On September 7, the Consumer Financial Protection Bureau (CFPB) released an issue spotlight focusing on the role that mobile device operating systems play in determining consumer’s payment options. According to the CFPB, “[g]iven the continued shift toward the use of contactless payments on mobile devices like smartphones and wearables, there is now readily available technology for consumers to securely make [point-of-sale (POS)] payments through different apps and services … Any restrictions imposed by the dominant operating systems … will have an outsized effect on access to payments systems and may hinder the development of a truly open ecosystem.”
Key findings of the report include:
- Consumers’ usage of tap-to-pay options in the U.S. has grown considerably in recent years, nearing an estimated $300 billion with some analysts estimating that digital wallet tap-to-pay transactions will grow by over 150% by 2028.
- Dominant mobile operating systems impose different regulations on contactless payments. For example, some devices do not permit third-party payment apps to access the technology that is necessary to execute tap-to-pay contactless payments.
- According to the CFPB, restrictions on the use of tap-to-pay reduce consumer choice and inhibit progress toward a more robust open banking ecosystem.
- According to the CFPB, interoperability can generate substantial benefits for consumers by promoting choice and reducing barriers to entry for new firms. Policies that impose restrictions on competition and raise consumer switching costs must be carefully scrutinized.
As discussed here, the CFPB is currently undertaking a rulemaking under Section 1033 of the Consumer Financial Protection Act as part of the financial services industry’s movement toward “open banking.” According to the press release accompanying the release of the issue spotlight, “[i]nteroperability across consumer financial products and services is a key pillar of open banking, which facilitates greater consumer choice and ease of switching between providers. The retail payments system is rapidly evolving and the CFPB is evaluating the existing landscape to understand how regulatory changes could complement, or disrupt, the transition to open banking.” Moreover, the CFPB announced recently that it intends to promulgate a “larger participant” rule for consumer payments, which would give it another tool to address its priorities with respect to payments issues like those highlighted here. However, we can’t help but think that the CFPB’s comments on this issue look more like antitrust commentary, rather than the kind of consumer protection issue that the agency has jurisdiction over.