How will fintech fare in Georgia's Senate runoff?

The final outcome of the November election will be decided soon, with the balance of power in the Senate at stake, as well as at least two years of financial services and technology policy.

There will be two special Senate elections on Jan. 5 in Georgia, with Republican incumbent David Perdue running against Democrat Jon Ossoff in one race and incumbent Republican Kelly Loeffler facing Democrat Raphael Warnock in the other. None of these candidates reached 50% of the vote in the November elections, necessitating the January runoff.

If either Republican wins, the GOP retains control of the Senate, likely leaving Kentucky Sen. Mitch McConnell the majority leader and the Senate's overall power structure intact. If both Democrats win, there will be a 50-50 tie in the Senate, with Vice President-elect Kamala Harris casting the deciding vote, giving Democrats control of both chambers of Congress in addition to the White House. Democrats would also replace Republican committee chairs. That would supplant Senators with a record of deregulation of banking, opposition to payment fee curbs, and cannabis banking with Democrats who would take the opposite position.

Republican control could slow or halt much of Biden's agenda in most issues. For financial services, Republican Senate control would make it harder for the Democrats to push stronger regulations for card fees, curb payday lending, implement the Democratic vision in governing how "big tech" uses data to build financial services off of payment rails, and forge stronger CFPB-led protections for consumers.

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There has been much discussion over how the Consumer Financial Protection Bureau may act and work with Democratic leadership, according to Matt Kopko, vice president of public policy at DailyPay. "Generally, the CFPB was considered more active under Obama, and more restrained under Trump."

Democratic control would not make a progressive financial service policy a slam dunk, given the tight majority. But programs such as postal banking, digital dollars and a potential separation of services such as payment apps from large technology companies would be given a hearing.

"Whether Republicans control the Senate, or simply hold 50 seats, it will be hard to get just any nominee approved to such a senior post," Kopko said.

For issues such as central bank digital currencies and the impact of large technology firms such as Facebook, Apple, Google and Amazon on competition, there is some agreement between Democrats and Republicans — though Democrats favor positions that could enable direct government payments to consumers or the use of postal branches to access funds, while Republicans favor a role for banks in both cases.

"The January Senate runoffs in Georgia will weigh heavily on where fintech goes," said Robert Hockett, a law professor at Cornell University. "While some Republicans are skeptical of many new firms and acquisitions, most, along with some Democrats, seem to be more skeptical of regulating them."

Perdue, a former management consultant, has been in the Senate since 2015. Loeffler is the former CEO of Bakkt, a cryptocurrency exchange and subsidiary of the financial services firm Intercontinental Exchange, which was founded by her husband, Jeffrey Sprecher. Intercontinental Exchange also owns the New York Stock Exchange. Loeffler additionally co-owns the WNBA's Atlanta Dream. Georgia Gov. Brian Kemp appointed Loeffler to the Senate in December 2019 after Sen. Johnny Isakson resigned for health reasons.

Warnock is senior pastor of Ebenezer Baptist Church in Atlanta and has been active in Georgia politics for years, most recently as part of a campaign to expand Medicaid. Ossoff is managing director and CEO of Insight TWI, an investigative news network.

Loeffler is unusual among members of Congress in having close ties to cryptocurrency, and is a member of the Senate Agriculture, which oversees the Commodity Futures Trading Commission, which oversees the New York Stock Exchange (Loeffler has said she would recuse herself as necessary).

Bakkt uses Microsoft's cloud to support trading, warehousing and conversion of digital assets, and counts Starbucks as an early adopter. Loeffler reportedly received a $9 million payout when leaving Bakkt to join the Senate, according to The New York Times.

Loeffler, who has been in the Senate for a short time, could provide a voice for greater regulation of cryptocurrency if she can extend her term. Most cryptocurrency firms favor regulation, as it signals mainstream acceptance.

Ossoff and Warnock do not have a track record regarding bank or card regulation, so much of the focus is on what Perdue and Loeffler will continue to do if re-elected.

The American Bankers Association spent $1 million on ads for Perdue, who is on the Senate Banking Committee and favors deregulation. For example, Perdue called for changes in the Dodd Frank law to lighten regulations for mid-sized banks. Perdue has also pushed to undo Obama-era prepaid card regulations, and has a general record of supporting most efforts to ease financial services regulations. Loeffler's record is not as extensive. She has expressed support for delaying new financial regulations and to permanently sunset regulations that have been waived during the pandemic.

The Independent Community Bankers of America and Georgia banking lobbyists, and the banking industry in general, have contributed heavily to both Loeffler and Perdue ahead of the January election. Before the Nov 3 election, Perdue raised more than $347,000 and Loeffler raised more than $45,000 from financial institutions, according to the Center for Responsive Politics. Ossoff and Warnock's financial industry donations did not register with the Center for Responsive Politics, meaning they likely did not draw enough donations from that industry to reach the rankings.

Democrats have used the controversy surrounding Loeffler and Perdue's stock trades as part of their campaign finance strategy for the runoff. Democrats contend the two senators unfairly benefited from information tied to the coronavirus (Loeffler and Perdue's trades were investigated and neither was charged or cited).

Ossoff's positions suggest tighter regulations for banking and lending, as well as "fast, generous and direct" emergency relief during the pandemic. That aligns with direct government disbursement of stimulus funds, which has been part of Democratic proposals to create direct digital access for consumers to the Treasury for faster government payments.

A shift of the Senate balance could determine the regulatory posture that governs how fast fintech grows.

"[Warnock] and Ossoff seem to be in sympathy with Biden team members like Bharat Ramamurti, who see both promise and danger in fintech," Hockett said of one of Biden's economic advisers. "Democrats] winning would accordingly make cautious embrace of new fintech, including a Fed-issued digital dollar, more likely."

The polling in both races is tight, with 538.com reporting a range of less than 1% in both races. Regardless of the outcome, the Democrats cannot have a substantial majority, making it unlikely that positions pushed by progressives such as Massachusetts Sen. Elizabeth Warren or Vermont Sen. Bernie Sanders will move forward. Biden will also have a tough time getting liberal appointments through the Senate.

"Biden's legacy will ultimately hinge on the Senate, not just for legislation, but more importantly getting his nominees through the Senate. And who controls the Senate really matters in that situation," said Kopko. "Agencies are only as powerful as the people in charge, and the Senate decides whether to confirm presidential nominees."