The US Consumer Financial Protection Bureau has issued a report that highlights how Apple and Google’s role in enabling NFC contactless mobile payments impacts the US contactless payments market.

“Apple currently forbids banks and payment apps from accessing the tap-to-pay functionality on Apple iOS devices and imposes fees through Apple Pay,” the CFPB says. “Google’s Android operating system does not currently have such a policy.

“The issue spotlight explains how regulations imposed by mobile operating systems can have a significant impact on innovation, consumer choice, and the growth of open and decentralized banking and payments in the US.”

The CFPB’s analysis found that:

• POS payments made through mobile devices are often made using near field communication (NFC) technology. This technology makes it possible to make contactless payments using a mobile device and a checkout terminal. These are often referred to as ‘contactless’ payments or ‘tap-to-pay’.
• Use of tap-to-pay at the POS continues to rise in the US as NFC technology has become more commonly included in both mobile devices and payment terminals. This growth is expected to continue — analysts estimate that the value of digital wallet tap-to-pay transactions will grow by over 150% by 2028.
• Apple and Google dominate the smartphone operating system market. As adoption of contactless payments on mobile phones continues to increase, these two companies, and the business models and choices they employ, will have profound impacts on the competitiveness of the payments market and the future of open banking.
• While the use of quick response (QR) codes to make POS payments is growing, it is currently less popular in the US than making payments using NFC technology. Payments made through QR codes in the POS context may be less preferred by those making and accepting payments, perhaps due to difficulty of use compared to NFC. QR code payments are also less secure than NFC payments.
• Financial services providers, including bank and nonbank players, can offer applications to facilitate POS payments. However, these apps cannot rely on NFC technology on mobile devices using Apple’s iOS operating system. This includes widely used payment apps such as PayPal, Venmo and Cash App, all of which are well-positioned to compete in the POS market. Instead, consumers must use Apple’s proprietary payment service, Apple Pay.
• While Google’s Android operating system, which is the other major mobile operating system in the US, does not currently restrict access to NFC capabilities, they could reverse this position in the future given their existing market position and relationship with hardware manufacturers.
• Mobile device restrictions such as those related to NFC can inhibit choice and innovation in consumer payments. This type of arrangement may also increase roadblocks to open banking reaching its full potential in the US. For example, such restrictions may hinder lower-cost open banking-powered payment innovations, such as emerging services that enable consumers to make point-of-sale transactions using their bank accounts directly.

“Regulations imposed by Big Tech firms have a big impact on whether consumers and businesses can make payments using third-party apps,” CFPB director Rohit Chopra says. 

“We are carefully evaluating Big Tech’s role in our banking and payments system.”

The full ‘Big Tech’s Role in Contactless Payments: Analysis of Mobile Device Operating Systems and Tap-to-Pay Practices’ report is available to view on the CFPB’s website.

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