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US States' Rights and Fintech?

States rights and fintech in the US

I moved to the United States (from England) well over a decade ago now, but one thing that I’ve always found interesting, puzzling and at times downright dumbfounding is the various levels of government. City, county, state and federal government bodies – all with a role to play. However, as I studied the history of my new home, I’ve became increasingly fascinated with how the Constitution and Bill of Rights were written.

The 10th amendment always stood out to me as something capable of creating states rather diverse in character. In theory, they could operate as very independent states and create a way of life aligned with the views of their electorate. Fascinating stuff in theory, but what are some examples?

  • California wants to pass policies with healthcare for all? Go for it!
  • Utah wants to pass policies with no income taxes? Go for it!
  • New York wants to challenge the Federal Government? Go for it!

Well, I’m more of a payments nerd than a policy wonk, but this last example covers both states’ rights and the fintech scene. And the state of New York has in fact sued the Federal Government over its “Fintech Charter.”

Ultimately, if New York wins, and sets a precedent for the state to control its own destiny regarding fintech regulation, it could create an incentive for more states to develop banking/fintech-friendly regulations.

This is not unlike the credit card industry in the 1980s, when South Dakota's usury laws were changed to eliminate the cap on interest rates and fees, and Citibank subsequently moved to Sioux Falls. At the time, Sioux Falls had a population of about 80,000. Today, Citi employs 2,900 in a financial services sector that includes more than 16,000 and the city’s total population is a quarter of a million. And amazingly South Dakota, as a state, has over $2.5 trillion in bank assets.

But back to the 10th amendment and payments. States have an opportunity to be at the forefront of a booming industry, and to develop frameworks and ecosystems that are aligned with the future.

In a conversation with one policy maker, I came to understand that one of the jobs is to put in place policies and incentives to attract, train and retain corporations and top level talent.

From a payments and banking perspective, the future is open banking and the integration of banks and fintechs. In theory, if a state creates a fintech charter based on open banking, coupled with the right incentives to build out a workforce, that state could reap significant rewards. These incentives could encourage a bank, or a larger fintech, to build out operations, provide well-paid technology roles and help create a vibrant ecosystem that boosts local economies.

In today’s world, we are obsessed with the future. The pending battle between New York and the federal government gives us an opportunity to look to the past, and learn from South Dakota; the question is, which states will apply that thinking to today’s world?

 

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