Regulatory “liberalization” cannot cancel the impacts of tariffs on fintech firms
U.S. tariff policy is rapidly changing. The points detailed in this post were accurate at the time of publication.
The fintech sector may not seem like an obvious victim of tariffs. Sure, these technology companies might face higher costs or supply chain disruptions for back-end hardware, but their business model isn’t contingent upon manufacturing or selling imported goods. In fact, many fintechs, particularly those that specialize in cryptocurrency, may benefit from other non-tariff administrative policies, including looser regulation and laxer enforcement on stablecoins, memecoins and crypto exchanges.
But fintechs are big business, and big business cannot flourish amid uncertainty. The volatile and often contradictory approach the current U.S. administration has taken toward tariffs, financial regulations and consumer protections is creating an unfavorable environment for fintechs not just in America but around the world. The specter of recession, once unlikely, will impact consumer demand for fintech products and services. A widespread shift away from the U.S. dollar, once unthinkable, will upend fintechs’ daily operations. And divergent rules across markets, once a bugaboo for a globalized economy, will create a costly patchwork of compliance requirements.
What might be charitably described as liberalization of the fintech sector is actually establishing a “wild west” of unclear regulations, capricious enforcement and uncertain outcomes. To survive in this unforgiving landscape, fintechs need new ways to protect their investments and hedge their bets, starting with clear insights and more accurate business intelligence.
Let’s begin with macroeconomic predictions. Most analysts, CEOs and CFOs now forecast that the U.S. and EU will enter recession in 2025, driven in large part by the financial shocks created by tariffs. All recessions are unique, but nice-to-have mass-market consumer businesses (like fintechs) are often the first to feel the effects as consumers pull back on discretionary spending. If the choice is between affording the weekly grocery shop or investing an extra $100 into your crypto wallet, Coinbase is losing a customer.
All of this contributes to a more pessimistic investment outlook for fintechs as well. PitchBook analysts warn of a "cooling effect" marked recently by a delayed IPO for Klarna, reflecting broader market anxiety.
Is a recession that stanches demand for fintech products and lending assured? Will it impact all global regions equally, and will it last for multiple quarters or years? Answering those questions with any accuracy requires advanced insights into consumer sentiment and broader market trends.
Recession worries pale in comparison to the possibility that the world abandons the U.S. dollar as a reserve currency. U.S. tariffs have already rattled the value of the U.S. dollar, as countries like Ukraine are considering shifting transactions from USD to Euro. Moves like these, coupled with fluctuations in the U.S. Treasury bond market, prompted over 55% of currency exchange experts polled by Reuters in May to express concern about the U.S. dollar’s safe haven status as the world’s reserve currency.
Less international trade might mean companies do not need the dollar as much as they have over the past century. This could be ruinous for the American economy, but globally, it may accelerate two already existing payment trends. First, multiple countries are developing their own payment infrastructures to compete against, or break away from, Visa and Mastercard payment rails. The decline of the dollar will almost certainly result in more locally developed instant payment schemes being rolled out. Second, stablecoins might be looked at to replace the dollar in international transactions. While a cryptocurrency-backed financial system might seem like a boon to some fintech companies, it will cause upheaval for many more that have already developed their solution on a dollar-based framework.
Fortunately, the wholesale collapse of the U.S. dollar is still highly unlikely. But some small-scale currency shifts are probable, and it behooves fintech companies operating in multiple markets to stay ahead of these developments.
As the current U.S. administration moves to liberalize policies related to financial regulations, particularly around crypto, other governments are taking different approaches. Geopolitical realignments caused by tariff ripple effects, including new protectionist policies, will create different operating environments for most fintech firms. Signs of this sort of realignment are already emerging, a good example of which is the U.K. entering discussions with the EU related to fishing rights and greater security—a deal that was partly influenced by uncertainty created by fluctuating U.S. economic policies. While fisheries management rules don’t impact fintechs directly, they are nonetheless indicative of divergence in global regulations and governmental postures that may affect fintech sooner than we think.
Recession, a declining dollar, and a muddier regulatory environment are all potential negative effects of tariffs on fintech, and are all looming threats for businesses operating in this sector. Research and advanced insights may not be able to prevent these drastic outcomes, but they are preparations that must be undertaken to best weather the economic impacts of an uncertain era.
THINKINK can help you prepare. Contact us to insulate your business from economic volatility.