Apple’s Emerging Data Access Platform

3 FINTECH NEWS STORIES

#1: How Many People Should Have Credit Cards?

What happened?

The CFPB issued its final rule, amending Regulation Z and capping credit card late fees:

In 2010, the Federal Reserve Board of Governors voted to issue a regulation implementing the CARD Act, which made clear that banks could only charge fees that recover the bank’s costs associated with late payment. However, the rule included an immunity provision that allowed credit card companies to sidestep accountability if they charged no more than $25 for the first late payment, and $35 for subsequent late payments, with both amounts to be adjusted for inflation each year. Those amounts have ballooned to $30 and $41, even as credit card companies have moved to cheaper, digital business processes.

After a thorough review of market data related to the 2010 immunity provision, the CFPB’s final rule adopts a lower threshold of $8 and ends automatic inflation adjustments for that amount for issuers that have 1 million or more open accounts.

So what?     

One of the requirements under the CARD Act (passed in 2009) was that any penalty fees associated with a credit card account be “reasonable and proportional” to the specific activity for which the cardholder is being penalized. So, in the case of a late payment, a fee would need to be reasonable and proportional to the costs incurred by the issuer in dealing with a late payment (i.e. pre-charge-off collections).

Under the original Reg Z rules (which implemented the CARD Act), issuers could either do their own cost analysis (as prescribed by Reg Z) to determine their late fee or charge a fee equal to or less than the “safe harbor” fee allowed by regulators, which would be adjusted annually to keep up with inflation.

Almost all issuers opted for the safe harbor approach, and now the CFPB is making that safe harbor much less appealing by lowering the maximum fee amount to $8 and reigning in the inflation increases.

My take – this is all kinda dumb, and it’s the CARD Act’s fault.

The Act’s requirement that penalty fees be reasonable and proportional to the specific activity being penalized evinces a misunderstanding of the role that fees play in consumer credit products.

The primary purpose of credit card late fees isn’t to cover the costs of collecting on delinquent accounts. Their primary purpose is to offset the risk of giving credit invisible, near-prime, and subprime customers credit cards in the first place.

The money that issuers make from late fees sits downstream of the risk that they take on in approving new customers for their cards, which poses an interesting question – how expensive and inaccessible do we want to make credit cards?

This is a very important and nuanced policy question that doesn’t have an easy or obvious answer. I wish we were living in a regulatory and political environment conducive to tackling it directly and comprehensively rather than continuing to nibble around it, but alas. We’ll just have to see what unintended (but predictable) consequences come from this latest change.

#2: Apple’s Emerging Data Access Platform

What happened?

Apple released FinanceKit, a new API for developers that was quietly announced back in 2022: 

Apple’s iOS 17.4 update is primarily about adapting iOS to EU’s Digital Market Act Regulation. But the company has also released a new API called FinanceKit that lets developers fetch transactions and balance information from Apple Card, Apple Cash and Savings with Apple.

At launch, the company has partnered with YNAB, Monarch and Copilot. In a post on X, Copilot said that users would be able to track all Apple finance accounts in real time. Previously, Copilot users needed to upload documents to see their transactions.

So what?     

I’ll be curious to see how far Apple chooses to go down this road.

Enabling developers to access data from its own financial products is a good first step (and would have been necessary soon anyway, given the CFPB’s rule on 1033). 

It would be straightforward for Apple to extend FinanceKit to support OAuth authorization flows for accessing data from non-Apple financial products (with the customer’s permission). This would help streamline the authorization and authentication process. No need to switch to the bank’s app. Just sign in with Apple Pay or a Passkey (a cryptographic sign-in capability Apple announced alongside FinanceKit in 2022).

Things get really interesting if Apple goes beyond simply supporting OAuth authorization flows for other aggregators (Plaid, MX, Finicity, etc.) and chooses to build its own full data access platform to compete with those providers.

In a post-1033 world, where every covered financial services provider makes their data available via an API, this is (theoretically) much easier to do. 

It’s also, obviously, less valuable by itself, which means that Apple would need to go significantly further in layering in additional value-add capabilities, such as identity verification (imagine Apple becoming a KYC vendor to banks and fintech companies) and credit risk evaluation (if it wanted to, Apple could become a massive, consumer-permissioned alternative to the three credit bureaus, building on its acquisition of Credit Kudos in 2022).

The legal and reputational risks are probably not worth it, but I kinda hope they try to do it anyway. 

One of the biggest failures of the Tim Cook era (IMHO) is the complete degradation of Apple’s relationships with third-party developers. Building a full-on fintech developer stack within Apple’s various operating systems would be an interesting strategy for restoring some of those relationships to their former glory.

#3: PayPal Fumble

What happened?

PayPal announced that it would eliminate transaction fees for transactions made in its cross-border money transfer app Xoom if the transfers are made using PayPal’s stablecoin:

Users of PayPal’s overseas money transfer app Xoom will pay no fees if they use the company’s stablecoin, PYUSD, for the transfers. The move is a way for PayPal to build out its share of the international remittance market, where it trails market leader Wise, and to expand the use case for PYUSD, which it launched last year.

In an interview with Fortune, PayPal SVP Jose Fernandez da Ponte said Xoom senders will pay none of the customary fees—which average 2% across the industry—while the recipients will receive the funds in their local currency as usual. He added that Xoom provides services in 160 countries and has a network of more than 350,000 cash pickup locations. While Xoom will eliminate transaction fees for PYUSD transfers, users will still pay in the form of the customary foreign exchange spread.

So what?

Maybe I’m just not understanding this one, but PayPal seems to have fumbled the ball here.

Eliminating the transaction fee for cross-border transactions through Xoom made with PYUSD is smart counter-positioning strategy against Wise.

But I don’t get PayPal automatically converting the recipients’ funds into their local currency rather than giving them the option of keeping them in PYUSD. 

By keeping it in PYUSD, PayPal could help senders avoid the FX spread fee, encourage recipients to save the money (or a portion of it) in a currency that might be more stable than their native currency, and give recipients a reason to download the PayPal app (if they don’t already have it).

Not every recipient would have chosen to keep some or all of the money in PYUSD. Most probably wouldn’t. But some surely would, and isn’t that the whole goal? How is PayPal’s stablecoin initiative served by having Xoom senders buy PYUSD solely for the purpose of sending it to someone else who will never see it?

What’s the point of a stablecoin if no one holds it long enough to appreciate the benefits of its stability?     

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2 FINTECH CONTENT RECOMMENDATIONS

#1: The Definitive History of Private Credit (by Van Spina, Wall Street Fintech)

Oh, yes, this is what I’m talking about — a long, well-researched deep dive into the history of private credit. Sign me up!

I hope this means that we can expect more writing from Van in the coming months.

#2: Fintech can save the American banking system. Regulators should help (by Ayo Omojola)  

More good stuff from Ayo on a topic that I have spent a lot of time thinking about recently – what should the U.S. banking system look like?

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1 QUESTION TO PONDER

Would you be interested in a free copy of a book from my fintech bookshelf?

I’m going to have some of the authors of these books join me as guest in future episodes of the Fintech Takes podcast, and we’re considering doing giveaways. Let me know if you’d be interested!