Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
CFPB Eyes Digital Payment Regulation for Big Tech
Regulation | Nov 8, 2023
Image: Unsplash/Rami Al zayat
The Consumer Financial Protection Bureau (CFPB) is making headlines with its latest initiative to expand its regulatory purview over big tech and fintech services.
The agency has made clear its intention to supervise larger nonbank companies, such as PayPal, that offer services akin to digital wallets and payment apps. This move is poised to bring a new level of regulatory scrutiny to tech giants like Google, Apple, and Amazon, which have been increasingly active in the financial services sector.
The CFPB's proposed rule would mandate that nonbank financial companies handling more than five million transactions annually adhere to the same rules as large banks and other financial institutions under its supervision. This proposal is part of a broader effort to ensure that all players in the financial services market, regardless of their technological prowess, operate on a level playing field.
See: Tap-to-Pay Transactions and Big Tech Dominance Is A Thorn for CFPB
According to the CFPB, this market would cover activities previously managed by supervised banks. CFPB Director Rohit Chopra emphasized that the proposed rules are designed to "crackdown on one avenue for regulatory arbitrage" by ensuring that large technology firms and other nonbank payments companies are subjected to appropriate oversight.
- The head of the CFPB has expressed concerns that these companies could potentially leverage consumers' transaction data for their own benefit, a risk that the proposed regulations aim to mitigate.
- The CFPB's move is a response to the significant market share gained by payment apps like Apple Pay and PayPal. The traditional boundaries between banking, payments, and commercial activities have become increasingly blurred, prompting the need for updated regulatory approaches.
The CFPB's proposal has sparked a debate on the balance between innovation and regulation. Patrick McHenry, Chairman of the House Financial Services Committee, has criticized the CFPB's attempt to broaden its regulatory empire, arguing that such action could impede the adoption and development of innovative products and services, ultimately harming consumers and small businesses by limiting choice and competition in the payments system.
Rulemaking Series for Larger Participants
The CFPB's proposed rule is part of a series of rulemakings to define larger participants in markets for consumer financial products and services. The specifics of the proposal include:
See: CFPB Warns: Billions of Dollars Stored on Payment Apps May Lack Federal Insurance
- A market definition that includes nonbank covered persons providing funds transfer or wallet functionalities through digital applications for consumers' general use.
- A test to determine whether a nonbank covered person is a larger participant of this market, based on the annual volume of consumer payment transactions and whether the entity is a small business concern according to the Small Business Administration's (SBA) size standard.
- The requirement for larger participants to remain under this classification for two years from the first day of the tax year in which they last met the criteria.
Public Comments Until Jan 8, 2024
The CFPB's proposed rules are open for public comment until January 8, 2024, or 30 days after publication in the Federal Register, whichever is later. This period represents a crucial window for stakeholders in the fintech ecosystem to voice their perspectives and help shape the future of financial regulation.
See: CFPB Unveils Open Banking and Consumer Data Rights Proposal
NCFA Canada is closely monitoring these developments, understanding the critical role that regulation plays in both protecting consumers and fostering a healthy market for fintech innovation.
View the 69 page PDF proposed rule --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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