Johnson and Trump's political crises place fresh pressure on fintechs
Politics have become a major pain point in advancing financial and payment innovation, particularly for companies seeking international partnerships and acquisitions. This week's direct threats to the Trump presidency and Boris Johnson's tenure as prime minister of the U.K. create an extra layer of uncertainty, if not outright instability.
The news is developing quickly, as House Speaker Nancy Pelosi announced a formal impeachment query Tuesday into the Trump administration over allegations U.S. President Donald Trump tried to link aid to Ukraine over a promise to help Trump politically. Meanwhile, Boris Johnson is facing calls for his resignation after a U.K. court ruled his temporary adjournment of Parliament as part of Brexit negotiations was illegal.
Even for U.S.-based companies, Brexit and Boris Johnson's fate are likely the more immediate threat, since Brexit has caused worry about short-term impacts on cross-border payment flows and fintech investment. Trump's problems are a longer-term issue, though potentially a more global threat impacting fintech investment and payment innovation in more countries.
"Brexit has a direct impact on fintech in the U.K.; at the same time, the impeachment shakes up the U.S. investment market, which is the largest single source of investment funds worldwide," said Tim Sloane, vice president of payments innovation at Mercator. "If impeachment has a negative impact on the U.S. market, it will likely make it difficult to raise capital worldwide."
Brexit is a moving target, with possible delays, potential new elections and a rapidly approaching Oct. 31 deadline for a "no deal" removal of the U.K. from the EU. Johnson's fate is closely tied to how Brexit occurs, and if Johnson's tenure were to end or face a sudden unexpected threat, it could harm business strategies that are designed to game Johnson-influenced Brexit outcomes. The chaotic range of options to replace Johnson, or to deal with Johnson if he digs in, all involve politicians with different views on Brexit — resulting in a potential freeze in business activity.
Payment companies like Revolut have already made expensive contingencies for Brexit, such as scrambles to obtain money transmitter licenses in the U.K. and Europe as a hedge. Large banks such as JPMorgan Chase and Deutsche Bank have tied staffing strategy to potential Brexit outcomes. There are also signs Brexit risk is contributing to bank employment in London.
Writing for PaymentsSource, Ian Stone, CEO of Veulata, a U.K.-based technology company, cited Future of Financial Services report research that found 24% of U.S. financial services companies believes politics will cause disruption, with 54% of U.K. businesses giving the same answer. Stone also noted more than a third of the U.K.'s largest financial services firms have announced they will migrate staff and operations from the U.K. to other EU cities. That's before Johnson faced the recent court decision and his potential ouster or resignation.
Payment technology companies in the U.S. have made direct strategic plays to accommodate Brexit risk. Tipalti, for example, has released a product that ties Brexit to local compliance service. Its product also can help mitigate the trade war, since it's designed to help companies with headquarters in one country, but a widely dispersed workforce.
The Trump presidency has a large impact on payment flows due to the trade dispute with China and the effect of isolationist policies on the gig economy and cross-border payrolls — and is credited with dissolving China-based Ant Financial's purchase of U.S.-based MoneyGram in 2018 — but a prolonged impeachment process is less likely to suddenly shift strategic needs for payment companies, banks or fintechs. Even if Trump were to be removed from office or resign, Vice President Mike Pence and a Republican-led Senate would likely continue much of Trump's trade policies.
That would require less of a sudden shift for payment companies that are already selling technology to help streamline supply chains and B2B payments to mitigate higher costs from tariffs. Arguably, a wave election in 2020 that would result in a Democratic president and Democratic-controlled Congress would require more adjustments in financial services compliance strategies. But even in this case, most of the Democratic presidential candidates have criticized the trade war but have also criticized China's trade policies — and have not suggested specific alternatives that would radically change supply chains or the cross-border B2B payments dynamic.