Will new Apple Pay oversight make Apple Bank a good idea?

As regulation threatens to tear Google apart and fundamentally both damage both Android and Apple, yet another regulatory noose is tightening around Cupertino, as its Apple Pay service will in future be regulated like a bank.

All this comes as company lawyers attempt to get the insanely flawed US Department of Justice anti-trust case against Apple quashed. and it climbs in on top of recent threats of further fines and challenges in Europe. You’d be forgiven if some of the leaders at Apple might feel a little as if they have been born in “interesting times.”

Apple Pay faces tougher regulation

The latest twist of the rope comes from the US Consumer Financial Protection Bureau (CFPB), which is about to introduce a new rule that puts Apple Pay and other digital wallet services under the same federal supervision as banks. That’s going to mean the CFPB can proactively examine Apple and other large companies in this space to ensure they are complying with consumer protection laws concerning privacy and surveillance, error and fraud, and maintaining service continuity in order to protect users against “debanking.”

The agency in 2022 warned some Big Tech firms providing such services about their obligations under consumer protection laws when using behavioral targeting for financial products. 

Announcing the regulation on X, CFPB Director Rohit Chopra explained his organization is also concerned about “how these apps can fuel surge pricing that jack up costs using your purchase history and personal data.”

You can read the new rules governing these companies here (PDF). But what is interesting is that elements of them that might have impacted crypto transactions appear to have been mitigated or removed.

Proactive, not reactive, oversight

Most of these matters were already regulated; what really changes is how rules around them are enforced. You see, while the previous regulation meant CFPB could only react to consumer complaints as they arose, it can now proactively investigate compliance. That’s the same kind of oversight banks and credit unions already face and means Apple and other payment providers covered by the rules will face deeper and, presumably, more intrusive oversight. 

The new rules will only affect digital wallet providers whose tech is handling 50 million or more transactions per year. Apple’s system is now easily the most widely used digital wallet in America, so it will most certainly face this oversight. The company also participated in the consultation process that preceded the new rule’s introduction. Other providers likely swooped up under the law will include Cash App, PayPal, Venmo, and Google Pay.

To some degree, the rules make sense, given that digital wallets are used to handle real money and consumer protection is vital. But what’s really interesting is the extent to which the new determination proves just how rapidly digital wallets have replaced real wallets across the last decade.

The rise and rise of digital payments

That’s certainly what the CFPB thinks. “Digital payments have gone from novelty to necessity and our oversight must reflect this reality,” said Chopra. “The rule will help to protect consumer privacy, guard against fraud, and prevent illegal account closures.”

If you think back, it wasn’t terribly long ago when the notion that Apple wanted to turn your iPhone into a wallet seemed impossibly extreme. That is no longer the case. Two years ago, researchers claimed Apple Pay had surpassed Mastercard in the dollar value of transactions made annually, making Apple Pay the world’s second most popular payment system, just behind Visa. Google’s G Play system then stood in fifth place. 

The regulator explains that payment apps are now a “cornerstone” of daily commerce, with people using them daily as if they were cash. “What began as a convenient alternative to cash has evolved into a critical financial tool, processing over a trillion dollars in payments between consumers and their friends, families, and businesses,” the CFPB said.

What next? 

I think it’s pretty clear that Apple has learned a lot about this business since the introduction of Apple Pay. Not only has it been in, and then exited, the lucrative Buy Now Pay Later market with Apple Pay Later, but it has also experienced the slings and arrows of outrageous fortune with its wildly popular credit card operation, Apple Card, which has ended in a tumultuous relationship with Goldman Sachs.

During all these adventures, the company will have learned a great deal about the sector — and now that it is being regulated as if it were a bank, I wouldn’t be terribly surprised if it decided to become one.

After all, if it’s getting regulated to the same extent as banks, why not get into more of the same business sectors banks now serve? I can’t help but imagine that Apple already has a weighty file of research documents in one of its Cupertino filing cabinets exploring how and where it might profitably extend Apple Pay into more traditional banking sectors.

The new CFPB oversight regime might well accelerate any such plans.

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