The wave of tech regulation in the United States is spreading to the fintech space.
Since October, the U.S. Consumer Financial Protection Agency (CFPB) has been tightening regulation of the fintech sector. Recently, Lina Khan, the chairwoman of the Federal Trade Commission, issued a document supporting the CFPB's ongoing investigation into technology giants entering the financial sector.
Lena Khan argues that the involvement of large tech companies in payments and financial services may allow them to consolidate and expand their market positions in a potentially anti-competitive manner; tech companies may even exploit workers by playing the dual roles of employers and lenders.
"Little is known about how big tech companies will be using their payment platforms."
As tech giants' tentacles extend into the financial sector, the U.S. Consumer Financial Protection Agency (CFPB) has launched a series of investigations into the fintech sector out of concern about the growing power of the platform.
On October 21, the CFPB asked the major U.S. technology companies that manage payment systems to disclose information about their business operations, including Amazon, Apple, Facebook (now Known as Meta), Google, PayPal, and Square (now Known as Block).
In addition, the CFPB also said that it will study the operation mode of China's Alipay and WeChat Pay.
The CFPB said access to the data would help regulators better understand how these companies handle personal payment information and manage access to users' data, allowing regulators to provide consumer protection.
"Big tech companies are eagerly expanding their empires to better control and gain insight into our spending habits." CFPB Director Rohit Chopra said in an official statement, "Little is known about how big tech companies will be able to use their payment platforms. ”
For example, do payment platforms collect consumer data through financial "monitoring" and combine it with data such as geographic location and browsing history to deepen behavioral advertising, implement price discrimination, or even sell data to third parties? Will payment platforms truly remain neutral, or will they use their size to squeeze rents from market participants? Will small businesses be forced to join payment platforms for fear of being suppressed or hidden in search and product lists?
Rohit Chopra said that the payment business is a network business, and the platform gains huge scale and market power, which may bring new risks and undermine fair competition.
Then, on December 16, the CFPB began investigating the "buy-before-pay" (BNPL) credit method to better understand the risks and benefits behind BNPL. To that end, the CFPB issued commands to financial firms such as Affirm, Afterpay, Klarna, PayPal, and Zip to gather detailed information.
In response, Klarna said proper regulation is a good thing. "We will continue to work with regulators to give them an understanding of how our products are built, used and how they benefit consumers and retailers." In addition, the other four companies also said they did not oppose the CFPB's investigation.
In the eyes of the outside world, Rohit Chopra's various measures are really unexpected. Because before becoming CFPB director, Rohit Chopra, as a member of the Federal Trade Commission (FTC), repeatedly raised concerns about the anti-competitive behavior of tech giants.
Lena Khan cautions that it is crucial to guard against system vulnerability
Under this strong storm of technology regulation, CFPB is not "alone". On December 21, U.S. FTC President Lena Khan posted in support of the CFPB's investigation, arguing that tech giants' expansion into the payments space could have anti-competitive effects.
According to Nandu reporters, in June this year, Lena Khan officially took charge of the FTC. As a leader of the New Brandeis School, she has always called for greater regulation of tech giants.
"The involvement of large tech companies in payments and financial services may enable them to consolidate and expand their market positions and enjoy access to data and AI technologies in a potentially anti-competitive and exploitative manner." Lena Khan wrote.
Lena Khan noted that several large tech companies, in response to Dutch regulatory investigations, had said that one of the main motivations for entering the payments market was to ensure that consumers used their products, not third-party vendors.
In her view, technology companies unify a series of financial products within a payment system in order to "keep" consumers in their own ecosystems, thereby obtaining more data on consumer behavior and advertising effectiveness, in order to consolidate and expand their market position. This practice is also used by small and medium-sized enterprises that rely on large technology companies for services.
Separately, Lena Khan mentioned that this could lead to a concentration of risk due to the increasingly complex role of large tech companies as payment and certification providers.
The most typical example is the recent Facebook outage. At noon on October 14, Facebook, Instagram and WhatsApp experienced massive outages around the world, lasting six or seven hours and affecting billions of users.
"Recent events have highlighted how this concentration can exacerbate system vulnerabilities, with a single power outage or technical vulnerability potentially having a knock-on effect on the system." Given the centrality of these services, it is essential to guard against system vulnerabilities. ”
In addition, she noted that the use of algorithms by large tech companies in financial services will exacerbate problems such as algorithmic discrimination, bias and opacity.
It is worth mentioning that Lena Khan specifically points out the need to be wary of tech companies playing the dual role of employers and lenders to exploit workers. For example, Uber has offered loans, bank accounts and credit cards to drivers in multiple locations, while Amazon markets its payday loan service to its warehouse workers.
In her view, once tech giants combine the important data they collect with the financial information of workers, it is highly likely to understand the income level of employees to maintain their livelihoods, and then set unfair and exploitative compensation levels and loan services, which ultimately leads to longer hours and lower wages.
Lena Khan said she would be following the CFPB's investigation and findings in order to inform the work of the FTC.
Written by: Nandu reporter Huang Liling