Is CFPB’s Mobile Payments Salvo at Apple & Google Good for the Industry?

The Consumer Financial Protection Bureau has been studying the payments activities of large tech firms for nearly two years. Now CFPB director Rohit Chopra is setting the stage for a regulatory battle, attacking Apple and Google over the issue of access to near-field communication, the technology inside smartphones that enables tap-to-pay. He argues innovation is getting stifled because the makers of two of the most ubiquitous mobile phone brands, iPhone and Android, have the ability to restrict competition on their devices.

Consumer banking regulator Rohit Chopra is picking a payments fight with Apple and aiming a meaningful glare at Google. But experts disagree about whether he’s on solid ground in the battle he’s starting.

In a fiery speech, Chopra, director of the Consumer Financial Protection Bureau, attacked what he calls “the outsized influence Apple and Google exert over popular contactless payments options” and suggested that such influence could interfere with the bureau’s efforts to promote open banking.

“The existing financial market structure is full of chokepoints and toll booths imposed by large firms acting as ‘mini governments’ that can privately regulate markets and distort outcomes, particularly when it comes to payments,” Chopra said during the Philadelphia Federal Reserve Bank’s seventh annual fintech conference on Sept. 7.

Chopra expressed concern over “the blurring of digital commerce, lending and payments” by big tech firms and suggested that this raises questions about the continued separation of banking and commerce in the United States.

The focal point for Chopra is heavy consumer use of Apple and Google smartphones for payments.

The technology that enables contactless and “tap-to-pay” services via iPhones and Android phones at the physical point of sale is called near-field communications, or NFC. Both Apple and Google have rules about accessing the NFC technology inside their phones. This effectively gives them the ability to restrict the payment options available, which Apple has done to a greater degree than Google.

Chopra said that upcoming CFPB regulations on open banking might improve the situation, but that he expects more work will be necessary to completely resolve the issue.

Industry insiders are skeptical about what Chopra is trying to accomplish, though.

Read more: How CFPB’s New Data-Sharing Rules Will Change Banking

Chopra Calls Out Apple and Google Over NFC Policies

Chopra said that the growing popularity of contactless payments should have produced “a plethora of players leveraging tap-to-pay functionalities” in their apps.

But instead of an “open and decentralized payments market,” the CFPB found the opposite in its ongoing inquiry into the role of big tech firms in payments. (The inquiry began in 2021 and Chopra unveiled a report on the latest findings at the conference.)

“We found that Apple’s regulations forbid any third-party apps from accessing the mobile device’s NFC technology for tap-to-pay payments. All NFC-enabled payments must go through Apple Pay and card issuers must pay a fee to Apple for the privilege,” Chopra said. “As a result, many popular payment apps cannot directly use tap-to-pay.”

Security and privacy are the reasons Apple cites for restricting third-party access to NFC technology, he said. However, he expressed doubt that “a blanket NFC access ban” is needed.

Chopra suggested that Apple could achieve privacy and security goals by placing appropriate restrictions on third-party apps as it does for other smart device functions. (Apple has not replied to a request for comment.)

Rohit Chopra quoted as saying all NFC-enabled payments must go through Apple Pay and card issuers must pay a fee to Apple for the privilege

In contrast to Apple, Google has allowed competing mobile wallets to operate on Android smartphones. Its regulations don’t require that payments go through Google Pay, the company’s digital wallet, Chopra said.

As a result, “we have seen some level of tap-to-pay competition and innovation on Android devices,” he said. “Google, however, has been scrutinized by international authorities in the past for allegedly placing self-preferencing conditions on device manufacturers that use Android.”

The CFPB will propose rules that will give consumers greater rights over their personal financial data in October, Chopra said. These rules derive from authority Congress gave the bureau in 2010 and are meant to advance open banking in the U.S.

Chopra floated some potential next steps for the CFPB after that.

Achieving “a more open, interoperable, and decentralized banking and payments system” will require close governmental scrutiny of the practices of large tech firms that are at cross purposes with this goal, he said, adding that more work by the CFPB and the Federal Reserve is needed.

“While I agree that strong challenges to the dominant Wall Street banks and card networks are important, there is real concern that the large technology firms will be able to erect even more gates and toll booths that will prevent small firms from emerging and succeeding, even when they offer superior products,” Chopra said.

What Fintech and Payments Executives Think About Chopra’s Opening Shots

The Financial Brand reached out to a range of people active in fintech and payments to get their reactions to the CFPB director’s speech.

These industry insiders have nuanced views, in some cases taking issue with Chopra’s perspective.

But Alex Johnson, an analyst who writes the “Fintech Takes” newsletter, thinks Chopra has a point. “The concerns he raises are fair,” says Johnson. “We have seen a big shift in the last few years towards more tap-to-pay transactions and obviously tap-to-pay on a smartphone is more convenient for consumers than pulling a physical card out of a wallet. This puts the companies that control the operating systems on those phones in a strong position to influence consumer and merchant behavior.”

The Popularity of Tap-to-Pay:

The portion of Americans who use tap-to-pay, according to Visa:
1 in 3

The way Apple has built its financial services juggernaut — creating a “walled garden” that expanded from Apple Pay to Apple Pay Later and Apple Savings — illustrates how deliberately the company proceeds.

Chopra didn’t address ecommerce, which Johnson believes is connected. “The same basic theory applies,” Johnson says. “It’s convenient to shop online using a smartphone. Apple and Google’s control over their operating systems gives them a huge advantage in steering consumer behavior in a mobile ecommerce setting as well.”

Read more about the CFBP:

Is the CFPB ‘Missing the Larger Questions’ and Stifling Innovation?

Payments consultant Richard Crone questions the CFPB’s motives.

“Director Chopra’s focus on NFC technology appears less about consumer protection and more about maintaining the legacy financial system’s grip on payment infrastructure,” he says.

Crone thinks this is a mistake. “Ironically, this could sideline innovative consumer-protection measures like Apple’s secure tokenization system,” Crone warns. “If the debate is solely about NFC access, we risk missing the larger questions about what truly serves consumer interests in our evolving financial landscape.”

Carey Ransom, managing director at BankTech Ventures, sees value in Apple’s work to build standards and security into Apple Pay and wonders if banks could provide the same quality and consistency if they accessed the NFC functionality directly.

“If the debate is solely about NFC access, we risk missing the larger questions about what truly serves consumer interests in our evolving financial landscape.”
— Richard Crone, Crone Consulting

Crone points out that opening up access to the NFC antenna is akin to opening trade secrets to view. “That’s granting insight into the intricate controls that govern its functionality,” he says.

Part of the CFPB’s job is to protect consumers, and Crone argues that Apple’s decision to allow only validated financial institutions to have access to NFC helps protect against fraud.

Could sticking with the status quo stifle further innovation?

Ransom doubts it. “Tap-to-pay seems straightforward enough that I’m not sure there is a lot of new innovation to explore around it, at least in the near term,” says Ransom, whose fund invests in fintechs on behalf of about 100 community banks.

Read more: Why a Tiny Credit Union Sued Apple Over Unfair Tap-to-Pay Rule

Is the NFC Issue in the CFPB’s Purview? And Is Consumer Choice Really Restricted?

The CFPB has had a very wide-ranging scope since its creation by Congress. The bureau has often insinuated itself into areas like the NFC matter that don’t fall neatly into the category of financial regulation yet are clearly part of financial services today.

“An issue to me is whether the Apple Pay ‘tax’ is fair to the banks, much like the questions about the App Store ‘tax’ that’s charged to mobile app developers. That seems the better issue to review for potentially monopolistic, unfair behavior.”

— Carey Ransom, BankTech Ventures

Anti-trust typically doesn’t fall under the bank regulatory scheme, except in the approval of mergers. Chopra has involved himself in that, but more so through his statutory role as a member of the Federal Deposit Insurance Corp. board of directors.

Whether the CFPB is the right venue for this issue is an open question.

“This feels like part of a broader regulatory concern about the control that Apple exerts over its operating system and third-party app developers,” says Johnson. “And that is more in the realm of the Federal Trade Commission and the Department of Justice, not the CFPB.”

Johnson wonders how much impact the NFC access issue really has on consumer choice of payment methods. “Any credit or debit card that runs on the major networks can work in Apple Pay and Google Pay,” he says. “So if I want to switch banks but still use my card to make payments through my smartphone, my choice isn’t being limited.”

Crone suggests that the “tax” for Apple Pay may not be as unfair as it has been portrayed. “Yes, banks have to pay to play, but they receive many tangible benefits for that fee that extend beyond security and reduced fraud,” he says.

Crone also says the competitive picture is bigger and more complicated than Chopra acknowledges in his speech. For example, the four major payment companies — Visa, Mastercard, American Express and Discover — played a role in the development of NFC. They got involved to protect their pricing interests, in what could be deemed a monopolistic move, Crone says.

In addition, there are alternatives to NFC, such as QR codes, which rely on the camera function on phones, he says. Vendors generate QR codes, then the consumer scans and shoots them to transfer the payment data. (QR is short for Quick Response.)

“Lack of NFC conductivity never hindered the world’s largest mobile wallets in China — namely, Alipay, WeChat Pay and Pinduoduo, which all use QR codes rather than NFC,” Crone says.

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