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Compliance & Risk

U.S. big-tech entry into consumer finance pressures regulators to confront competition, privacy

· 5 minute read

· 5 minute read

In five years or even less, the U.S. financial system may well be awash with digital wallets and payment services backed by tech giants like Amazon, Apple, Google, and Facebook, pushing to edge out long-established incumbents such as Citibank, JPMorgan, and Wells Fargo.

Debate about how to regulate and oversee such a reshaping of the consumer financial landscape will likely dominate the headlines over the next several years. At issue is not just tech giants making headway into the long-protected domain of financial service firms. Much more, the major issues include the capture of data that firms can use to mold and influence the financial decision patterns of American consumers.

At best, it would provide competition to existing firms who have been criticized for viewing their customers as little more than a cog in a giant money-making machine — witness the Wells Fargo phony-accounts scandal. At worst, it unleashes an Orwellian future where tech firms complete a powerful circle — they now have not only the buying decisions of consumers in hand, but also their financial data and history.

Google & Citi venture

Such concerns were fueled last week after Google announced it is talking to U.S. banks about offering current accounts to its customers, accelerating Silicon Valley’s entry into financial services following Apple’s credit card launch and Facebook’s proposed digital currency, Libra. The latter is mired in controversy, with regulators both here and abroad arguing that Facebook’s digital currency needs to be heavily scrutinized given the company’s checkered past in protecting data privacy.

For Google, the company has said it planned to work with existing financial services providers, including its first partners Citigroup and Stanford Federal Credit Union. Similar to Apple Pay, Google plans to allow smartphones to be used for making purchases online and in stores. Google said it has held initial talks with regulators, though it declined to specify which ones, about compliance issues related to the new checking accounts. Asked about Google’s plans, U.S. Sen. Mark Warner (D-Va.), a member of the Senate panel that oversees banking, expressed reservations. “There ought to be very strict scrutiny,” said Warner about tech giants such as Facebook or Google entering new fields before rules governing them are in place.

Underscoring the growing concern that U.S. regulators have over online tech giants, the second highest ranking official at the U.S. Department of Justice (DOJ), Deputy Attorney General Jeffrey Rosen, said recently in a speech at an American Bar Association antitrust forum that there are “serious and substantive issues” regarding competition by the largest online platforms. While he noted that top DOJ officials are keeping close tabs on the inquiry, he added that no conclusions have been reached yet about the sector. “We will follow the evidence and, if it is warranted, we will enforce the law and seek appropriate remedies, just as the Department’s Antitrust Division has done with respect to titans of industry during more than 120 years of Sherman Act enforcement,” Rosen said, citing the longstanding legal pillar of U.S. antitrust policy.

U.S. regulators catching up with EU counterparts

While regulators in the U.S. and Europe view Google’s tactic of bundling new products with widely used services such as its search engine and smartphone software as anti-competitive, the European Union (EU) has been much more aggressive in going after the tech giant when it believes it is overstepping EU law. The European Commission has levied billions of dollars in antitrust fines against Google in recent years after investigations into its search, advertising, and Android businesses.

From the competition viewpoint, the primary concern for U.S. regulators and lawmakers will be whether ventures such as the Google and Citi tie-up are in the long-term interests of consumers. In other words, would it be wise to have consumers bank, shop and socialize within an ecosystem built by a single tech group?

This is now being recognized not only by the DOJ, as reflected in Rosen’s comments, but also by the Federal Trade Commission (FTC), the primary U.S. government enforcer on antitrust issues. At the same ABA conference, FTC chairman Joseph Simons said: “These platforms are huge, they impact millions and millions of people and are a very important part of the economy. So, if there is anticompetitive conduct going on, that could conceivably have a very significant effect on consumer welfare.”

Simons also said the agency is planning to release guidelines on antitrust law and tech platforms. He said this will “provide guidance about how we’re going to go forward with enforcement in this area.” Simons said he hopes the DOJ will sign onto this document.

U.S. presidential election could be pivotal for future policy

Moreover, with a U.S. presidential election looming in less than a year, the focus on tech giants’ entry into financial services could become magnified should a Democrat takeover the White House. This would most certainly be the case if presidential hopeful U.S. Sen. Elizabeth Warren (D-Mass.) wins the high office. The progressive Warren has made attacks on big business — and particularly on Wall Street — a hallmark of her campaign.

Warren most recently zeroed-in on charges of gender bias by Goldman Sachs and its Apple Card, a recently launched credit card as part of its push into consumer banking. She sharply criticized Goldman and the bank’s handling of claims that its Apple Card exhibits bias against women in extending credit limits due to what she categorized as “discriminatory” algorithms. “Let’s just tell every woman in America, ‘You might have been discriminated against, on an unknown algorithm, it’s on you to telephone Goldman Sachs and tell them to straighten it out,’” Warren said in an interview with Bloomberg. “Sorry guys, that’s not how it works.”

The article was written by Henry Engler, a North American Regulatory Intelligence Editor at Thomson Reuters in New York.