US consumer watchdog wants Apple Pay, Google Pay, and PayPal to be regulated as banks

US consumer watchdog wants Apple Pay, Google Pay, and PayPal to be regulated as banks،

The rise of mobile payment applications like Apple Pay and Google Pay is undeniable, with statistics showing that the global mobile payment market has reached a staggering $53 billion in 2022. These apps have become ubiquitous, with the top 10 mobile payment apps, including Apple Pay and PayPal, accumulating a combined user base of 3 .37 billion. Despite being in the top 10, Apple Pay, with approximately 507 million people worldwide and 43.9 million people in the United States using it regularly, still has many mountains to climb.

However, in the face of this rise in popularity, the U.S. Consumer Financial Protection Bureau (CFPB) has proposed a significant regulatory change (via Reuters). The CFPB aims to subject the digital payment and smartphone wallet services of tech giants, including Google, Apple, PayPal and Block’s CashApp, to bank-style supervision.

That means these companies will face the scrutiny of CFPB examiners, who will examine their privacy protections, the conduct of their executives, and their compliance with regulations prohibiting unfair and deceptive practices.

If implemented, this proposal would encompass approximately 17 companies collectively processing more than 13 billion payments per year. Although GooglePay, ApplePay, PayPal, and CashApp are specifically mentioned, the CFPB declined to disclose the identity of other platforms that would fall under this regulatory framework.

In a recent speech, CFPB Director Rohit Chopra highlighted the agency’s findings regarding the tech giants’ data collection practices. According to Chopra, these companies accumulate vast amounts of consumer payment data with minimal restrictions, insufficient transparency, and confusing company policies, potentially putting consumers at risk of “Chinese-style surveillance“.

The new proposal, applicable to companies processing more than five million transactions per year, aims to address these concerns by ensuring that traditional financial players and the technology sector are subject to equivalent oversight.

This approach is welcomed by consumer banks, with the Consumer Bankers Association hailing the proposal as “A step in the right directionHowever, tech giants have expressed apprehension, arguing that the proposed regulations would stifle innovation and harm consumers.

Regarding a similar case in Australia last month, Google and Apple said customers only used their phones to use bank-issued cards to make payments. This implies that the tech giants do not store or process payment data themselves, and any concerns about data collection should be directed to the respective banks.

The proposal is currently subject to a notice and comment period that is expected to end in early 2024. After this review period, the CFPB will evaluate the comments received and determine whether to finalize the rule.