• Ben Richmond, CEO and Founder at CUBE


• 07.12.2022 05:30 pm
#BNPL

Over the last decade, Big Tech – an umbrella term used to refer to companies like Alphabet (Google’s parent), Amazon, Apple and Facebook – has started moving into financial services. While most of the offerings have revolved around payments, they’ve also extended to other products such as credit cards and lending. 

On the whole, Big Tech has partnered with existing providers of financial services to deliver these products. However, Apple recently bucked this trend by launching its own Buy Now Pay Later (BNPL) scheme, which caught the attention of regulators in the US, mainly due to the volume of personal data Apple holds from its customers.

So, where does this leave Big Tech? Before exploring the regulatory scenario, let’s briefly review the current involvement in BNPL.

Announced at its developer conference in June, Apple Pay Later will allow users of iPhones and Mac laptops to spread the cost of purchases over four instalments paid over six weeks. Users won’t pay interest or other fees, and the scheme will be available at any store that currently accepts Apple Pay, both online and offline. It will initially be rolled out in the US as part of a future update to the latest version of Apple’s operating system, iOS16.

Apple set up a subsidiary, Apple Financial Services, to manage credit checks and loan approvals (perhaps leveraging its acquisition of Credit Kudos earlier this year), while Mastercard will provide merchant payments, and Goldman Sachs will issue loans. Apple previously collaborated with MasterCard and Goldman Sachs in 2019 to launch the Apple Card, a credit card for US customers.

Other Big Techs partnered with existing providers in the space to extend a BNPL offering to their customers. Google was the first, teaming up with Afterpay in 2020. Microsoft and Amazon followed in 2021, partnering with Zip (targeting the Australian market) and Affirm respectively. Amazon recently announced it had expanded its offering from the US to Canada. As for Facebook, it has steered clear of BNPL to date.

Guarded is the best way to describe the regulatory response to Big Tech’s foray into BNPL.

In an interview with the Financial Times (FT), Rohit Chopra, director of the Consumer Financial Protection Bureau (CFPB), a US government agency responsible for protecting consumers in financial services, warned the bureau would “have to take a very careful look [at] the implications of Big Tech entering this space”.

Chopra claimed that Big Tech is motivated by the desire to corner the market for digital wallets. This outcome could prevent existing providers from competing and force merchants into offering instalment plans. Chopra cited China, where Alipay and WeChat have amassed two billion users, as an example of a payments landscape he’d like to avoid in the US.

Much of Big Tech’s competitive advantage stems from the customer data it gathers. Referring to Apple, although the same would apply to Google, Chopra pointed out that control over a mobile operating system would present unique advantages, such as access to geolocation data. When combined with a payment network, the provider can develop a deep, and potentially intrusive, understanding of consumer behaviour.  

The CFPB has already taken steps to monitor how Big Tech uses customer data in the delivery of financial services. In October 2021, it ordered those providing payment products to hand over information about their business practices, including whether they share data across product lines and use it for behavioural targeting beyond consumer expectations. 

In September, the CFPB released a report about BNPL. While it addressed the sector in general rather than just Big Tech, the report recommended identifying which data surveillance activities used by BNPL providers need to be restricted. However, it noted this outcome was related to its inquiry into Big Tech’s entry into the space.

The CFPB also pledged to coordinate with the Federal Trade Commission (FTC), another US government agency with a remit to prevent fraud and unfair business practices, which recently started exploring rules to stop harmful data surveillance. As part of what’s known as a rulemaking process, the FTC is seeking feedback on a variety of issues, such as the type of data that should be subject to regulations, for example personally identifiable data, sensitive data and data linkable to a device. Or should regulations be data agnostic?

Finally, returning to Rohit Chopra’s interview with the FT, he also raised concerns about how Big Tech’s entry into BNPL narrows the traditional gap between finance and commerce, which is designed to prevent collusion or any undue influence by the financial sector. Big Tech could be subject to US legislation seeking to maintain this gap, such as the Bank Holding Company Act. 

So what conclusions should Big Tech take from Chopra’s comments? It’s still early days, but regulators are starting to monitor their activities in the BNPL space, and they’re determined to protect consumers and their data. Following Apple’s lead seems like a sensible approach- a spokesperson told the FT that the company will work with the CFPB to address its concerns.

Regulators are definitely watching the BNPL space. It has grown significantly in the past few years and now Big Tech is also looking to add BNPL to its growing list of services. With inflation and rising costs, consumers may choose to split payments or pay later to spread costs out even more than usual. And if Big Tech joins the bandwagon, then individuals will be spoilt for choice when it comes to choosing to Buy Now, Pay Later.

On the one hand, BNPL is a saving grace and a huge asset to consumers. But for many, BNPL opens doors to debt and being overwhelmed with repayments. with increased users.

This is where regulators will be stepping in to ensure BNPL providers are looking out for their customers and aren’t just focusing on growth and revenue. The regulatory landscape is constantly changing but it doesn’t have to be difficult to keep up with it. Big Tech firms moving into BNPL can use Automated Regulatory Intelligence (ARI) to automate regulatory change to close compliance gaps and feel confident that the right regulations are being followed.