CFPB criticizes big tech over mobile pay apps

The Consumer Financial Protection Bureau believes big tech holds too much sway over the mobile payments market, erecting roadblocks to greater innovation. In particular, the consumer watchdog agency takes issue with regulations imposed by mobile operating systems—Apple iOS and, to a lesser extent, Google Android—that can "significantly impact" innovation, consumer choice, and growth of open and decentralized banking and payments in the United States.

"Over the last decade, but particularly during the pandemic, Big Tech companies have crept into the payments ecosystem to deepen consumer engagement on their platforms, harvest and potentially monetize transactions-related data, and exploit traditional financial sector fee schemes," CFPB Director Rohit Chopra said in remarks at the Federal Reserve Bank of Philadelphia's annual fintech conference, on Sept. 7, 2023.

Back in October 2021, the CFPB ordered all big tech companies to turn over information on their payment systems plans. The Philadelphia Fed speech coincided with the bureau's release of findings from its review of that information. Namely the "outsized influence Apple and Google exert over popular contactless payment options," Chopra said.

Apple is biggest culprit

Consumer usage of tap-to-pay options on their smartphones has grown considerably in the United States in recent years, nearing an estimated $300 billion across Apple Pay, Samsung Pay and Google Pay, according to the CFPB. Some analysts estimate the market will grow by over 150 percent between now and 2028.

As of the second quarter of 2023, Apple's iOS was on 55 percent of smartphones shipped in the United States, the CFPB said; Google's Android operating system was on 45 percent.

According to the CFPB, three in four of the 130 million iPhone users have activated Apple Pay, with nearly 56 million Americans making in-store payments using Apple Pay in April 2023. Google Pay is forecast to have 35 million users by 2025.

Visa reported that one in three Americans use tap-to-pay for purchases—a 700 percent increase from 2020. Mastercard estimated that contactless payments account for over 60 percent of its network activity globally.

But, as Chopra explained, "regulations imposed by Big Tech firms have a big impact on whether consumers and businesses can make payments using third-party apps." 
Here's the problem: Apple currently forbids banks and app developers from accessing the tap-to-pay functionality on Apple iOS devices. Apple's proprietary app, Apple Pay, is the only mobile payment option allowed on iOS devices. While there are no similar restrictions for Google's Android operating system, the CFPB warned "this policy could change in the future."

"Restrictions on the use of tap-to-pay reduce consumer choice and inhibit progress toward a more robust open banking system, where consumers have more control over their personal financial information, and developers provide payment solutions that better meet customer needs," the CFPB wrote in its report. Like the ability to access their other banking applications.

Changing ecosystem requires changing rules

In a related development, the consumer watchdog agency said it is working on a new rule clarifying consumers' personal financial data rights.

"The retail payments system is rapidly evolving and the CFPB is evaluating the existing landscape to understand how regulatory changes could complement, or disrupt, the transition to open banking," the bureau stated in a press release.

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