Fintech in Flux: How Tariffs Are Reshaping the Industry

The recent imposition of tariffs has sent ripples through various sectors within the tech ecosystem, and the fintech industry is no exception. As a sector that thrives on global integration and innovation, fintech companies, especially wealth tech, lending, and payment-focused fintech, are navigating a complex landscape of increased costs, regulatory changes, and shifting consumer behaviors. Here’s a closer look at how these new tariffs impact the fintech industry.

The announcement of new tariffs has introduced a significant degree of uncertainty into global markets. This uncertainty has led to increased market volatility, negatively impacting investor confidence. Fintech companies, particularly those involved in international transactions and services, are experiencing fluctuations in stock valuations as a result. Maintaining investor confidence is crucial for these firms, as it directly impacts their ability to secure funding and sustain growth.

Many fintech companies rely on imported technology and hardware to support their platforms and services. The new tariffs have increased the costs of these essential components, leading to higher operational expenses. To manage these cost increases, some fintechs are exploring alternative suppliers, renegotiating terms with existing partners, or considering local sourcing options. Effective supply chain management and cost-control measures are becoming increasingly important to maintain profitability and growth.

The imposition of tariffs has prompted changes in trade policies and regulatory frameworks. Fintech firms must stay vigilant and adapt to evolving regulations to ensure compliance and maintain seamless operations. This includes monitoring policy shifts in different jurisdictions and adjusting business practices accordingly. Proactive engagement with regulatory bodies and continuous assessment of compliance strategies with accounting professionals is vital to mitigate potential risks associated with the new trade environment.

As tariffs potentially raise the prices of various goods, disposable income will decrease, and consumer spending habits may shift. This can impact transaction volumes and lessen the demand for the services offered by fintech companies. For instance, increased living costs could lead to reduced consumer spending, impacting the volume of transactions processed by payment solutions providers. Understanding evolving consumer behaviors is one thing, but responding to them, whether that is adjusting their pricing strategy or offering more for existing products or services, is essential for fintech firms aiming to remain competitive and meet customer demand.

Global trade wars can impact businesses in a variety of ways, sometimes for the better, but they also may not impact some companies at all. For instance, payment providers might see an increase in interchange revenues due to higher transaction costs but a decrease in international payment volumes. Additionally, currency fluctuations could enhance foreign-exchange-spread revenues for businesses handling cross-border payments, although a stronger dollar—stemming from lower demand for foreign goods—could narrow spreads. Due to these tariffs’ impact on companies, stablecoins may be considered a necessary apparatus to protect payments. Lastly, these tariffs may prove to be a burden for a portion of fintechs, but they also create an opportunity to innovate and adapt and the ability to differentiate from the rest of the competition and market.

While tariffs are an instant impact to the fintech business, some of the mitigation strategies take a bit longer to make a positive impact. The key is to take a strategic approach and the steps to understand how these tariffs really work and impact your specific business. If the exporter and importer are related parties, there is the further complication of needing to remain within an arm’s length range of profitability. The Importer of Record is typically the limited function/limited risk entity in the global business, their margins are already thin compared to the Entrepreneur/Exporter so having the responsibility to incur 100% of the tariffs could strain the business in a way that it is outside the arm’s length range or even in a loss position, making the company more at risk from a transfer pricing adjustment by the IRS.

The new tariffs have undoubtedly posed challenges for the fintech industry but also present opportunities for innovation and adaptation. By strategically managing operational expenses, staying compliant with regulatory changes, and closely monitoring consumer behavior, fintech companies can navigate the twists and turns of these tariffs and the complex new landscape and continue to thrive. Reach out to Withum to learn about our tariff mitigation strategies and analysis model. The combined approach of fintech accounting/tax, customs, and transfer pricing experts ensure you understand your options and the ripple effect these tariffs can have as they flow through your entire business.