Venture capital funding in fintechs is likely to reverse its decline over the next four years, as President-elect Donald Trump ushers in a pro-business, deregulation-friendly administration.
"The economy is on strong footing and the markets reacted well to the election news," said Tyler Griffin, co-founder and managing partner of fintech venture capital firm Restive Partners. "Market sentiment tends to create its own reality, so unless or until we have an objectively bad policy announcement, I expect that sentiment to lead to more funding, fueled by lower interest rate expectations."
Fintech funding surged in 2021 to $53 billion as the COVID-19 pandemic brought a consumer and business shift that buoyed interest in fintech startups. The money dried up as interest rates rose and investors sought profitability instead of growth from startups. In 2024, VC funding to fintechs is expected to reach $15 billion, according to an
The Trump administration has indicated that it plans to scale back regulations and favor innovation, which should help fintechs, said Kate Drew, partner and director of research at CCG Catalyst.
"This will touch everything from artificial intelligence to crypto," Drew said. "As a result, we will probably see fintech funding increase."
Aaron McPherson, principal at AFM Consulting, said other factors are also creating a more favorable climate for fintech investing.
"The industry has been coming out of the doldrums, having adjusted to the higher interest rate environment and the need to rationalize costs," McPherson said. "To the extent that the new administration relaxes the regulations around crypto, I see a growth in that sector in particular."
Whether more fintechs will go public is harder to predict, Griffin said.
"I'd bet that the chief financial officer of every late-stage, privately funded company is at least exploring what an IPO in the near term looks like," he said.
A breather on regulation?
Trump announced on the social platform X last week that Elon Musk and Vivek Ramaswamy would lead a newly formed Department of Government Efficiency that would work outside the government to "dismantle Government Bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies."
But banking regulation hasn't been a publicly stated objective of the incoming administration, Griffin said, "so there likely won't be overwhelming pressure at the top to push change."
"The people driving day-to-day processes in these agencies will remain and probably keep doing their jobs as they have been, at least initially," he said.
For this reason, it's unlikely the new government would issue new banking rules but equally unlikely it would roll back existing regulations.
Tough exams and consent orders on banks that partner with fintechs are expected to remain, even after the election of President Trump.
"A lot of the regulatory impact on early stage companies and their banking partners is driven at the bureaucratic levels within various agencies, and rapidly changing the direction there is hard," Griffin said.
Observers expect the intense regulatory scrutiny of banking as a service and certain bank-fintech partnerships to continue.
The events of the last year "have proven that we need to rethink that model and how banks and their fintech partners approach those relationships," Drew said.
However, regulators will want to ensure that a
The Consumer Financial Protection Bureau's
"If the 1033 rule gets overturned, it will be because a court judges it to exceed the CFPB's authority, not because the Trump administration will revoke it," McPherson said. "Based on the appointments I've seen so far, I expect this administration to be more populist and less sympathetic to big banks than in Trump's first term, so anything that can be seen as good for consumers will probably stay in place."
Drew noted that the idea that consumers should have control over their financial data has bipartisan support. "We will have to wait and see, though," she said.
Griffin predicts no change to the 1033 rule. "Politically, both parties are generally quite populist now, and the desires of the largest banks to fence off data likely will fall on deaf ears," he said. "It's hard for me to believe that there would be any desire from any direction to meaningfully roll that back."
How fintechs can take advantage
Fintechs and banks should be able to take advantage of a more crypto-friendly environment to offer more services to consumers and businesses, McPherson said.
Griffin expects to see new fintech startups emerge during the next presidential term.
"More founders will enter the space, because it will be seen as more open to innovation."
Griffin's advice to fintech startups is to "move quickly, try lots of things and build products your customers love. The current environment, from a regulatory, economic and interest-rate perspective, is about as good as it gets."
