The Consumer Financial Protection Bureau, the CFPB, has announced that it will expand its oversight regulations to include non-banking firms that offer payments and wallet apps. The expanded regulations will see the CFPB overseeing any firm that oversees more than 50 million transactions a year and will include the likes of Apple Pay, Google Pay, and Venmo, and may include Asian payment solution providers like WeChat Pay if they offer payment solutions in the US.
Digital Payment Popularity
According to the CFPB, the most popular apps that will be covered by the expansion, account for 13 billion payments a year. Digital payment apps have become increasingly popular with the likes of peer-to-peer apps like Venmo and the greater reach of digital payment solutions like Google Pay.
What's more, using Apple Pay means that consumers do not need to submit bank details so it offers extra security and privacy. And, because of the increasing number of gaming platforms that accept Apple Pay, players are not restricted in game type or other features. They can fund their gaming accounts through their iPhones or Macs alike to enjoy smooth gaming across different devices. Digital wallets have become popular with iGamers, as well. Apple Pay casino sites now can also offer instant withdrawals providing a handy gaming payment solution for every iPhone user in the world being able to access Apple Pay and the relevant gaming websites.
Digital Payments
Digital payments have become an increasingly popular method of payment, replacing cash and traditional payments in a lot of instances. They are convenient, typically using a cell phone and its security settings to authorize access.
Digital payments are also more secure because they add an extra layer of access, and they provide greater privacy because users don't need to submit their financial details to e-commerce, gaming, casino, or other websites.
Digital Wallets
In the past few years, digital payment options have increased considerably for consumers. Joining the likes of PayPal, which was one of the first digital wallets on the market, we have seen mobile-based services like Google Pay and Apple Pay.
These are prevalent because they are installed, by default, on the majority of modern smartphones and they enable physical and online payments with a scan of the fingerprint.
Crypto Wallets
Even more recently, cryptocurrency wallets have also entered the fray. Popular options in the Asian market are eToro Nexo and Zengo Wallet. These wallets connect to blockchain networks and enable payment using Bitcoin, Ether, Doge, and other cryptocurrencies.
They require even less personal information to be transmitted to send payments and do not currently fall under the federal regulations of a lot of countries.
Super Apps
A type of digital payment method popular in Asia, and becoming increasingly popular in the US, is that of the super-app. WeChat, for example, is not only a social media and messaging app but also includes payments and other financial features.
These likely fall under the same category as digital wallets, and if they reach the 50 million annual transfers set out by the CFPB, the group will at least attempt to enforce regulations.
Peer-To-Peer Payments
Peer-to-peer payment wallets like Venmo will also fall under the control of the group if they meet the transactional requirements.
These wallets enable users to send payments to other users with just their mobile phone or username details. They are popular for sending payments between groups of friends and for some small commercial transactions.
Other Digital Payment Systems
Other forms of digital payment may fall under the remit of the expanded guidelines. Mobile payments, for example, are fulfilled by cell phone companies, which are non-bank institutions and are popular for paying subscription fees and for making small payments. Other FinTech and DeFi solutions may also be covered, too.
Which Companies Will Be Affected?
According to an official release by the CFPB, seven new companies would currently fall under the expanded remit. There are likely to be Google Pay, Apple Pay, and Amazon, as well as PayPal, Block, Venmo, and Zelle.
The release states that the changes would give them the same authority they have over banks and other financial institutions. Specifically, they would be able to take proactive action to ensure they meet regulations which would help ensure they meet legal requirements. The group will be able to ask for records from the companies and even interview staff to ensure compliance with all laws.
Bank Backing
None of the groups mentioned have commented on the move yet, but banks and financial institutions are believed to be happy with the decision. Many have been complaining that these wallets and digital payments essentially offer banking features but the companies behind them do not have to face the same scrutiny. It is unlikely, however, that any of the aforementioned providers will want to leave the potentially very lucrative market.
Consumer Benefits
The move has come a month after the CFPB ordered tech giants to hand over data relating to business practices for large tech companies involved in handling payments. The order was made at the end of October and the group said it would enable them to ensure tech companies did not overstep the market when it came to factors like data surveillance and access restrictions. At the time, the group said that it was also asking for the same information from Chinese tech companies Alipay and WeChat Pay.
The CFPB argues that recent moves will help enhance consumer protection by ensuring that payment providers offer robust systems and meet specific data handling and security requirements.
While making the request, the CFPB said that the rapid expansion and change within the digital payment market posed risks to users. They pointed to the likes of Apple Pay and Google Pay as having become the de facto payment method of choice for many consumers, while Alipay and WeChat Pay were looking to expand their reach further into the US market.
These super apps were also singled out for the fact that they also incorporate social media, chat, and other features and that this could lead to greater security risks for consumers.
Data Harvesting And Access Restrictions
The release pointed to possible data harvesting that enabled tech companies to unlawfully use collected data for behavioral targeting or they may even be selling data to brokers. Access restrictions could also be hampering consumer choice as retailers are effectively forced to accept the biggest and most popular payment networks which, in turn, forces consumers to opt for these payment systems over others.