The FinTech industry needs to be careful. VERY careful.
On June 10, 2016, the White House sponsored a White House FinTech Summit, where various companies and government entities met to discuss “how financial firms and start-ups are partnering with one another to create and scale innovation, as well as the important role of government in ensuring that these partnerships can reach their full potential.”
Noting the economic and fiscal behavior of recent administrations, such a meeting needs to be taken as a massive warning sign to the FinTech industry and those within seeking to engage in what is still a relatively new free-market concept that has operated well without the constraints and oversight of government intervention.
The Fintech industry – and individual companies – needs to ask itself several questions, about cooperating with the government.
- Are risks socialized and profits privatized? The concept is bumper-sticker slogan that the Occupy movement got right in concept and wrong in solution. It is what we see out of the big banks. It is what we see out of what many corporations are working toward in the United States, rather than genuine competitive business practices. The government has been allowing, encouraging, or forcing businesses to go along with their perceived notions about how economics is supposed to work rather than letting free markets weed out the bad businesses. It is how we got “too big to fail,” bailouts, targeted tax loopholes, etc., etc., etc.
- Do the regulations favor the larger businesses? We see it across financial sectors (particularly community banks), and it practically wiped out the debt buying industry. Larger corporations are willing to work with the government in creating regulations only they can follow. Small businesses, or those who will not “get on board,” are left struggling against stifling regulations that are expensive to implement and maintain, and waste time and resources.
- Should the government direct the lending and spending practices? Laws like the Community Reinvestment Act – though not the primary impetus its critics claim it to be – are still part of the “system” of laws and regulations where the government has requirements of businesses to where they spend or invest money – often in areas where no reasonable business would invest, where the money does no real good for anyone (even within the areas invested), and the losses are absorbed by the taxpayer – not the business.
- Is government involvement a short-term or long-term solution? At times, heavier government involvement can seem like a profitable venture, but does it result in long-term stability?
Fintech companies, both individually and as a whole, need to look at the past couple decades of government involvement and take a broader look as to whether or not it is something that needs to happen. Certainly, there is going to be an inevitable amount of control and say that governments are going to want to have over any successful venture. FinTech is going to have to cooperate with the government to some degree – but will that cooperation mirror what large companies have done over the past years, or is it going to be something different.
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