“FinTech is basically if Wall Street and Silicon Valley had a child,” said Jeff Hauser, director of the Revolving Door Project, a progressive rights group. “Over time, if they get too strong in these unregulated areas, they will benefit people with less access to lawyers and less understanding of the fine print.”

These fintech suspicions will be fully exposed this week when the House Financial Services Committee, led by Rep. Maxine Waters (D-Calif.), Summons Robinhood co-founder Vlad Tenev, other related executives and hedge fund managers. brokerage for a potentially explosive hearing. Among the witnesses scheduled to testify in the Feb. 18 session is GOP megadonator Ken Griffin, a hedge fund giant whose company, Citadel Securities, is a key source of revenue for Robinhood.

Robinhood halted stock buying by small investors as hedge funds and other firms betting against GameStop and other struggling companies began to lose significant amounts of money as stocks soared.

The brokerage attributed the move to demands from a clearinghouse – an intermediary that finalizes and settles trades – for $ 3 billion to save trades as it continued to rack up buy orders from its clients. . But the individual investor cut has drawn fire from everyone, Sens. Elizabeth Warren (D-Mass.) To Ted Cruz (R-Texas), who echoed criticism from Robinhood for restricting clients while hedge funds could continue to trade.

The increasingly bitter attitude of progressive Democrats towards emerging companies is also playing out in a battle over President Joe Biden’s choice to lead the Office of the Comptroller of the Currency, the chief cop of the nation’s largest banks, as the expected candidate has close ties to fintech.

Michael Barr was fired for his paid consultant roles at two leading companies. He advised cryptocurrency trader Ripple between 2015 and 2017 on international payments issues and was a consultant for Lending Club on various projects including on the “Small Business Borrower Bill of Rights”. “These relationships have made some progressives fear that he is too comfortable with the industry.

Sherrod Brown (D-Ohio), Chairman of the Banking Services Senate, who has long been skeptical claims from the FinTech industry, actively supported an alternative candidate for the post of controller, law professor Mehrsa Baradaran.

Finally, a new consumer financial protection bureau under Biden is set to step up fintech’s control over everything from loan terms to the processing of personal data, a major CFPB fulcrum under President Donald Trump, which had tendency to launch competition from innovative companies beneficial for consumer protection.

Fintech is an umbrella term that refers to innovation across a wide range, including breakthrough technology like cryptocurrency, which enables faster payments, or new ways to share data. Many startups offer services that banks and other Wall Street businesses have traditionally provided, increasing the convenience of activities such as stock lending or trading by taking advantage of the Internet.

An example: small loans that consumers repay in installments. “They’ve made it much easier for people to use these services than dragging your 50-inch TV to a pawnshop,” said Mary Jackson, CEO of the Online Lenders Alliance. She said online loans also increased racial fairness by making relevant “color blind” decisions.

Robinhood, for its part, has sold itself as a way to help ordinary people invest in stocks, a lofty goal that is consistent with how the financial system is supposed to work.

“Robinhood has set itself the goal of democratizing finance and enabling everyone to participate in what is widely recognized as the greatest wealth creator of the last century – the stock market”, Jim Swartwout, COO of Robinhood Securities, wrote in a February 4th blog post. “This movement is happening now, on a large scale, and it is one of the greatest financial transformations our country has ever seen.”

About half of its customers are first-time investors, according to the company’s data, with a median age of 31, suggesting it is meeting unmet needs. But the frenzy that has seen shares of otherwise struggling companies like GameStop and AMC Entertainment rise and fall dramatically raises the question of whether their customers understand the risks.

“Investing and gamification are in some ways opposite concepts,” said Rep. Jim Himes (D-Conn.), Senior member of the House Financial Services Committee, in an interview. “There aren’t a lot of people who make a lot of money investing, but those who do do it for the long haul. The idea that you are going to be a responsible investor by trading regularly through your device is simply wrong, and a lot of people are going to be hurt by this idea.

At the center of the debate is a long-standing goal of both policymakers and the private sector to reduce the number of people excluded from the financial system.

Without a bank account or credit score, it is more difficult for people to get government assistance or take out loans. But more financial inclusion alone isn’t necessarily helpful, as evidenced by the subprime mortgage crisis that has had dire consequences for people who have lost their homes.

The question for policymakers is whether fintech will help increase people’s access to wealth without making them vulnerable to further abuse.

“One of the general promises of fintech is that this innovation will lead to increased inclusion and better access to all kinds of communities that have been left out in the past,” said a Democratic Senate aide. “Enough time has passed that a lot of these guys need to show results for their claims.”

The steps taken by a Trump-era regulator might not have helped their case politically. The recently deceased Acting Comptroller of the Currency Brian Brooks, a former prominent lawyer at the Coinbase cryptocurrency exchange, has insisted that it be easier for fledgling companies to share some of the privileges granted to highly-regarded banks. regulated.

Waters, the chairman of House Financial Services, has called for undoing most of what Brooks has done in this role, including his decision to clarify that banks could hold crypto assets on behalf of their clients. “Why would we cancel this? What is the politics there? Brooks responded in response in an exit interview last month.

Some fintech experts warn the United States may fall behind as other countries increasingly develop comprehensive traffic rules.

“I am really concerned that we are becoming Neanderthals,” said Linda Jeng, former head of several regulators, including the Federal Reserve.

“It will be up to fintechs to educate policymakers today about what they do, the types of services they provide, as you look at countries and jurisdictions around the world, and they range from before, ”said Jeng, now a visiting scholar at Georgetown Law School and head of global policy at fintech Transparent Systems.

For banks, fintech represents both an opportunity and a competition. Community banks have partnered with such companies to provide services, as they often lack the resources to afford in-house technology development.

However, the rules that help fintechs also open the door for tech giants like Google and Amazon to enter more into finance, a potential threat to banks that weighs heavily and reinforces skepticism among Democrats.

Ultimately, to truly improve the bottom line, lawmakers need to look at the structure of the entire system, argued Cornell Law School professor Saule Omarova.

“We still face structural inefficiencies,” she said, citing the Robinhood episode. “Congress needs to think about how the financial market is set up from the core if we don’t want these things to happen.”