The Consumer Financial Protection Bureau’s recent proposal to expand its oversight powers to digital wallets has begun drawing a backlash. The CFPB wants to add services including Google Pay and Apple Pay to its portfolio.
The CFPB argues that since it is providing the same services as traditional banks, it should be subject to the same consumer safeguards. In addition, payment services collect a great deal of personal data from consumers, creating a system where the lines between payments and commerce are blurred.
In response, Google and Apple are gearing up for a lobbying effort, according to published reports. Last week, The Financial Technology Association (FTA) led seven other industry groups in calling for an extension on the public comments period for the proposed rules. The FTA complained about “the complexity of the potential rule, the Bureau’s lack of clarity on what constitutes a larger participant, and the lack of a cost-benefit analysis in asking for an extension of the comment deadline.” The Chamber of Progress, a tech industry coalition whose partners include Apple and Google, has already proclaimed that the CFPB’s move was “about giving Wall Street a leg up.”
All told, the proposal would affect 17 companies, including PayPal and CashApp. The CFPB already monitors PayPal and CashApp for international money transfers, but Apple and Google would be subject to CFPB oversight for the first time.
A Potential Victory for Big Banks
This has been a rare instance of big banks taking the side of the CFPB. The banking industry had been lobbying financial regulators for a while to take a closer look at tech giants that have been offering payments services. The Bank Policy Institute called for the CFPB to invoke its authority under Dodd-Frank to designate online payment processors as “larger participants” in the nonbank market for consumer financial products.
Javelin Strategy & Research’s analysis has highlighted that the status quo is critical in enabling digital wallets to gain significant market share or grow into the default entry point to financial services. To the extent that regulators become more aware, present, and active, the advantages that Apple—in particular—has accrued may be eroded. For example, if regulators demand that non-Apple wallets be allowed to use the NFC chip, those wallets may gain market share. If Google is forced to reduce its cut of payments made through the Google Play store, the market for digital distribution and financial services in digital worlds looks very different.
“At the most extreme, control of data may be at stake,” said Christopher Miller, Lead Analyst of Emerging Payments at Javelin Strategy & Research. “This could undercut the models of the tech giants, which have been built around hardware and services that keep customers engaged as data producing machines that can then be sold to in a variety of ways.”
“It’s no surprise that Apple and Google would see this kind of regulatory intervention as an existential threat,” he said. “They and other tech companies have made a decade or more of money based on a regulatory arbitrage whereby they pretended to be tech companies rather than companies engaged in whatever regulated vertical they were competing in.”
