The biggest US consumer finance regulator has warned that the entry of big tech companies into “buy now, pay later” schemes targeting commercial loans risks undermining competition in the emerging sector and raises questions about the use of customer data.
In a cautionary note to Silicon Valley following Apple’s decision to launch its own “buy now, pay later” service, Rohit Chopra, director of the Consumer Financial Protection Bureau, said his agency “needs to take a very hard look at the implications of big technology. entering this space.” “.
Among the issues the agency will study, he added in an interview, is “whether it will really reduce competition and innovation in the market.”
Asked about Apple’s launch of the program, Chopra said that the entry of large tech companies into short-term loans “raises a range of issues,” including how companies use customer data. “Does it integrate with consumer browsing history, geolocation history, health data and other applications?” he asked.
The iPhone maker last month became the first major tech company to date to launch a “buy now, pay later” product in the United States. Apple’s Pay Later service, as it’s called, allows device users to pay for purchases in four installments over a six-week period without interest or fees. The service can be accessed via MasterCard’s online network, or through apps that accept Apple Pay.
It represents another attempt by the company to enter financial services after issuing products such as Apple Card, a credit card for US customers launched with both MasterCard and Goldman Sachs. But unlike previous lending services offered in collaboration with bank partners, for PayLiter, Apple guarantees and finances short-term loans.
“We’re pleased to offer customers an option that prioritizes their financial health and privacy with Apple Pay Lite, and we look forward to working with the Consumer Financial Protection Bureau to answer any of their inquiries,” the company said .
According to Chopra, the entry of big tech companies into the “buy now, pay later” service has raised questions about whether other players can compete, and whether merchants can choose to offer installment plans.
He added: “The ambitions of big tech companies when it comes to buy now and pay later service is closely related to their desire to control digital wallets.”
In October, the Consumer Financial Protection Bureau ordered Amazon, Apple, Facebook, Google, PayPal and Square to provide information about their payment systems, including how companies collect and use customer data.
“Any tech giant with a significant degree of control over the mobile operating system will have extraordinary advantages in exploiting data and e-commerce more broadly,” Chopra said.
He predicted that companies that have payment networks built into mobile operating systems, or through pre-installed apps, will continue to rush into financial services “to gain a deeper knowledge of consumer behavior.”
Chopra said he was mindful of the payments landscape taking shape in China, where Alipay and WeChat Pay dominate the sector with two billion users combined. “I’m generally concerned that we’re moving into this system,” he said, adding that payment services connected to larger technology platforms allow parent companies to have “intrusive” access to an “unusual window” on consumer behavior.
Chopra warned that the American tradition of separating banking and commerce has “become more and more foggy” as big tech companies move into financial services.
Even before Apple’s entry, the “buy now, pay later” segment was being explored by the agency Chopra heads. The sector has flourished during the coronavirus pandemic, which has raised concerns about consumer protection, and about credit and debt reporting. Since then, the industry’s explosive growth rate has slowed as the boom in commodity sales in the pandemic period has begun to wane.
“To get a real view of the state of household balance sheets, we need to look not only at credit card debt or car loan debt, but now at buy-now-pay-later service loans,” Chopra said.
In December 2021, the Chopra-run agency asked five “buy now, pay later” companies – AfterPay, Affirm, Clana, PayPal and Zip – to provide information on transaction trends, fees, escrow policies and credit reports.
In the fall, Chopra said, the agency will publish a preliminary report on findings on usage and demographics, as well as “potential next steps from a regulatory perspective.”
Appointed to lead the Consumer Financial Protection Bureau in September 2021, Chopra is one of a group of progressive officials selected by President Joe Biden for senior posts in financial regulation. Chopra was a fierce champion for consumers and a tough critic of big tech companies during his time at the Federal Trade Commission, and he tried to restore the agency that was sidelined during Donald Trump’s presidency.
His tougher stance on enforcement and legislation has upset some in corporate America so much that the US Chamber of Commerce launched a media campaign against him last month using video it says “circumvents the agency’s legal authority”.
In contrast, a spokesperson for the Consumer Financial Protection Bureau said in a statement: “The intimidation tactics devised by lobbyists on behalf of big tech companies and Wall Street will not prevent the Consumer Financial Protection Bureau from enforcing the law not.”