Apple Pay Could Soon Be Subject to Stronger US Government Regulation

Although Apple has had to partner with traditional financial institutions to provide some of its services, the most popular one — Apple Pay — isn’t subject to these restrictions. However, that could soon change if a US consumer watchdog agency gets its way.

According to Reuters, the Consumer Financial Protection Bureau (CFPB) is calling on the government to provide “bank-like supervision” to those tech companies behind the most popular digital wallet apps. Among others, this would include Apple Pay as well as Google Pay, PayPal, and CashApp.

The CFBP is an independent agency of the US government under the Federal Reserve responsible for overseeing the financial sector to protect consumers from being exploited by banks, lenders, and other financial institutions. However, tech company’s payment services currently aren’t within its purview.

Nevertheless, it’s been the goal of CFPB Director Rohit Chopra to change that, and this latest move isn’t at all unanticipated. Since taking over the CFPB in 2021, Chopra has been focusing heavily on big tech companies, and last year, he launched an inquiry into payment platforms such as Apple Pay.

Today’s rule would crack down on one avenue for regulatory arbitrage by ensuring large technology firms and other nonbank payments companies are subjected to appropriate oversight.

Rohit Chopra, CFPB Director

Chopra has expressed concern that the tech sector has been expanding “into financial services traditionally provided by the closely regulated banking sector” without the oversight that ensures that consumer privacy is being protected.

In a speech early last month, Chopra stated that he believes the US is moving toward Chinese-style surveillance with big tech companies holding all the cards and that new rules are necessary to protect US consumers.

I fear that the U.S. is lurching toward a consolidated market structure like the one that has emerged in China that blurs the lines between payments and commerce and creates the incentives for excessive surveillance and even financial censorship.

Rohit Chopra, CFPB Director

For its part, many of Apple’s financial services are already being handled by other legitimate financial companies that are subject to at least some scrutiny. The Apple Card is jointly managed by Apple and investment bank Goldman Sachs, along with the funds in Apple Card Savings accounts, while Green Dot Bank holds Apple Cash deposits.

Apple has also set up two arms-length subsidiaries, Apple Payments Inc, which handles the payment processing for Apple Cash, and Apple Financing LLC to handle the short-term financing for Apple Pay Later, while transactions are handled by Goldman through the Mastercard network.

However, the CFBP proposal would bring the entire Apple Pay system under the scrutiny of the government agency. While it only encompasses companies handling more than five million transactions a year, it’s a safe bet that Apple easily surpasses that, considering it processes over $6 trillion in digital payments annually, beating out Mastercard and putting it in second place behind Visa.

That’s all without being subject to the same level of oversight as these other payment networks, and the CFBP also hopes the new rule will “foster competition by ensuring that both traditional financial players and the tech sector [are] equally subject to the same oversight.” Unsurprisingly, the Consumer Bankers Association and Electronic Transactions Association both support the proposal, lauding it for offering equal protection for consumers and “consistent application of public policy for all players.”

The CFBP’s proposal will go through a notice-and-comment period for the next few weeks before the next stage, which is expected to occur early next year.