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The Consumer Financial Protection Bureau is at it again. If you develop or manage mobile-payment apps, you might want to pay attention. The agency’s proposed rules, aimed at so-called larger participants, may ensnare you, even if you’re only a fraction of the size of, say, Google or Apple.
The agency released its proposed rule on mobile wallets back in November, and comments on it closed Jan. 8. But that doesn’t mean the proposal isn’t still stirring up discussion as lawmakers, payments experts, and technology firms wrestle with its implications.
The rule, whose main purpose is to define those so-called larger participants in the market for general-use payments apps—the entities the agency would then regulate—proposes a size cut-off at 5 million transactions per year. That’s 13,700 transactions per day, a number you don’t have to be Amazon to reach (the proposal does exclude any entity that can be defined as a small business according to Small Business Administration criteria).
The rule is crucial because the CFPB would regulate wallets developed by these so-called larger participants, much as it oversees products and services from big companies operating in other fields of financial services.
But if you’re not so sure you want the CFPB looking over your shoulder every time you process a wallet transaction, there are parties signaling caution about the agency’s proposal. These skeptics include members of Congress. That became evident last month when a hearing on the proposed rule, held by the House of Representatives’ Subcommittee on Digital Assets, Financial Technology, and Inclusion, provoked multiple questions from lawmakers about the CFPB’s definition of larger participants.
The proposed rule has also raised concerns in the payments industry about how the regulator will wield its authority with the companies that develop digital wallets. These include behemoths such as Apple Inc., Alphabet Inc.’s Google unit, Block Inc.’s Cash App, and PayPal Holdings Inc.’s Venmo app as well as its own PayPal wallet, all of which easily meet any definition of “larger participant.”
Risks can stem from the specter of over-regulation as well as from rules that bear little or no relationship to how well a company manages its payments business, observers say.
We agree. In this sense, size isn’t necessarily the most important criterion. Some expert observers propose more relevant criteria. “We encourage the CFPB to let the regulatory profile be tailored to the risk profile of the entity,” Scott Talbott, executive vice president at the Electronic Transactions Association, told us recently. The ETA is a Washington, D.C.-based trade group for the payments industry.
Wise words. The CFPB, not to mention the entire regulatory complex, would do well to heed them.
—John Stewart, Editor john@digitaltransactions.net
