10 Senate races for fintechs to watch

October 2, 2020 12:12 PM

Control of the U.S. Senate hangs in the balance in the upcoming election, with the outcome determining the direction of laws and regulations that can have a profound impact on financial services, technology, fintech and payments innovation.

The Republicans currently hold 53 seats, with the remaining 47 held by Democrats and two independents who caucus with the Democrats. There are 35 seats up in 2020, with 23 seats in GOP hands, so the Democrats will need to win three or four to take control in November.

The outcomes are obviously unpredictable, given the contentious Presidential election, and external factors such as Trump's coronavirus diagnosis that could complicate that race. Several senators this week met with Amy Coney Barrett, the Supreme Court nominee who was also at the White House. Sen. Mitch McConnell (R-Ky.) on Friday morning said he "didn't know" if any senators were currently coronavirus positive, according to Politico. Later on Friday, Politico reported Sens. Thom Tillis (R-N.C.), who is profiled in this story, and Mike Lee (R-Utah) tested positive for coronavirus.

The following Senate races are among the most competitive, based on 538.com's analysis of contests in which both candidates have a reasonable chance to win. Overall, 538.com gives the Democrats a 62% chance of winning control of the Senate. Financial services professionals, who skew conservative, prefer full control over both the White House and Congress as opposed to split government, according to a survey by PaymentsSource and its parent company, Arizent.

Flipping the Senate means flipping the political script for financial services, fintech and payment policies. There are ramifications even for senators who aren’t up for re-election or who don’t lose their seats. Committee chairs and memberships could shift. If the Democrats win, Sen. Chuck Grassley, (R-Iowa) will no longer be chair of the Senate Financial Services Commission; and Sen. Mike Crapo, (R-Idaho) will no longer be chair of the Senate Banking, Housing and Urban Affairs Committee. The overall agenda will move toward heavier regulation of banks and other financial institutions if the Democrats win, or more deregulation if the GOP maintains control.

The impact would be dramatic. For example, Crapo and Grassley played key roles in repealing the Consumer Financial Protection Bureau’s rule that mandated arbitration clauses in financial contracts with banks and credit card companies — a narrow 50-50 vote with Vice President Mike Pence breaking the tie. And Crapo’s influence has held back cannabis legislation that would make it easier for dispensaries to access mainstream financial services to process payments.

Republicans and Democrats also hold different opinions on the role of government in protecting cash, disbursing government funds, the use of cryptocurrency and the ability of fintechs to hire workers from outside the U.S.

Senator Dick Durbin, a Democrat from Illinois

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Illinois: Dick Durbin, Democrat incumbent vs. Mark Curran, Republican challenger

This is one of the few noncompetitive seats — 538.com gives Durbin a near 99% chance of holding his seat. But Durbin’s direct involvement in policies governing transaction fees makes him a key figure for card issuers and merchants.

The Durbin amendment, a part of the Dodd-Frank law, tightens restrictions on debit card fees and mandates merchants should have at least two routing choices for debit transactions. The law has been around for more than a decade and has been the subject of near-constant political dispute.

Earlier in 2020, the Federal Trade Commission inquired about Visa and Mastercard’s debit routing processes, reportedly to find out how the growth of mobile wallets affects debit routing compliance. Conservative organizations have called for the Durbin amendment to be repealed, contending judgments of alleged price collusion should be decided by courts and not by Congress. Merchant advocate Mark Horwedel argues the banks are forcing price controls by pushing for the Durbin amendment’s repeal.

While Durbin’s certain to keep his seat, overall control of the Senate, House and White House will determine whether his eponymous Dodd Frank provision is strengthened, weakened or repealed.

Senator Joni Ernst, a Republican from Iowa

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Iowa: Joni Ernst, Republican incumbent vs. Theresa Greenfield, Democrat challenger

The American Bankers Association and Iowa Bankers Association have released ads supporting work Ernst has done with small businesses in Iowa; however, Ernst opposes allowing cannabis businesses to use bank-supported payment rails and other mainstream banking services.

Ernst’s challenger, Theresa Greenfield, is an Iowa businessperson. Greenfield’s campaign has focused partly on the U.S.-China trade war, pledging to push for an end to tariffs that the challenger contends are harmful to the state’s farms. The tariffs have also impacted B2B payment flows, so a Greenfield win would give an extra voice in the Senate to easing or ending the tariffs.

Senator Susan Collins, a Republican from Maine

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Maine: Susan Collins, Republican incumbent vs. Sara Gideon, Democrat challenger

Collins’ support for Brett Kavanaugh’s Supreme Court nomination and Trump’s tax plan have drawn political pressure from liberals that has boosted fundraising for the Democrats, putting Collins' seat in jeopardy.

Regarding financial services issues, Collins has supported non-bank fintech lending for small business pandemic rescue packages, suggesting potential support for a greater role for fintechs in banking in the future. Collins has also supported bank deregulation over the past decade.

Sara Gideon, Collins’ Democratic challenger, is the speaker of Maine’s House of Representatives. In that role, Gideon has called for tighter regulations on health insurance companies, particularly related to their billing practices and payment policies, projecting an advocacy for those issues on a national scale.

Senator Thom Tillis, a Republican from North Carolina

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North Carolina: Thom Tillis, Republican incumbent vs. Cal Cunningham, Democrat challenger

Tillis has pressured against the “public option” for real time payments, suggesting in a letter with four other senators that the Federal Reserve should not pursue its FedNow rail. As services such as PayPal’s Venmo and the bank-supported service Zelle grow, there are two distinct initiatives to support real-time transfers in the U.S. FedNow is developing with a 2023/24 timeline as the Clearing House’s Real-Time Payments rail picks up support among banks. The two are not necessarily rivals, though the Senators’ letter asks the Federal Reserve to account for the Federal system's expense.

Cal Cunningham is an Army veteran with service in Iraq and Afghanistan, and like Tillis has pushed fintech firms to move jobs and open offices in North Carolina.

Senator David Perdue, a Republican from Georgia

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Georgia: David Perdue, Republican incumbent vs. Jon Ossoff, Democrat challenger

Like Tillis, Perdue has weighed in against FedNow, voicing many of the same concerns about a direct government role in real-time payment processing. Perdue also supported rollbacks of part of the Dodd-Frank law that loosened lending constraints, a move that drew widespread praise from both small and large banks headquartered in Georgia.

Jon Ossoff, Democratic challenger, is managing director and CEO of Insight TWI, an investigative television company. Ossoff supports establishing a legal status for both recreational and medical cannabis, providing cover for mainstream financial institutions to support payments for businesses in the sector.

Ossoff also advocates tax reform and other protective measures for technology businesses in Georgia, which has aggressively lured payment processors and fintech companies to the Atlanta area over the past decade, turning the city into a fintech rival to New York and San Francisco.

Senator Steve Daines, a Republican from Montana

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Montana: Steve Daines, Republican incumbent vs. Democratic challenger Steve Bullock

Daines has been among the leaders in the GOP caucus to change the management structure of the Consumer Financial Protection Bureau, part of a longtime Republican effort to decentralize how the bureau is managed and to bring its budgeting under more direct control of Congress.

Among other issues, the CFPB has lifted restrictions on payday lending and accumulates public input on the impact of credit card regulations. Banking and credit union trade groups praised Daines’ position on the CFPB, saying it frees smaller financial institutions to expand remittances and other international transfer services.

Daines’ challenger, Montana Gov. Steve Bullock, has championed easier rules for cryptocurrency. As governor, Bullock in 2019 signed a law recognizing utility tokens and exempting them from state securities laws. The utility vs. security debate is key for cryptocurrency, since cryptocurrencies would carry a greater regulatory burden if treated as securities. The SEC has never taken a formal view on that issue, but leans toward crypocurrency’s treatment as a security.

Senator Cory Gardner, a Republican from Colorado

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Colorado: Cory Gardner, Republican incumbent vs. John Hickenlooper, Democrat challenger

Control of the Senate may come down to marijuana and its status as a major business in Colorado, where Sen. Cory Gardner is much more liberal on cannabis than the rest of the Senate’s GOP membership.

Gardner has pushed for national legalization, which would ease the rules for banks to support cannabis payments, and has worked across the aisle with Sen. Elizabeth Warren (D-Mass) on a bill to protect states’ rights to form their own policies for the issue. Most of Gardner’s Republican colleagues in the Senate are not as progressive on the issue.

Challenger John Hickenlooper, Colorado’s former governor, has driven the state’s cultivation of fintech and payment technology companies, creating a council to look for ways to ease rules and other restrictions for blockchain and financial technology startups.

Hickenlooper’s expertise could inform federal efforts to streamline government payments, which struggled during the initial round of pandemic stimulus earlier in 2020. While some form of central bank digital currency is likely, there are still questions around structure, and Hickenlooper would likely support a more direct role for the government in digitally connecting consumers to the Federal Reserve.

Senator Martha McSally, a Republican from Arizona

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Arizona: Martha McSally, Republican incumbent vs. Mark Kelly, Democrat challenger

In contrast to Gardner, Martha McSally has opposed most measures to loosen cannabis rules. McSally has also advocated changes in anti-money laundering rules to improve authorities’ ability to distinguish locally-owned businesses that do cross-border business and those that help hide criminal activities through fraudulent payments.

And as a member of the U.S. House of Representatives, McSally voted for the Dodd-Frank rollbacks in 2017.

McSally’s challenger, Mark Kelly, is a former astronaut and husband of former Rep. Gabrielle Giffords. Kelly would likely take a counter view on Dodd-Frank, and while his positions on cannabis aren’t known, most of his supporters in the polls support legalization.

Senate Majority Leader Mitch McConnell, a Republican from Kentucky

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Kentucky: Mitch McConnell, Republican incumbent vs. Amy McGrath, Democrat challenger

Like Durbin, McConnell is a long-time senator who has a steady lead in the polls, so a loss to Amy McGrath would be an upset.

But if Senate control were to switch to Democrats, McConnell would lose much of his influence even if he retains his seat. That would reduce McConnell's ability to drive the Senate's agenda in areas such as financial services and banking regulation, as well as bills to rein in the CFPB and slow the progress of cannabis banking. In this way, McConnell's loss could be more to New York Sen. Chuck Schumer, who would be in line to become the Senate majority leader.

McConnell is also pushing a fast confirmation vote for Amy Coney Barrett, Trump's Supreme Court nominee. That could create a balance shift on the court for future cases involving regulatory power and the role of fintechs to provide banking.

Senator Doug Jones, a Democrat from Alabama

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Alabama: Doug Jones, Democrat incumbent vs. Tommy Tuberville, Republican challenger

Since most of the Senate seats up in 2020 are Republican seats, the GOP doesn't have as many opportunities to flip seats. One of the Republicans' best chances is in Alabama, where Republican challenger Tommy Tuberville has a 78% chance of beating Democratic Sen. Doug Jones, who was elected in a special election in 2017.

Jones has teamed with Warren to pressure fintech lenders to improve algorithms to reduce racial discrimination in loan decisions. Jones' challenger, former Auburn football coach Tommy Tuberville does not reference payments, banking or fintech among his issues, though Tuberville would likely vote with GOP colleagues to support lower regulations for financial institutions.