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: Top financial regulator warns U.S. is developing a ‘Chinese-style’ payments industry ‘fueled by uncontrolled flows of consumer data’

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Consumer Financial Protection Bureau Director Rohit Chopra warned lawmakers Tuesday that the U.S. payments industry is developing a “Chinese-style” market structure in which large technology companies leverage consumer data to power their financial-services subsidiaries.

“The United States is lurching toward a market structure where finance and commerce commingle, fueled by uncontrolled flows of consumer data,” Chopra said in a hearing before the Senate Banking Committee, adding that tech conglomerates like Ant Group and Tencent Holdings Ltd.
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which control the payments platforms Alipay and WeChat, dominate the payments industry in China.

“These tech giants have extraordinary access to data about businesses, banks and consumers, including financial businesses that they may compete with,” Chopra said. “Over the last several years Chinese tech and finance giants have developed so-called social scores that goes beyond credit performance and relies on analyzing user habits unrelated to credit and banking.”

Chopra warned that absent regulation, the U.S. payments industry could adopt the same sort of tactics, raising questions about “privacy fraud and discrimination.”

The testimony follows an October order by the CFPB in which it ordered tech firms Google
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,
Apple
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Facebook
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,
Amazon
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-3.59%
,
Block
SQ,
-5.49%

and Paypal
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-3.11%

to turn over information about their products, plans and practices related to their payments businesses.

Read more: CFPB orders Apple, Amazon, other tech giants to turn over information about payment products

“Payments businesses are network businesses and can gain tremendous scale and market power, potentially posing new risks and undermining fair competition,” CFPB Director Rohit Chopra said at the time. “Knowing what we spend our money on is a valuable source of data on consumer behavior. This data can be monetized by companies that seek to profit from behavioral targeting, particularly around advertising and e-commerce.”

Chopra said that he is concerned that the market power of tech firms in the payments space will have a particularly negative impact on the ability of smaller firms to compete, given the advantages their reservoirs of consumer data confer.

Chopra said he was hopeful that the Federal Reserve’s FedNow program, a new payment system expected to launch in 2023 that will enable banks to execute real-time money transfers 365 days per year, will help address some of the competitive imbalances in the payments industry today.

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