US Consumer Watchdog Scrutinises Tap-To-Pay Restrictions By Bigtechs

September 11, 2023
Mobile payment restrictions by Apple and Google have been put under the spotlight by the Consumer Financial Protection Bureau (CFPB), as the most powerful US consumer agency closes in on an open banking work.

Mobile payment restrictions by Apple and Google have been put under the spotlight by the Consumer Financial Protection Bureau (CFPB), as the most powerful US consumer agency closes in on an open banking work.

Restrictions by Apple and Google in mobile payments, including those related to near-field communication (NFC) technology, may impede interoperability in payments, a critical open banking use case, the CFPB found in a new issue spotlight last week (September 7).

The report comes as the agency is preparing to release draft rules for open banking next month.

CFPB director Rohit Chopra said he now has “real concerns” that the policies of Apple and Google, which together dominate mobile operating systems in the US, “may create potential roadblocks to a more open payments ecosystem”.

“While the [open banking] rules will help, we know that the existing financial market structure is full of choke-points 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,” said Chopra.

He indicated that the CFPB and the Federal Reserve Banks might take a !close examination” of how bigtech firms might impede an open and interoperable payment system.

Tap-to-pay has surged in recent years

The payments ecosystem has gone through significant changes in the last decade, particularly since the COVID-19 pandemic. 

In his prepared remarks, Chopra said that although some changes got large public attention, such as crypto trading, others remained “more under the radar”.

One such unnoticed change has been bigtech companies “creeping” into the payments ecosystem, Chopra said. 

Their growing presence in point-of-sale payments is reflected well in the fact that the use of digital wallet tap-to-pay solutions has increased considerably in recent years.

The agency estimates that Apple Pay, Samsung Pay and Google Pay together had 97m users in 2021, and in 2022, nearly $300bn payments were made using one of these three platforms. This is expected to grow further by more than 150 percent by 2028, according to the CFPB. 

“We would expect that there would be a plethora of players leveraging tap-to-pay functionalities” by integrating them into their existing mobile apps, Chopra said. “However, we don’t find this at all,” he stressed.

This is largely because Apple, which was estimated to process two-thirds of the $300bn payments in 2022, forbids any third-party apps from accessing the mobile device’s NFC technology for tap-to-pay payments. This means that all NFC-enabled payments must go through Apple Pay and card issuers must pay a fee to Apple for its service.

Meanwhile, Google does not require that payments be routed through Google Pay, but the CFPB noted that this could change in future and there could be self-preferencing concerns over Google.

It also highlighted that, in the absence of the NFC restriction, there was “some level of tap-to-pay competition and innovation” on Android devices.

Apple’s NFC policy has been subject to several regulatory actions in the US and Europe.

In a February report, the US Department of Commerce found that the mobile app store models of Google and Apple are “not a level playing field”, and it is unclear how their current in-app payment systems “benefit anyone other than Apple and Google”.

In May 2022, the European Commission sent a charge-sheet to Apple, provisionally finding that it breached competition law by restricting access to the NFC technology.

The following month, Apple also came under heavy criticism in a report from the UK Competition and Markets Authority (CMA), which said the restriction “gives Apple Pay a decisive advantage over competing mobile wallets”, while “protecting its services from competition and potentially restricting innovation”.

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