fintech upstarts may soon find themselves on a more level playing field in banking, but it is not one they will necessarily be happy about. as analysts, traders, and bankers contemplate what the surprising victory by donald j. trump means for financial regulation, there appears to be agreement on the general direction: some dodd-frank rules on banking could be rolled back. that<u+00a0>helped bank stocks to rally sharply wednesday<u+00a0>and early<u+00a0>thursday. the kbw nasdaq banking index closed at its highest level in more than a year wednesday, and then rose another 2% this morning, giving it a 7% gain in a day and a half. smaller regional banks are also rallying, led by names such as zions bancorp and regions financial . but many online lenders and other financial technology disrupters aren<u+2019>t participating in the rally. after the election results became known early<u+00a0>wednesday, lendingclub corp. shares have fallen about 2.3% through<u+00a0>thursday<u+00a0>morning, while paypal holdings inc. is down 2.8% and square inc. shares have dropped 4.4%. to be sure, mr. trump hasn<u+2019>t yet laid out specific aims for financial regulation. he has said in the past that he wants to <u+201c> get rid of dodd-frank ,<u+201d> specifically with the aim of getting banks to make more loans<u+2014>though he has at times also voiced support for the volcker rule that bars banks from some forms of proprietary trading.<u+00a0>plus, banks themselves may not be in favor of a total rollback, as they could see costs rise in the short term if rules change dramatically. but what<u+00a0>might all of this<u+00a0>mean for banks<u+2019> younger<u+00a0>rivals<u+00a0>in financial technology? the dozens of companies that have sprung up to challenge banks in lending, consumer banking, payments and other realms may suddenly find themselves competing with banks that feel unleashed, rather than hamstrung. playing under a different, and in many ways smaller, set of rules<u+00a0>has been<u+00a0>helpful<u+00a0>for upstarts in recent years. mobile banking startups have benefited from earning higher debit-card rates under durbin amendment rules than<u+00a0>large banks are allowed to. online lenders using state licenses have been able to skirt community lending<u+00a0>requirements<u+00a0>and escape the<u+00a0>most stringent federal deposit insurance corp.<u+00a0>supervision. cross-border payments startups have found ways to reduce the cost of anti-money-laundering checks by using transaction limits. going into the election,<u+00a0>most fintech firms were hoping to get some kind of extension on the lucrative parts of banking<u+2014>such as the power to transmit money or export interest rates across state lines<u+2014>without<u+00a0>all of the same<u+00a0>regulatory requirements, in the form of some kind of limited banking charter . others thought tech-first small banks, such as cross river , would become their enabling partners and help them take on hobbled financial supermarkets. now, with a republican sweep, those dynamics could in theory reverse, with big banks also getting the ability to act more like fintech firms. fintech firms may get additional powers under a new regime, too.<u+00a0>even as<u+00a0>they work for<u+00a0>dodd-frank relief, industry-friendly regulators<u+00a0>and lawmakers also could find time to make it easier<u+00a0>for banks and fintech firms to<u+00a0>try new things under lighter oversight. and banks still aren<u+2019>t necessarily nimble when it comes to new technology. <u+201c>there is a possibility that removing dodd-frank would be harmful to non-bank fintech and allow banks to be more forward leaning,<u+201d> said brian knight, senior research fellow for the financial markets working group at george mason university<u+2019>s mercatus center. <u+201c>however, banks also tend to be less innovation focused and still have higher legacy costs, absent and apart from regulation,<u+201d> he added. but if attention turns to broader relief for all of banking and financial services, there is certainly a higher risk that fintech could lose the<u+00a0>status<u+00a0>it has enjoyed as the locus of innovation and activity<u+2014>at least when it comes to being disruptive, rather than complementary, to traditional banks. write to telis demos at telis.demos@wsj.com
silicon valley-backed fintech firms may lose under a lighter regulatory regime  - wsj
telis demos