Apple and Google Face Criticism Over Their Control of Tap-to-Pay Systems

Contactless payments have attracted the attention of federal consumer protection agencies in the United States. The U.S. Consumer Financial Protection Bureau (CFPB) released a report titled «Big Tech’s Role in Contactless Payments: Analysis of Mobile Device Operating Systems and Tap-to-Pay Practices» on September 7, 2023. This report delves into the implications of Apple and Google’s dominant positions in mobile devices, particularly smartphones and smartwatches, on the growth of open and decentralized banking and payments in the country, as stated in PYMNTS News.

As the use of cash diminishes and digital payments surge, Apple and Google, whose operating systems are present on 55% and 45% of all smartphones shipped in the U.S. respectively, have become de facto gatekeepers for mobile-based payment innovations, especially near field communication (NFC) technology required for tap-to-pay transactions.

CFPB Director Rohit Chopra noted, «Payment systems are, by their very nature, networks. They are an appealing target for Big Tech companies since they can leverage vast existing user bases and troves of other personal data to expand into the market.» He acknowledged that tech giants had «crept into the payments ecosystem» and that the CFPB was carefully assessing their role.

Chopra emphasized the need to address chokepoints and toll booths imposed by large firms, acting like mini-governments in regulating markets and distorting outcomes, particularly in the realm of payments.

Representatives from both Apple and Alphabet, Google’s parent company, have not yet responded to PYMNTS’ request for comment.

The trend towards mobile payments, including tap-to-pay and contactless payments, is gaining momentum due to the convenience it offers to both consumers and merchants. The CFPB has expressed concerns for years about the potential for companies like Google and Apple to dominate the market, potentially limiting consumer choice and ecosystem competition.

«Big Tech companies are eagerly expanding their empires to gain greater control and insight into our spending habits,» said Chopra two years ago. «We have ordered them to produce information about their business plans and practices.»

For instance, Apple restricts banks and third-party payment apps from accessing the NFC tap-to-pay functionality on its devices and imposes fees through Apple Pay. This has forced an estimated 55.8 million consumers to use Apple Pay for in-store payments in just one month, leaving them with no alternative.

The CFPB report also notes that while Google’s Android operating system currently allows third-party payment app access to the NFC chip on Android devices, this policy could change in the future.

Restrictive tap-to-pay practices, as explained in the CFPB’s report, may limit consumer choice and stifle innovation by preventing smaller firms and non-bank financial services providers from entering and competing in the growing mobile device payments landscape. Analysts predict that digital wallet tap-to-pay transactions will grow by over 150% by 2028.

Ed Hallett, PayPal‘s Head of Product for Microbusiness, stated, «Tap to pay is going to change the payments industry,» emphasizing the minimal friction involved.

By establishing closed and wholly owned payments ecosystems, companies like Apple hinder the development of a more open, interoperable, and decentralized banking and payments system that benefits both the U.S. and its consumers.

The CFPB plans to issue rules to accelerate the shift toward open banking within the U.S., aiming to support consumer choice and marketplace interoperability concerning retail payments.