services and withdrawals at Post Offices, so it's less likely the USPS would advance as a financial services venue without a clear vision.
Digital dollars
Counting U.S. dollars
The poor performance of government stimulus disbursement gave a higher profile to digital currencies. A digital dollar, or a direct connection between consumers and the Federal Reserve, was part of an early coronavirus stimulus package in the spring, but it did not make it into the final version.

The concept has traditionally not had a lot of support, but the current environment and the global development of central bank digital currencies has given digital currency more momentum in the U.S.

But there are differences in opinion on how that would work. Representatives from liberal districts, including Maxine Waters and Rashida Tlaib (D-Mich.) have pushed bills that would establish a Treasury-administered digital wallet, with post offices hosting ATMs.

Republicans prefer the Treasury work with banks, who would administer the digital currencies to consumers. Visa has also pursued a patent for technology that would connect third parties to central banks to support digital currency transactions.
AI
SoftBank's Pepper robot
During the most recent Congress, the Financial Services Committee formed task forces on financial technology and artificial intelligence. Rep. Stephen Lynch (D-Mass.) is chair of the financial technology task force, while Rep. Bill Foster (D-Ill.) chairs the AI task force.

Reps Eddie Bernice Johnson (D-Texas) and Frank Lucas (R-Okla.) earlier in 2020 introduced the National Artificial Intelligence Act of 2020, which is designed to create a risk assessment for AI, promote education in AI and upgrade the government's technology to accommodate the growth of AI.

AI has become part of financial services and payments in several areas, including risk management, fraud detection, stress testing and credit decisions. More than three quarters of financial services executives expect AI and machine learning to be important or very important within two years, according to the World Bank.
Cannabis country
legal medical marijuana plant
Compared to other states, Colorado's strong cannabis business has drawn support from Democrats and a softer stance from Republicans.

While Sen. Cory Gardner (R-Colo.) is a supporter of legalization that includes banking and cannabis payment support, most Republicans in the Senate remain opposed. In the House, Rep. Ed Perlmutter (D-Colo.) has pushed legislation that makes marijuana companies eligible for stimulus and rescue programs. Rep. Earl Blumenauer (D-Ore.) is the bill's co-sponsor.

Like digital dollars and public P2P apps, most of the support for full national participation in financial services for cannabis companies comes from liberal Democrats, with tepid support from moderate Democrats (Joe Biden, for example, does not support full legalization) and little support from Republicans.
Catering to crypto
bitcoin
Cryptocurrencies like bitcoin and decentralized apps have long held appeal among libertarians, who are drawn to the promise of anonymity and independence from central bank oversight. A pair of conservative Republicans, Rep. Brett Guthrie (R-Ky.) and Paul Gosar (R-Ariz.), in 2020 sponsored bills to advance blockchain and cryptocurrency. Both Guthrie and Gosar have a near 100% conservative rating from Heritage Action for America, which is part of the Heritage Foundation.

The bills promote cryptocurrency regulation, which is seen as key to crypto becoming mainstream for financial services and retail payments. The blockchain-oriented bill also promotes non-cryptocurrency uses for blockchain, according to Forbes, adding an earlier bill to advance blockchain in 2019 garnered bipartisan support, with Doris Matsui (D-Calif.) co-sponsoring.

Blockchain would also likely support a central bank digital currency or digital dollar, and cryptocurrency plays heavily in regulatory efforts in counter-terrorism and anti-money laundering. There are nearly three dozen House bills in varying stages of progress designed to tighten and standardize regulations for blockchain to manage risk, empower agencies to regulate cryptocurrency and study how foreign governments in nations like North Korea and Venezuela use cryptocurrency to circumvent sanctions.
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