US finance regulator plans 'very careful look' at Apple Pay Later, similar services

AppleInsider

The head of the US Consumer Financial Protection Bureau (CFPB) says the agency has concerns about Apple Pay Later and other Big Tech offerings entering the "buy now, pay later" (BNPL) lending business.

CFPB is already examining the BNPL market, with five existing players all now required to submit detailed information to the agency. Now according to the Financial Times, CFPB director Rohit Chopra, says that the regulator will also "have to take a very careful look [at] the implications of Big Tech entering this space."

The publication says that his comments were intended as a warning shot to Silicon Valley, specifically because of Apple's launch of its Apple Pay Later service.

Asked about the Apple launch, Chopra said that the entry of any Big Tech firm into short-term lending "raises a host of issues," particularly around the customer data that gets gathered.

"Is it being combined with browsing history, geolocation history, health data, other apps?" he said. "Big Tech's ambitions when it comes to 'buy now, pay later' are inextricably linked to the desire to dominate the digital wallet."

"Any tech giant that has a lot of control over a mobile operating system is going to have unique advantages to exploit data and ecommerce more broadly," he continued. Any such firm will keep pushing further into financial services, "to gain even deeper insights on consumer behavior."

China is a market that is already dominated by Big Tech firms offering financial services, such as Alipay and WeChat Pay. Chopra said he concerned that such services "intrusively" gain an "extraordinary window" into consumer behavior.

"I generally worry that we are lurching toward that type of system," he said.

The CFPB's initial report into the BNPL market players before Apple's entry, will be published in September.

Apple's services has been made part of its Apple Pay offering, with users able to split the cost of a transaction into four payments over six weeks.

Read on AppleInsider

22july2013

"Any tech giant that has a lot of control over a mobile operating system is going to have unique advantages to exploit data and ecommerce more broadly,"

If that applied to Apple, I would be concerned. Does it?

rob53

The biggest online Pay Later company has to be Pay Pal, not Apple Pay, so why aren't you including them in this article? Of course, every credit card company used on-line has always done this as their normal business.

larryjw

rob53 said:

The biggest online Pay Later company has to be Pay Pal, not Apple Pay, so why aren't you including them in this article? Of course, every credit card company used on-line has always done this as their normal business.

You are incorrect as to credit card companies. Loans by credit card companies are reported to the credit agencies. And, whether you agree with them or not, credit card companies have dispute resolution standards, consumers have protections.

BNPL may not have late fee policies, return policies, dispute policies.

CFPB points out that BNPL has similar markings to the old lay-away plans, but the difference are while layaway plans were typically used for the infrequent large purchases, BNPL encourages small quick purchases, ill-considered, encouraging accumulated debts. 

Apple's offering is likely to be better than other systems as 1) their customer base is on the high end consumer, 2) they know a reasonable amount about their customers Apple debt level, 3) with the Apple Card, they dynamically keep their customers aware in the Wallet how much accumulating debt they have.

I have no idea about the other BNPL companies: Affirm, AfterPay, Klarna, PayPal, Zip, but I doubt their users have the ability track their debt load. 

urahara

And Visa and MasterCard exploit their advantage of being on the market so many years. Let’s fine them for that. /s

Seriously, every business has to have an advantage by some parameters over the competition, otherwise we wouldn’t need the diversity in business at all. Why is it such a big concern if a company has an advantage? Why? Why? Why?

applepoor

Sounds like the regulators prefer the least economically secure folks face the 30 to 50% loan sharks (payday loans come to mind) instead.

In this case, does Apple bear the cost for non-payment? I believe the extra zeros in Apple's Trillions of dollars of assets listing covers any losses without any percentage change.

mikethemartian

rob53 said:

The biggest online Pay Later company has to be Pay Pal, not Apple Pay, so why aren't you including them in this article? Of course, every credit card company used on-line has always done this as their normal business.

Credit cards are loans issued by chartered banks which are highly regulated in general. If they are chartered by the federal government the OCC regulates them. If chartered by a state then that state’s division of banking regulates them. If they are members of the Federal Reserve then they are also regulated by it. If they are required to have deposits insured by the FDIC then that agency also regulates them. Any of those government entities have the power to go into those banks whenever they want and request all records without any need for a warrant.

chadbag

@larryjw : 
You are incorrect as to credit card companies. Loans by credit card companies are reported to the credit agencies. 

Actually not.   Your account and balance is shared with the credit agencies.   Your individual loans are not.  

sflagel

I am surprised to read the comments here, comparing BigTech BNPL to other providers of this service, not understanding that it is the combination of this data with all the other data that BigTech already has, that is concerning the regulator.

jimh2

larryjw said:

rob53 said:

The biggest online Pay Later company has to be Pay Pal, not Apple Pay, so why aren't you including them in this article? Of course, every credit card company used on-line has always done this as their normal business.

You are incorrect as to credit card companies. Loans by credit card companies are reported to the credit agencies. And, whether you agree with them or not, credit card companies have dispute resolution standards, consumers have protections.

BNPL may not have late fee policies, return policies, dispute policies.

CFPB points out that BNPL has similar markings to the old lay-away plans, but the difference are while layaway plans were typically used for the infrequent large purchases, BNPL encourages small quick purchases, ill-considered, encouraging accumulated debts. 

Apple's offering is likely to be better than other systems as 1) their customer base is on the high end consumer, 2) they know a reasonable amount about their customers Apple debt level, 3) with the Apple Card, they dynamically keep their customers aware in the Wallet how much accumulating debt they have.

I have no idea about the other BNPL companies: Affirm, AfterPay, Klarna, PayPal, Zip, but I doubt their users have the ability track their debt load. 

They also will not sell off your data or use it against you to figure how to get you to buy more stuff. 

jimh2

mikethemartian said:

rob53 said:

The biggest online Pay Later company has to be Pay Pal, not Apple Pay, so why aren't you including them in this article? Of course, every credit card company used on-line has always done this as their normal business.

Credit cards are loans issued by chartered banks which are highly regulated in general. If they are chartered by the federal government the OCC regulates them. If chartered by a state then that state’s division of banking regulates them. If they are members of the Federal Reserve then they are also regulated by it. If they are required to have deposits insured by the FDIC then that agency also regulates them. Any of those government entities have the power to go into those banks whenever they want and request all records without any need for a warrant.

And we all know that banks do not want anyone on their turf as they have shame in pummeling those with debt. 

zimmie

JP234 said:

BNPL is just another way to exploit consumers' foolish desire to have something they can't afford, right now. I'd like the CFPB to investigate how many consumers actually make the 4 payments in timely fashion, and if not, how much is it costing them when they can't/won't pay on time.

While loans definitely can be (and often are) exploitative, they also can be a better financial decision than paying for a purchase entirely up-front. With inflation, a given nominal value (i.e., a given number of dollars) loses real value over time. The later payments are the same nominal value, but less real value. If someone offers a loan with no interest and no fee for the same amount as the full purchase price of a thing, and if you can afford to buy that thing outright, it's worth taking the loan and leaving the portion you haven't paid yet invested or in an interest-bearing account. Depending on the term of the loan, this can be several percentage points of effective discount.

This is also why escrow for homeowner's insurance and property taxes is a bad idea. These are generally paid yearly, but escrow accounts generally don't bear interest. Put the insurance and property tax payments into an interest-bearing account instead. You'll accumulate interest on the partial payments the whole time until you pull the money out to pay the bill.

sflagel said:

I am surprised to read the comments here, comparing BigTech BNPL to other providers of this service, not understanding that it is the combination of this data with all the other data that BigTech already has, that is concerning the regulator.

Bingo. We've learned over millennia that when left to their own devices, companies offering financial services revert to deeply unethical behavior. Combine that with just how many tech companies' main innovation seems to be a depth-first algorithm for finding all the laws they can break before someone stops them (Airbnb, Uber, Lyft, WeWork). Regulators are absolutely right to be concerned.

stabitha_christie

22july2013 said:

"Any tech giant that has a lot of control over a mobile operating system is going to have unique advantages to exploit data and ecommerce more broadly,"

If that applied to Apple, I would be concerned. Does it?

Did you only read the one line the article? It certainly seems like it. 

stabitha_christie

rob53 said:

The biggest online Pay Later company has to be Pay Pal, not Apple Pay, so why aren't you including them in this article? Of course, every credit card company used on-line has always done this as their normal business.

They are included  in the article headline;

US finance regulator plans 'very careful look' at Apple Pay Later, similar services

They are included in the body of the article;

CFPB is already examining the BNPL market, with five existing players all now required to submit detailed information to the agency.

danox

Investigate away nothing to see Apple Pay only exists because the existing services didn’t support Apple devices, Mac, iPhone, iPad, or the Apple Watch, Apple had to roll up it’s sleeves as usual and get the job done.

Something similar currently exists in AAA gaming Apple will end doing the same thing rolling up it’s sleeves. (Note: when it happens the crying will ensue from the existing players in the gaming industry).