What does a Trump President mean for banking, fintech and crypto?
By Glen Frost (pictured), Founder of The FinTech & Banking Awards and The FinTech & Banking Summit
The recent 2024 US election campaign was fought on ‘family, flag and faith’ with themes of ‘populism, polarisation and post truth’ – and Trump won.
What does a Trump Presidency hold for financial services post 2025?
Firstly, less regulation. Less regulation in banking means ‘lend baby lend’ (equivalent to Trump’s ‘drill baby drill’ for the energy sector) as well as opening the finance sector to crypto, fulfilling an election promise that ‘America will be the Crypto Capital of the planet’.
In addition to the Presidency, Trump/Republicans have the majority in The Senate and (at time of writing) are very close to a majority in The House of Representatives, so change could happen quickly. Once in office (Inauguration is 20th January 2025) President Trump will formerly appoint multi-billionaire Elon Musk (Tesla, X, SpaceX, StarLink, Neuralink, Boring Company, OpenAI etc) as a reform agent in charge of removing regulation (aka red tape) for crypto AND making the American Government 10X more efficient – the former means crypto becomes part of the banking system, and the latter (10X efficiency improvement) can only be done by using Technology (especially AI). I’ll cover these changes in this article.
Trump has also stated that he wants to remove the Federal Reserve Bank’s independence so he can set interest rates; he won the election (and the popular vote) so he has the political mandate. I think this will be difficult so won’t be covering this topic in this article.
Trump changes America
Note that the following predictions are very much how America will be impacted, Australia less so. However, Australia is not immune, especially to how AI will change finance, but elected Australian politicians have not promised a deregulation agenda.
What does being the Crypto Capital of the planet mean?
Initially, regulatory approval of specific instruments as either assets or currencies, and clarity on taxation and compliance. Use of crypto will be clarified for the Federal Reserve Bank (eg CBDC: Central Bank Digital Currency), and at the commercial banking layer (eg USD Stablecoins). Another key area for regulation is tokenised assets, which could include commodities, financial products as well as less liquid assets such as housing (the largest asset class of them all).
A Trump Presidency will bring crypto and digital assets into the (light touch) regulatory arena. Simplified rules will open the door to business.
Many Central Banks (Federal Reserve, RBA, Bank of England etc) have been trialling or testing CBDCs, so they are prepared. Given Musk’s interest in blockchain, the US could use decentralized systems to create transparent and tamper-proof records. This could improve government transparency of data (eg health, financial data), reduce corruption, and build public trust by making data accessible and immutable. Greater transparency in the financial system can be used to counter money laundering by ‘bad actors’ (gangs as well as nation states), as well as improved tax collection (worth an estimated $20 billion to Australia).
Trump might buy some Bitcoin. Bitcoin (BTC) could become an asset class on the Governments/Federal Reserve’s balance sheet; low possibility, but on the radar; follow US Senator Lumis for more on this.
Some in the unregulated Crypto / Web3 / BTC community want a new global financial system, with no central authority, no central banks, no ability to print money, no Quantitative Easing, no debasing the currency. Bitcoin (where the money supply is fixed) may be an alternative option for small, indebted countries with raging inflation, but won’t be permitted for the world’s reserve currency. Despite the imperfections, the US Dollar hegemony is here to stay. Unregulated crypto has a place (speculation, nefarious purchases); regulated crypto with genuine use cases will prosper.
How will Musk use AI?
Musk is a former co-founder of PayPal and is driven to solve the world’s big problems; he did it for global payments 20 years ago, then he moved to fix carbon emitting transportation, created cheap space travel, created a global telecoms and media network, and he also wants to explore life on other planets. He is a man on a mission; that mission now includes regulating crypto and radically boosting Government efficiency.
Less regulation means less AI regulation too. Musk loves AI and is a huge investor in this sector; he will want to use AI to make Government more efficient. AI will be used to automate inefficient government processes / repetitive tasks, eliminating paper-based jobs, speed up data processing and decision-making in areas like tax collection, benefits administration, licences and permitting.
How are Australian banks using AI?
Point of interest: all the large Australian commercial banks have created “Centres of AI” or “AI Innovation Labs” because they want to use AI to be 10X-100X more efficient and productive. AI will have an impact on employment – there will be less bank jobs – you can forget ‘diversity quotas’ in the Trump era; in an era when machines replace humans, look out for Unions asking for ‘human quotas’.
Government is a giant ocean of valuable Big Data
Transforming Government in the USA offers huge opportunities for the financial services and fintech sector. Musk loves to use data to make decisions; the first challenge with Government is to get the data that is siloed in different departments, sort/clean it, and then analyse it. No small task, and this will likely be done by the private sector and will inevitably face legal challenges. Lawyer up.
Government is a giant payments machine, and a giant Bank
Expect payments to be a key area for immediate change. This could negatively impact the incumbent systems/people, whilst giving opportunities to others (fintechs, AI, tech platforms)
Imagine this; Musk’s business, X, becomes a payments platform for all Americans; if you’re unemployed, AI with Open Banking (aka CDR in Australia) calculates your benefit, you have the option of receiving your welfare payments via X, then X will become a bank, so payments go directly to ‘X Bank’. If you think this is crazy, remember Musk wants to colonise Mars.
We can be confident that Musk’s vision for ‘remaking’ Government service delivery will be on a scale we have not seen before – because Musk’s vision for everything he touches, transforming transportation, space travel, banking, media etc is on a scale not seen before.
Will Trump privatise Fannie Mae?
In the US, the home loan market is underwritten by Government owned enterprises (Freddie Mac, Fannie Mae), so the Government looks very much like a bank. Trump and Musk could fully privatise Fannie Mae (aka the Federal National Mortgage Association) and Freddie Mac (The Federal Home Loan Mortgage Corp, a listed Government Sponsored Enterprise).
Will Trump do this? Never underestimate a President with an agenda and a fixed term to achieve something they really want to achieve. Trump 2.0 is very different than Trump 1.0 – he’s learnt from his mistakes, and he only has one term (assuming Trump doesn’t try to change The Constitution. Which may happen).
Impact for Australia
As Trump/Musk reform Government and disrupt financial services in the USA, there will be calls to use these platforms and algorithms in Australia (are Canberra and State Governments ready for this wave of innovation?).
Australian Regulators will be impacted. The increased market volatility (equities, FX, bond, payments etc) and the innovation coming from the US will challenge the financial services regulators (APRA, ASIC, AUSTRAC) and payments regulator, The Reserve Bank of Australia, could struggle setting interest rates in this new era. Given the convergence of banking/fintech/crypto and a radical change agenda, we may see the emergence of an American financial regulator that covers a broader area of services but has less teeth; if Australia wants to be part of ‘Team Trump’ we will be required to re-think how we regulate. Australian regulators are powerful trusted institutions and gatekeepers to the Australian financial system; any change will need careful consideration; it is very difficult to put the genie back in the bottle (see reasons for GFC).
What happens in America will not happen in Australia
Australia will not approve crypto in the same way as the USA. There is no political mandate in Australia like Trump has in the US.
For the above reasons, I don’t see the Australian financial system changing significantly in the short term (the regulators, politicians and legislation will protect the Australian system). CBA will still be the number 1 bank, and the “Big 5” will still issue (originate) 75% of home loans. Foreign and domestic neo-banks and fintechs are winning market share, fighting hard and creating amazing new services, and winning around 1-2% of market share per year, so their impact is starting to be felt, but it’s very slow. As competition from fintechs reduces banks margins, the banks will buy up the fintechs, partner with fintechs and/or use AI to improve their margins.
What is the ‘known unknown’ for Australia?
The big unknown for Australia is the entry of a large foreign bank. If a large US or other foreign bank entered the market, the Australian banking sector would suddenly change. Why? The $25 billion of profits the big banks make from 24 million people is just too tempting. Remember that the large Australian banks pay out 80% of their profits as dividends; think of this as the money the banks believe they don’t need to re-invest in making their products and services better, faster or cheaper for customers.
With change, there is risk (and no PDS).
Trump has said he will raise tariffs (prices of imports go up), his plans (especially lower taxes) will increase US Budget deficits, and US Government debt – this implies a boost to inflation and therefore increased interest rates (also why Trump wants to control The Fed and control interest rates!). Higher US rates will impact the Australian dollar and our interest rates; we are all connected. This equals more mortgage pain for highly indebted Australians (interest rates higher for ever?), and pressure from the political class on the RBA to lower interest rates. Living with ever higher house prices will impact Australian politics, and co-ownership of homes will be an interesting new bank/fintech opportunity.
Less regulation in the US banking system means a boom in irresponsible lending (the opposite of responsible lending) eventually leading to more bank bailouts (remember what caused the GFC?) – or maybe this time is different, and Trump will insist on a bail-in? Depositors beware, lawyers prepare.
The increased use of AI in finance will lead to many mistakes; the lawyers will work on solutions after the problems have arisen; that’s the American way. There are two certainties; firstly, AI is powerful (and won’t be over regulated) so the ‘unknown unknowns’ will be painful; and two, this will be a great time to be an AI specialist or a commercial lawyer in banking and fintech.
Too big to fail? De-regulation equals greater volatility; we need to re-think Regulation
In a world of less regulation and greater volatility we will need more technology to oversee markets; hence there will be a boom in ‘RegTech’ or regulatory technology. This is not to constrain the private sector, but to ensure regulators can see what’s going on in real time, so regulators can step in to prevent a system failure/crash. Much of the world’s regulation is via spreadsheets sent to regulators days or weeks after events have occurred, or phone calls requesting loans/overdrafts when the sh*t hits the fan (the GFC is a reminder of what happens). Regulators will need to agree how ‘all transactions, in all markets, in real time’ is possible, and when this is desirable – call it a ‘stop loss’ option position on the US financial system. Given the speed at which a collapse can occur (think the GFC, or Silicon Valley Bank), eternal vigilance of everything in the system at all times will be required. The ‘quid pro quo’ of less regulation must be more transparency and accountability. Banks know they are too big to fail; they have a real and an implied Government guarantee; that should be codified, and investment/crypto banking split from retail banking (ie high risk vs lower risk). The financial system can handle one FTX but imagine if fifty Sam Bankman-Fried’s all made the same bad bets at the same time. Sending bad bankers to jail will change the culture.
In summary
To answer my original question, what does a Trump President mean for FinTech, Banking and Crypto?
Answer: Trump could radically change financial services in the USA. This could be an exciting new era for FinTech, Banking and Regulated Crypto, there will be an innovation boom, an investment boom, there will be change with winners and losers, and there is no road map. I believe that banking, fintech and crypto will converge, AI will pervade everything, the transformation of Government services will boost opportunities, and the opportunities are global.
Under President Trump, the US financial services market will change rapidly, but less so for the Australian financial services market.
Change for 2025
There will be much to discuss in 2025. In recognition that Ai will radically change fintech, banking and digital/crypto, and that all these sectors will merge, FamFi (my business) is renaming our events to The 10th Annual FinTech & Banking Awards 2025 and the 12th Annual FinTech & Banking Summit 2025.
I hope you’ve enjoyed reading this opinion article. Your feedback is welcome at [email protected]
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