Apple (AAPL) and Google (GOOG, GOOGL) are acting as “choke points” for the US payments system, cutting off innovation by keeping other apps out, Rohit Chopra, director of the Consumer Financial Protection Bureau, said Thursday. have been
“Regulations imposed by Big Tech firms have a big impact on whether consumers and businesses can make payments using third-party apps,” Chopra said during a fintech conference hosted by the Philadelphia Federal Reserve.
“We need tough challenges to the major Wall Street banks and card networks,” he said. “But the real concern is that the largest technology companies will be able to build even more gates and toll booths that will prevent smaller companies from emerging, raising capital, growing and succeeding, even if they offer better technology.”
Rohit Chopra, director of the Consumer Financial Protection Bureau, in 2022. (Photo by Anna Moneymaker/Getty Images)
Chopra’s comments follow a long-awaited report from the CFPB published Tuesday that focused on the effects of Big Tech policies on tap-to-pay functions used on mobile devices such as smartphones and watches.
Apple and Google have set rules that govern app developers’ ability to integrate Near Field Communication (NFC) technology into their apps, which is necessary to execute tap-to-pay transactions. If an app doesn’t comply with their rules, the app may be denied access or face removal.
“As we know there is no comparable gatekeeper for accessing the service through a web browser,” Chopra said.
By the second quarter of 2023, Apple’s iOS operating system will be on 55 percent of smartphones shipped in the US, and Google’s Android operating system will be on 45 percent of smartphones shipped.
The dominant market share of these two operating systems, combined with the growing shift toward mobile device payments, underscores the important role their policies and practices play in retail payments.
The Apple iOS logo on an Apple iPhone in 2018. (Photo by Jaap Arriens/NurPhoto via Getty Images)
Chopra says the CFPB is carefully evaluating Big Tech’s role in banking and payment systems and that regulators will need to closely examine how business practices could hinder a fair payment system for consumers, merchants and emerging competitors.
“I can’t tell you how many times you hear from fintech VCs, among other people, they want to ask before they commit capital, who can kick you out, who can stop you,” Chopra said.
Chopra said the CFPB found that Apple’s rules prevent any third-party apps from accessing mobile devices’ technology for contactless payments.
As a result, many popular payment apps cannot use Tap to make payments directly. According to the CFPB, all NFC technology used for contactless payments must go through Apple Pay and card issuers must pay Apple a fee for that privilege.
On the other hand, as per the current rules of Google it is not necessary that the payment is made through a wallet owned by Google. Chopra said that over time the agency has seen some level of tap to pay competition and innovation on Android devices.
“The issue spotlights how regulations imposed by mobile operating systems could have a significant impact on innovation, consumer choice, and the growth of open and decentralized banking and payments in the US,” the CFPB report said.
Apple has cited security and privacy as justification for restricting third party access to NFC technology. Chopra said it is unclear whether a complete NFC access restriction is necessary to protect data, security and privacy.
“It is possible that the company may impose privacy and security restrictions on third-party apps as it does for apps and other functionalities,” Chopra said.
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