Increasing Supervision on Tech Companies' Digital Wallets

Tech Giants Under New Scrutiny for Payment Services

In an effort to close regulatory gaps, major technology firms offering digital wallets and payment applications may soon experience heightened observation by the US Consumer Financial Protection Bureau (CFPB). Under a proposed rule, the CFPB seeks to extend its oversight, akin to that of banking institutions, to include not only financial entities but also nonbank companies that handle in excess of 5 million transactions annually.

The Impact of CFPB's Proposed Regulation on Meta, Apple, and Alphabet

Should the proposal come into effect, entities such as META Meta Platforms Inc., AAPL Apple Inc., and GOOG Alphabet Inc. would fall within the CFPB's purview, in a move aimed at treating them on a par with traditional financial institutions like banks and credit unions. Moreover, the regulation would authorize the CFPB to regularly supervise these tech firms ensuring their adherence to federal money-transfer laws and to protect consumers against unfair, or deceptive practices.

The burgeoning reliance on digital payment systems to hold and transfer funds, particularly services like PayPal Holdings Inc.’s PYPL Venmo and Block Inc.’s Cash App, has significantly escalated in recent years. Consumers increasingly turn to their electronic devices for financial transactions prompting the entry of technology companies into a space traditionally occupied by banks. The CFPB emphasized that conventional safeguards, such as deposit insurance, might not be in place for these novel services, although the agency itself does not regulate deposit insurance.

Rationale and Responses to the CFPB's Proposal

CFPB Director Rohit Chopra cited that the initiative is designed to prevent regulatory arbitrage by ensuring that substantial nonbank payments companies receive fitting oversight. The proposal is not only focused on safeguarding consumers but is also a component of President Joe Biden's larger consumer-protection strategy.

While Alphabet has refrained from commenting, other involved parties, from consumer advocacy groups to industry representatives, have expressed support for a balanced landscape where consumer protections are uniform across all financial service providers. Yet, with the deadline for public comments on the proposal set, it remains to be seen what specific impacts the finalized rule will have on the sector.

The CFPB anticipates that around 17 companies, accounting for 88% of yearly digital payments, would be encompassed by the rule. These companies processed approximately 13 billion transactions, amounting to $1.7 trillion in 2021, per the agency's data.

Fulfilling his commitment to scrutinize big tech’s foray into consumer payments and financial services, the CFPB under Chopra has also petitioned for insights from big players such as AMZN Amazon Inc., alongside Apple and Google. Furthermore, CFPB concerns about Apple’s payment policies and Google’s competitive stance have already been subjected to a warning in the past months.

regulation, digital, wallets