CFPB Publishes Issue Spotlight on Tap-to-Pay Though Mobile Devices

The CFPB recently published an issue spotlight evaluating the availability of tap-to-pay technology for contactless point-of-sale (POS) purchases on mobile devices.  The issue spotlight discusses the role that mobile device operating systems play, through tap-to-pay technology, in an open banking ecosystem.

Near field communication (NFC) chips enable tap-to-pay on mobile devices using radio-frequency identification technology that allows wireless transfers of data between a mobile device and a merchant’s POS terminal.  Tap-to-pay is typically accessible on mobile devices through a digital wallet or, in some cases, through a payment app.  To pay using a digital wallet, a consumer selects a payment card that he or she has loaded onto their device’s digital wallet, then holds the device a few centimeters from a merchant’s POS terminal to transmit encrypted payment information and make a payment.

Every mobile device houses an operating system, and the vast majority of mobile devices in the United States use one of only two operating systems.  One operating system provides a digital wallet to consumers and also allows consumers to download and use other digital wallets and payment apps.  This operating system does not charge a fee to card issuers when a consumer uses the issuer’s card through the device’s digital wallet. 

The other operating system, which has a slightly higher usage rate, does not allow payment applications other than its own digital wallet to access the device’s NFC chip.  It also collects a fee from card issuers when a card from the digital wallet is used.  Although this operating system justifies its policy to deny outside payment apps access to its NFC chip as a matter of privacy and security for its device users, the policy’s “potential anticompetitive effects” have been raised in legal challenges in both the United States and abroad. 

It is the CFPB’s position that in open banking ecosystems interoperability benefits consumers because it promotes choice and reduces barriers to entry.  In light of the estimation that digital wallet tap-to-pay transactions will grow by 150 percent by 2028, the CFPB explains that denying other payment apps access to the NFC chips on devices could “impede the shift towards open banking and, ultimately, negatively impact consumers—e.g., by reducing competition, innovation, choice, and ease of access.”