It might not seem terribly relevant to how you collect right now, but the next generation of payments is already out there and becoming more popular, which probably explains why the Consumer Financial Protection Bureau is starting to pay attention and make some waves. The CFPB released a report yesterday, coinciding with a speech from Director Rohit Chopra at a fintech conference, on the role that big tech companies like Apple and Google are playing in the area of mobile payments. Those two companies are “choke points” to the overall payment system (sound familiar to anyone in the ARM industry) and are stifling competition and innovation.
Apple’s iOS and Google’s Android are the two most prominent operating systems in the U.S. As of the second quarter of 2023, they hold marketshares of 55% and 45% respectively. The sweeping shift towards mobile device payments magnifies the significance of their regulations in retail payments.
At the same time. tap-to-pay usage in the U.S. has surged. By 2023, transactions across Apple Pay, Samsung Pay, and Google Pay approached $300 billion. Analysts project a staggering 150% growth in digital wallet tap-to-pay transactions by 2028. Notably, as of April 2023, nearly 55.8 million payments were made using Apple Pay.
However, there’s a divergence in the policies of those big tech giants.
Apple restricts third-party payment apps from accessing the near-field communication (NFC) technology, essential for tap-to-pay contactless payments. The upshot? Apple Pay becomes the sole tap-to-pay option on iOS devices. Such limitations could stymie innovation, decrease consumer choice, and decelerate the transition to a comprehensive open banking ecosystem.
Google’s Android system currently permits third-party payment apps to access NFC chips, allowing for a semblance of competition and innovation.
Chopra emphasized the potentially detrimental role Big Tech holds in the U.S. payments system. By acting as “choke points” to the payment system, Big Tech might curtail innovation by excluding other apps. Such dominance, according to Chopra, could pave the way for tech giants to set up more “gates and toll booths”, hampering the growth of even the most advanced fintech startups.
Chopra’s observation suggests that while the intent may be to challenge dominant banks and card networks, Big Tech’s regulations could inadvertently suppress smaller firms, even if they possess superior technology.
The CFPB is delving deeper into these practices to determine how they might affect open banking. The objective is to foster interoperability across consumer financial products, amplifying consumer choice, and ease of transitioning between providers.
While Apple justifies its restrictions by invoking security and privacy concerns, Chopra intimates that a blanket NFC access ban might not be indispensable to safeguard data. There could be room for integrating privacy and security measures without wholly barring third-party app access.
The landscape of tap-to-pay and mobile banking is evolving swiftly. However, the regulations set by Big Tech might hold the keys to determining its trajectory. As the sector grows, ensuring a fair payment system for consumers, merchants, and emerging competitors will be paramount. The ball now rests in the court of regulatory bodies like the CFPB to shape this future.
