Consumer Financial Protection Bureau Director Rohit Chopra said Thursday that Apple (AAPL) and Google (GOOG, GOOGL) are acting as “choke points” to the US payment system, cutting off innovation by keeping other apps out.
"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 organized by the Philadelphia Federal Reserve.
"We need strong challenges to dominant Wall Street banks and card networks," he added. "But there is real concern that the largest technology firms will be able to erect even more gates and toll booths that will prevent the smallest firms from emerging, raising capital, growing, and succeeding even when they offer a superior technology."
Chopra’s comments follow a long-awaited report CFPB published Tuesday that focused on the impacts of Big Tech policies on tap-to-pay functions used on mobile devices like smartphones and watches.
Apple and Google set regulations that govern app developers’ ability to integrate near-field communication (NFC) technology into their apps, which is needed to execute the tap-to-pay transactions. If an app does not comply with their regulations, the app can be denied access or face removal.
"There's no comparable gatekeeper as we know for accessing service through a web browser," Chopra said.
As of the second quarter of 2023, Apple’s iOS operating system was on 55% of smartphones shipped in the US, and Google’s Android operating system was on 45% of smartphones shipped.
The dominant market share of these two operating systems, coupled with the increasing shift toward mobile device payments, underscores the important role their policies and practices play in retail payments.
Chopra says the CFPB is carefully evaluating the role Big Tech plays in banking and payments systems and that regulators will have to closely examine how business practices might impede a fair payment system for consumers, merchants, and nascent competitors.
"I can't tell you how many times you hear from fintech VC, others, they want to ask before putting capital in who can stomp you out, who can block you," said Chopra.
Chopra said the CFPB found that Apple's regulations prevent any third-party apps from accessing the mobile devices’ technology for contactless payments.
As a result, many popular payment apps cannot directly use tap to pay. According to the CFPB, all NFC technology used for contactless payments must go through Apple Pay and card issuers must pay a fee to Apple for that privilege.
On the other hand, Google's current regulations do not require that the payments are routed through Google's proprietary wallet. Over time, Chopra said the agency has seen some level of tap to pay competition and innovation on Android devices.
"The issue spotlight explains how regulations imposed by mobile operating systems can have a significant impact on innovation, consumer choice, and the growth of open and decentralized banking and payments in the US," reads the CFPB report.
Apple has cited security and privacy as the justification for restricting third-party access to the NFC technology. Chopra said it’s not clear that a blanket NFC access ban is necessary to protect data, security, and privacy.
"It may be that the company could place privacy and security restrictions on third-party apps as it does for apps and other functionalities," Chopra said.
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