Overview
On January 30, 2023, Twitter began applying for regulatory licenses to offer financial services. A payments model such as the one Twitter is pursuing would be in the same competitive space as Venmo, Cash App, Zelle, and other Big Tech services like Apple Pay and Google Pay. By proceeding in this direction, Twitter would be joining other Big Tech companies such as Google, Apple, Amazon, and Microsoft, all of which have been building their own set of financial service offerings over the last several years.
With Big Tech firms paving their path to a more tailored financial services experience for customers, regulators in the US and Europe are now considering the potential implications of Big Tech’s involvement in finance on consumer privacy and competition.
Background
In October 2022, the Consumer Financial Protection Bureau (CFPB) released an outline of its considerations on potential rulemaking related to personal financial data rights. In this document, the CFPB expressed that it is contemplating requiring data providers to offer consumers access to their financial information and to share it with third parties at the consumer’s direction. Around the same time, the United Kingdom’s Financial Conduct Authority (FCA) announced it had begun a “discussion” on the impacts of Big Tech’s entry into the financial services sector. FCA’s announcement accompanied the release of a discussion paper, identifying several key themes emerging due to the increased presence of Big Tech firms in the UK financial services market.
In the discussion paper, the FCA noted the competitive benefits of Big Tech’s existing innovations in payments but also expressed concerns over the harms of potential anticompetitive behaviors. These concerns include the possibility of Big Tech gaining dominance in the financial services sector and becoming a gatekeeper for in-person and online transactions. Particularly with Google and Apple, the FCA worries that these companies can use their control of software to create defaults to their own payment methods (Google Pay and Apple Pay) or even restrict consumers’ ability to switch digital wallets to use a competing payment method. Even with these concerns, the FCA noted that the innovations in payments made by Big Tech firms have brought convenience and added security to consumers.
FCA’s discussion allows new policies to be added to Europe’s existing framework of competition regulations affecting high-tech companies. The Digital Markets Act (DMA), a bill limiting the market power of tech giants, is now being enforced by the European Commission (EC). We discussed the DMA (and the accompanying Digital Service Act) in our July digest, noting that it will require interoperability between Apple’s iMessage and Meta’s WhatsApp, which is one of several ways in which the EC aims to increase competition and address the issue of brand monopolization among Big Tech firms.
Why Is This Important?
Even as they expressed their concerns, both the FCA and CFPB indicated that the entry of Big Tech might benefit consumers by increasing competition among financial service providers as the more established financial institutions must innovate to keep up with the newcomers. Some signs of increased competition are already emerging. For example, in October 2022, Amazon announced a deal with PayPal (Venmo’s parent company) that would allow Amazon customers to use their Venmo account as a payment method on Amazon’s checkout. This scenario is viewed as a positive form of competition by the CFPC and FCA, in which the incumbent networks are forced to innovate or potentially lower their fees to compete.
What Happens Next?
Both the CFPB and the UK’s FCA have yet to release additional information on the potential new regulatory framework governing the financial services sector. More information from the FCA is expected in the next couple of months, as comments on its discussions closed in January of this year. In the US, CFPB sent out monitoring orders for more information to data providers and aggregators, which must have been returned to the CFPB by March 20, 2023. We will continue to provide updates as regulators advance their discussions regarding finance and technology companies.