In October, the Consumer Financial Protection Bureau (CFPB) ordered six large technology companies — including the big four, Google, Amazon, Facebook, and Apple — to provide information about their expansion into e-commerce and peer-to-peer payments. As part of this investigation, the CFPB invited interested parties, including consumers, small businesses, advocates, financial institutions, investors, and experts, to submit written comments to supplement the investigation. I submitted the below as a comment on behalf of American Principles Project. Footnotes are omitted here for the sake of brevity. The entire comment with footnotes can be found in PDF form here.
RE: Big Tech Payment Systems
To Director Chopra:
We applaud the Consumer Financial Protection Bureau’s commitment to study the impact of large technology firms as they offer services adjacent to and within the payments systems. The Consumer Financial Protection Bureau has a mandate to ensure that “markets for consumer financial products and services are fair, transparent, and competitive.” During major technological inflection points, the Bureau should be especially attentive to potential market structure dysfunctions introduced by new tools and techniques.
Since the National Bank Act of 1862, Americans have pursued an explicit policy of separating banking from ordinary commercial activities. We’ve chosen this framework for multiple reasons, including systemic risk, the competitive advantage of access to the financial safety net, as well as the conflict of interest involved when a commercial firm can exploit the financial information of a competitor. As one travel agent noted when Congress was considering the Bank Holding Company Act Amendments of 1970 to prohibit bank holding companies from entering adjacent lines of business, “Any time I deposited checks from my customers, I was providing the banks with the names of my best clients.”
This problem is further exacerbated by the business model of dominant tech conglomerates, which places them into the center of the public square as speech platforms. As Justice Clarence Thomas noted, the “concentrated control of so much speech in the hands of a few private parties” is simply “unprecedented.” We urge the Bureau to investigate Big Tech’s expansion into payment platforms, including the effects that this expansion will have on competition, systemic risk, consumer protection, privacy, censorship, and the historic separation of banking and commerce.
As we detail in these comments, Big Tech companies, particularly Apple, Google, Facebook, and Amazon, have a history of anticompetitive behavior, unfair surveillance, poor data management practices, censorship and invasions of privacy, often designed to facilitate advertising practices designed around the inappropriate collection of large swaths of consumer data. This history should inform the Bureau’s oversight of these companies.
- Competition Concerns
As government investigators across the globe have found, dominant Big Tech firms have market power across multiple lines of business. They have exploited a variety of techniques to accomplish this, and we encourage the Bureau to investigate whether the use of payments data would facilitate the fortification of existing market power, or enable the leveraging of existing dominance into new markets. One common technique is predatory pricing, wherein a dominant firm with access to low cost capital or willing to cross-subsidize lines of business is able to undermine competitors with below cost pricing to consolidate a market. Both Amazon and Google have been accused of engaging in this conduct. Another is tying, or the requirement that a customer buy one product as a condition of buying another unrelated product. For instance, there are allegations that, in order to get favorable terms on the Amazon website, third party sellers must use Amazon’s warehousing services and often even its advertising services. This has likely resulted in Amazon’s revenue take from third party sellers – up to 34 percent – increasing substantially over the last five years.
Self-preferencing also seems to be common. Apple, Amazon, and Google have all been accused of copying their competitors’ products, and then exploiting superior cost or distributional advantages to give an unfair advantage to their own offerings and deprive consumers of rivals. In addition, payments data is sensitive proprietary information, and can serve as a mechanism for Big Tech firms to fortify their existing market dominance by alerting them to nascent competition. Facebook, for instance, has already bought the virtual private network Onavo, a sophisticated surveillance mechanism to spy on user behavior, to engage in such tactics. Apple maintains exclusive control over its app store and device middleware, an arrangement that has allowed it to raise prices for app developers, bar competitors, and misappropriate competitively sensitive data from those developers. Likewise, Google has used its dominance to abuse business users of its platforms, especially in Google Ads and the Google Play Store App market. Google has, for instance, used its dominance to demand exorbitant ad revenues, to demand that its own apps be pre-installed on Android devices, and to charge very high fees to app developers in its Google Play Store.
An existing dominant firm owning and operating a proprietary payment network offers ample opportunity for extracting additional revenue from users or third party businesses through tying, self-preferencing, or other standard antitrust violations like exclusionary conduct or the elimination of nascent competition. Monopolization by Big Tech through any of these techniques would lessen the number and variety of offerings in the payment space, and undermine the Bureau’s mandate of ensuring that the market for consumer financial products is fair and competitive.
- Censorship Concerns
Allowing a handful of dominant corporations to control intertwined markets, such as social media and internet surveillance advertising, enables monopolies to tightly control both the behavior of their users and the actions of the firms spending big to advertise to those users. To that end, allowing dominant tech corporations to facilitate and provide financial services to consumers and citizens raises grave questions about the fairness of the affected markets.
Google and Facebook account for nearly half of the internet advertising market. Each has demonstrated the ability to arbitrarily filter results and censor who sees ads for services, significantly impacting advertisers and consumers alike. Ultimately, Google and Facebook have the market power to decide who gets customers and financing. Google, for example, exerts tight control over its more than one-quarter share of the advertising market, dictating terms for the advertisers forced to participate in its marketplace. In the past few years alone, Google has cracked down on consumers’ right to repair by prohibiting advertisements for their devices’ third-party repair, banned payday lending advertisements, credit repair ads, and ads for government ID-related services, and banned advertisements containing what the company determines to be climate change misinformation. Whether each decision made is good or bad for users is besides the point – allowing Big Tech to decide what kind of speech and commerce is fair and valuable cedes an indefensible amount of power to unelected private monopolies. Google, like its peers, has a track record of anticompetitive behavior and censorship. As the company expands its footprint in the financial services sector, it should be closely monitored.
Facebook has its own history of dubious decision-making. In 2020, Facebook notoriously censored dozens of conservative political advertisements – including advertisements by American Principles Project’s affiliated PAC – and may have substantially impacted election results. Facebook has also notoriously censored what it deems to be COVID-19 “misinformation,” including, notably, an interview between Tucker Carlson and a Chinese whistleblower who credibly asserted that the virus was created in a lab. Facebook has struggled to design, articulate, or execute policies around political speech, violence, and fraud, and now, as it asks for the public’s trust in its ability to operate as a financial services provider, its track record, and that of its peers, should be front and center. Apple, which exerts control over its walled garden of mobile phone users via the Apple App Store, decides what apps its phone owners can download and use, surveilling its users and extracting up to a 30 percent fee on all digital transactions. App creators like Epic Games are punished for resisting or innovating around the walled gardens, regardless of the benefits to the end user.
Ultimately, Big Tech companies wield enough concentrated power in the markets they dominate to censor speech and structure commerce. Whether it’s structuring who sees what ads, who gets which customers, or who can buy and sell services, it is market power that is upstream from censorship. Moving forward, that knowledge should be at the center of how these tech monopolies are regulated.
- Privacy Concerns
Financial data is particularly valuable in targeted advertising, an area which Amazon, Google, and Facebook have cemented market dominance. Advertising is what makes up the vast majority of Google and Facebook’s profit. The two, combined with Amazon, make up more than 60 percent of the total US digital advertising market. These three companies capitalize on their extensive user data to offer “targeted” or “surveillance” advertising.
Although Apple, PayPal, and Square are not meaningful players in the advertising market, their payment data gets sold into the same surveillance ecosystem. PayPal, for instance, sells data to 600 entities, including Facebook. The listed purpose for selling this data to Google and Facebook is “to execute retargeting campaigns in order to deliver personalised advertising.” While PayPal provides commendable transparency into the purposes of sharing user data with third-party entities, it highlights exactly how the data is used to surveil customers – even beyond advertising. The company sells data to Russia’s National Credit Bureau, as well as the United State’s Experian Information Solution, “to assist in making decisions concerning a customer’s credit worthiness.”
The sale of this data raises questions about the fairness of the algorithms that govern the payment platforms of these Big Tech companies.
- Systemic Risk and Resiliency
Integrating payment systems with platforms that control e-commerce, social media, advertising, search, and more, poses risks to security and stability as well as fair competition. A Facebook executive, in the firm’s 2021 Q2 Earnings Transcript, noted this, saying that “our approach is to work our way down the stack and build world class services at every layer of commerce – starting from discovery at the top of the stack all the way down to payments.”
The company’s WhatsApp payments are available in Brazil and India. Facebook also announced that Facebook Pay will be made available outside the entire Meta ecosystem, meaning it will be offered at checkouts on the web. Furthermore, Facebook has introduced a cryptocurrency, Diem, and digital wallet, Novi.
Just as Facebook’s centralized power poses a threat to our entire system of self-government, so too does it pose a threat to our financial system. While the risks are slightly different with regards to Apple, Google, and Amazon, they all raise the same security and resiliency concerns. The financial crisis illustrated the perils of Too Big to Fail banks and the problems with tightly coupled systems. It is worth exploring the risks of intertwining dominant firms whose failure might already be disruptive in key centers of the economy, such as cloud providing or social media, with keystone infrastructure like payments. Is the Big Tech payments push amplifying the Too Big to Fail problem by leveraging not just market power, but systemic risk, into new areas of the economy?
- National Security Concerns
We appreciate the Bureau’s consideration of AliPay and WeChat as relevant actors in the payments system. Both platforms are de facto extensions of the Chinese government, and to the extent they are allowed to operate inside the United States, they open up American consumers to the surveillance apparatus and legal reach of a foreign authoritarian power.
Proposed Regulatory Solutions
We encourage the Bureau to use its authority under 12 USC 5531 to prohibit unfair, deceptive, or abusive acts or practices to promulgate rules constraining dominant tech firms from distorting markets for consumer financial products.
Considering the long, consistent pattern of illegal and unethical conduct by these dominant firms, the CFPB should enact the following regulations to prevent the most likely types of consumer financial abuses inherent in the new Big Tech-payment platform business model. This would adhere to the CFPB’s mandate from Congress, which specifically provides the CFPB has the authority to pass rules “for the purpose of preventing” unfair, deceptive, and abusive acts and practices. 12 U.S.C. § 5531(b).
First, the CFPB should enact a rule ensuring independence between payment platforms and other lines of Big Tech’s business to ensure that payment platforms cannot share consumers’ personal financial data to be used for other purposes. Big Tech extracting personal financial data from payment platforms is deceptive, unfair, and abusive because such complicated, conflicted financial arrangements are inherently deceptive to consumers and are inherently unfair and abusive because consumers can neither reasonably bargain with Big Tech nor avoid Big Tech’s services.
Second, the CFPB should enact a rule requiring Big Tech payment platforms to be fully transparent with consumers and regulators about how exactly in-house payment platforms make decisions about financial eligibility and terms, which is highly regulated under existing law. Complete transparency about Big Tech’s payment platform algorithmic and non-algorithmic decision is essential to allow consumers to protect their own financial interests, and avoid unfair, deceptive, and abusive practices, as well as ensuring that Big Tech complies with the entire spectrum of consumer financial regulation.
Third, the CFPB should enact a rule that prohibits Big Tech from steering existing platform customers to their own payment platforms or discriminating against competing payment platforms. Allowing Big Tech favoritism and discrimination against competing payment platforms would likely constitute tying in violation of the antitrust laws that would rapidly leave consumers with only Big Tech-owned or affiliated payment options. Accordingly, the CFPB should enact rules to prevent Big Tech from acquiring illegal market power in the payment industry before it uses that market power to compel consumers into unfair, deceptive, and abusive financial transactions.
Fourth, the CFPB should enact a rule to require Big Tech payment platforms to assume a fiduciary-like status with regards to consumer financial data, which means Big Tech could only hold consumer financial data in the interests of the customers exclusively for the purpose of providing the agreed upon product or service. This would prohibit Big Tech from both (1) sharing or selling consumer financial data to other companies for profit, or (2) using consumer financial data for other business purposes including targeted advertising. Additionally, Big Tech would also be liable for harm caused by data breaches and would be required to notify consumers when their data has been compromised.
Fifth, the CFPB should enact a formal, continuous oversight regime to require Big Tech to affirmatively prove compliance with consumer financial regulations on an ongoing basis. The CFPB should consider Big Tech’s long history of deceit when enacting regulations and should accordingly design those regulations to require affirmative proof of compliance instead of relying on subjective assertions from Big Tech that it is following the law.
Finally, we encourage the Bureau to raise systemic risk concerns through other regulatory forums, such as the Financial Stability Oversight Council. Once again, we applaud the Bureau’s intent to study this matter and encourage swift and prudent action. Thank you for your consideration.