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July 28, 2022

US watchdog raises concerns over Apple’s foray into short-term lending

US consumer finance watchdog has voiced concerns over the entry of tech giants into the buy-now-pay-later (BNPL) space, Financial Times has reported.

The Consumer Financial Protection Bureau (CFPB) has warned that such developments could dent competition in a sector which is at a nascent stage and raises questions about how consumer data is being used.

The warning for tech majors comes after Apple announced its plans to enter the BNPL fray.

Speaking to the publication, the CFPB director Rohit Chopra said that the watchdog would “have to take a very careful look [at] the implications of Big Tech entering this space”.

Among the issues the agency is planning to look at was “whether it may actually reduce competition and innovation in the market”, he added.

Responding to a question about Apple’s BNPL push, Chopra stated that tech giants’ entry into short-term lending “raises a host of issues”, including how firms would use customer data. “Is it being combined with browsing history, geolocation history, health data, other apps?”

Last month, Apple launched a BNPL offering in the US, called Apple Pay Later, becoming the first and so far, the only leading tech player to do so.

The offering, which is available via both Mastercard’s network online and in apps supporting Apple Pay, allows customers to pay for purchases in four instalments over six weeks, with loans funded and underwritten by Apple.

Responding to the CFPB director’s remark, Apple said: “We are glad to offer customers a choice which prioritises their financial health and privacy with Apple Pay Later, and we look forward to working with the CFPB to answer any questions they may have.”

Chopra stated that the development also raised concerns that whether other players would be able to compete and whether merchants could choose if they offered instalment plans or not.

“Big Tech’s ambitions when it comes to buy-now-pay-later are inextricably linked to the desire to dominate the digital wallet,” Chopra noted.

Earlier, the agency ordered Facebook, Apple, AmazonGooglePayPal and Square to provide information about their payment systems, including how firms collect and use consumer data.

“Any tech giant that has a lot of control over a mobile operating system is going to have unique advantages to exploit data and e-commerce more broadly,” the agency director said.

Chopra alluded to development in China where Alipay and WeChat Pay are dominating this space with a combined user base of two billion.

“I generally worry that we are lurching toward that type of system,” Chopra noted.

He warned that the US tradition of separating banking and commerce is “becoming murkier and murkier” as tech majors set their foot into the financial services space.

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