Proposed US Regulation to Supervise Tech Giants' Digital Wallets Like Traditional Banks

Published November 9, 2023

Under a proposed rule by the US Consumer Financial Protection Bureau (CFPB), major tech corporations including Meta Platforms Inc. META, Apple Inc. AAPL, and Alphabet Inc. GOOG, which provide digital wallet services and payment applications, face the prospect of increased regulatory scrutiny. The initiative aims to equalize the regulatory playing field, applying similar oversight to these nonbank payment providers as is standard for banks and other traditional financial institutions.

Embracing Uniform Regulation

The CFPB's proposed framework targets companies that conduct upwards of 5 million transactions each year, placing them on par with banks and credit unions in terms of regulatory oversight. If the rule comes into effect, these companies would be subject to regular monitoring for compliance with federal money-transfer statutes and for any unfair, deceptive, or abusive practices. Currently, the CFPB has the ability to intervene in cases of unlawful activity by nonbanks but lacks the authority for consistent supervision of their operational standards.

Addressing Consumer Protection Concerns

Digital wallet usage for storing and transferring funds has surged, with platforms such as PayPal Holdings Inc.'s PYPL Venmo becoming commonplace. Despite their prevalence, the consumer protections that are often associated with traditional banking—like deposit insurance—might not be guaranteed through these technology-driven offerings. The CFPB's draft regulation would not extend to deposit insurance oversight, but it would ensure that firms are truthful in their claims regarding consumer protections.

The Impacts on Tech Companies

The CFPB initiative is particularly directed at Apple Pay and Google Pay services, although the bureau already supervises certain entities like PayPal and Block, providing some oversight of Venmo and Cash App. While the proposed rule has invited commentary and analysis from industry representatives, it underscores a broader government agenda to safeguard consumers in an evolving digital marketplace.

Proposed Rule Statistics and Investigations

An estimated 17 companies, representing 88% of the annual digital payments sector, fall within the scope of the proposed rule. The combined transactional throughput for these entities reached approximately 13 billion transactions valued at $1.7 trillion in 2021. The CFPB has also disclosed ongoing investigations, such as probing Venmo's error-resolution practices—a fact revealed by PayPal in a regulatory submission.

Big Tech in the Financial Ecosystem

With big tech companies making inroads into consumer payment services, the CFPB under Director Rohit Chopra's leadership has been actively assessing the influence of entities like AAPL, GOOG, and META within the financial landscape. Scrutiny has also been directed at Apple's exclusive payment routing through Apple Pay, as opposed to the Android platform's more open policy with Google Pay and its competitors.

Timing for Public Feedback

The CFPB's proposal is currently open for input, with comments being accepted until early January, or 30 days following the proposed regulation's publication. This input period offers an opportunity for stakeholders and the general public to voice their perspectives on the impending regulatory changes.

regulation, digital, wallets