Why Apple’s DOJ fight is big for banks

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Mar 26, 2024 View in browser   By Zachary Warmbrodt Presented by Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. QUICK FIX The Justice Department’s antitrust case against Apple may end up being one of the most important finance industry sagas of the year. It’s a crackdown that some in the banking world are quietly cheering on. At issue in the lawsuit is whether the tech giant is acting as a monopoly and hurting consumers through the restrictions it places on the functionality of the iPhone. The DOJ challenge is poised to be a sleeper finance industry shakeup because of the massive role that Apple has come to play in payments with its Wallet and Apple Pay services. Apple’s forays into finance are just a few of the practices that prosecutors are targeting. They’re also singling out how the company handles competition in messaging, cloud streaming and smartwatches. The Justice Department is accusing Apple of restricting the development of third-party digital wallets, including those that can take advantage of the iPhone’s tap-to-pay functionality. The government says the practice makes it harder for users to switch phones and that it allows the company to extract 15-basis-point fees from banks for each credit card transaction on Apple Pay. The fees, according to DOJ, “cut into funding for features and benefits that banks might otherwise offer smartphone users.” DOJ is getting a boost from the CFPB, which is separately trying to ratchet up oversight of Apple and other tech giants in the payments space. The lawsuit cites CFPB findings that Apple Pay facilitated $200 billion in transactions in 2022. The bureau expects digital wallet tap-to-pay transactions to grow by more than 150 percent by 2028. “Apple is shutting developers out from iPhone’s tap and pay — and that’s costing banks and consumers millions and millions of dollars,” Sen. Elizabeth Warren told MM. “What we need is a competitive marketplace and rules that protect consumers because this is just the tip of the iceberg on how Apple is raking in the big bucks and squashing competition.”   SUBSCRIBE TO GLOBAL PLAYBOOK: Don’t miss out on POLITICO’s Global Playbook, the newsletter taking you inside pivotal discussions at the most influential gatherings in the world, including WEF in Davos, Milken Global in Beverly Hills, to UNGA in NYC and many more. Suzanne Lynch delivers the world's elite and influential moments directly to you. Stay in the global loop. SUBSCRIBE NOW.     Apple is gearing up to fight the DOJ. The company says it operates in “fiercely competitive markets” and that it’s trying to design products that “work seamlessly together, protect people’s privacy and security, and create a magical experience for our users.” When it comes to its policies for Apple Pay and Apple Wallet, Apple says the rules were developed to provide the safest and most secure environment for customers’ sensitive financial information. Apple says it's another area where the company faces competition from other payment options available to iPhone users. Apple has already agreed to change its practices in Europe, where it will allow third-party wallet and payment providers to access its tap-to-pay hardware following a European Commission investigation. Apple remains concerned about the security of the fix. In the U.S., banks aren’t publicly joining DOJ's fight against Apple, but it’s clear they stand to benefit. In general, they’ve been ramping up lobbying against the encroachment of tech companies into banking, in a bid to ensure that new entrants aren’t offering the same services with less of a regulatory burden. To lean on a cliche that’s often used in these discussions, one could argue that DOJ is attempting to “level the playing field” from a market competition perspective while the CFPB is doing the same with supervision. It’s an area where the interests of the banking industry and consumer advocates have somewhat converged in recent years. Mark Hays and Amanda Jackson with Americans for Financial Reform told MM that if the DOJ’s case compels Apple to make it easier for consumers to use other digital wallets, that’s likely to be a net win for those users overall. “The lawsuit would still allow Apple to develop its in-house digital financial and other services,” Open Markets Institute senior legal analyst Daniel Hanley told MM. “But by seeking to end Apple’s coercive practices, the government aims to ensure that consumers have access to non-Apple alternatives and to spur Apple to compete through fair and honest means." It’s Tuesday — What’s your take on the Apple case? Send thoughts and observations to zwarmbrodt@politico.com.   A message from Electronic Payments Coalition: CRS: NO EVIDENCE THAT DURBIN-MARSHALL CREDIT CARD BILL WOULD HELP CONSUMERS OR SMALL BUSINESSES The independent Congressional Research Service (CRS) is the latest organization to release a report questioning whether the Durbin-Marshall Credit Card Bill would help consumers or small businesses. CRS echoed an earlier report by the Richmond Fed noting that consumers failed to see any meaningful cost savings because of similar legislation imposing routing mandates and price caps on debit card interchange. Learn more HERE.   Driving the day The Conference Board releases consumer confidence data at 10 a.m. … White House CEA Chair Jared Bernstein discusses the benefits of full employment in a Peterson Institute virtual discussion at 1 p.m. … The Consumer Bankers Association continues its CBA LIVE conference in Washington A shopping spree? — After getting nowhere with a Trump-picked judge in Fort Worth, the U.S. Chamber of Commerce and other industry groups have asked the 5th Circuit Court of Appeals in New Orleans to immediately halt a CFPB rule that caps credit card late fees to $8, Michael Stratford reports. As MM outlined Monday, District Judge Mark Pittman in an unexpected move last week rejected their plea for a quick pause on the rule, citing his court’s growing workload. The CFPB has accused the groups of “forum shopping” and is trying to get the case moved to federal court in Washington. Trump’s much richer — It’s been a whirlwind week for former President Donald Trump’s finances. A New York appeals court on Monday gave him a huge reprieve by lowering the bond he has to post as part of a civil fraud verdict. In similarly big news, Bloomberg reports that Trump is now worth around $6.5 billion, with his social media venture set to go public today after two years of wrangling. The only problem is he will be restricted from selling his 78 million shares in the company for six months.   A message from Electronic Payments Coalition:   On the Hill First in MM: Fetterman rallies for retirement rule — Sen. John Fetterman is leading a letter today urging DOL and OMB to finalize proposed safeguards for retirement advice. The so-called fiduciary rule has had a tortured history going back to the Obama administration. A federal appeals court overturned a previous version in 2018. “The proposed rule ensures that every retirement saver who seeks the assistance of an investment professional will receive advice that puts their best interests first,” the senators write. They include Sens. Brian Schatz, Cory Booker, Elizabeth Warren, Peter Welch, Bernie Sanders, Sheldon Whitehouse, Ed Markey and Laphonza Butler. The China committee’s new leader — Rep. John Moolenaar, a Michigan Republican, will be the next chair of the House Select Committee on China after Rep. Mike Gallagher steps down in April. People moves — Bryan Blom has been promoted to partner at the government relations firm Porterfield, Fettig & Sears. Before joining PFS in 2016, he worked on the Senate Banking Committee and as deputy chief of staff to former Rep. Sean Duffy.   Access New York bill updates and Congressional activity in areas that matter to you, and use our exclusive insights to see what’s on the Albany agenda. Learn more.     Regulatory Corner SEC vs. Ripple — Ripple is warning that the SEC — in a move that’s expected to be made public today — is asking for the cryptocurrency company to pay a $2 billion judgment, CoinDesk reports. Ripple and the SEC have been facing off since 2020 over accusations that the firm violated securities laws by selling the token XRP. SWIFT’s big crypto move — Reuters reports that global bank messaging network SWIFT is planning a new platform in the next one to two years that will connect central bank digital currencies. Crypto sanctions for Russia — The Biden administration on Monday announced sanctions targeting virtual currency in the Russian financial sector and a China-based company that Treasury said was affiliated with cyberattacks against U.S. infrastructure, Michael reports. “Russia is increasingly turning to alternative payment mechanisms to circumvent U.S. sanctions and continue to fund its war against Ukraine,” Brian Nelson, Treasury undersecretary for terrorism and financial intelligence, said in a statement. RIP — Roberta Karmel, the first woman to serve as SEC commissioner, died Saturday at the age of 86, according to the Brooklyn Law School. Karmel served at the agency from 1977 to 1980. She later taught at the Brooklyn Law School before retiring in 2021.   A message from Electronic Payments Coalition: CRS QUESTIONS WHETHER DURBIN-MARSHALL CREDIT CARD BILL WOULD HELP ANYONE AT ALL Every member of Congress should read the CRS analysis which discusses the impact the Durbin-Marshall Credit Card Bill could have on small businesses and American families. Report after report has plainly demonstrated that consumers and small businesses did NOT save any money when Congress passed the 2010 Durbin Amendment, imposing new mandates on debit cards. Now, a decade later, why would anyone assume a monumental restructuring of our nation’s secure, worry-free credit card system would yield different results? After considering the facts, the only logical solution would be to strongly OPPOSE the Durbin-Marshall Credit Card Bill. Click HERE to learn more.     Follow us on Twitter Mark McQuillan @mcqdc Zachary Warmbrodt @Zachary Victoria Guida @vtg2 Declan Harty @ @declanharty Eleanor Mueller @eleanor_mueller Katy O'Donnell @katyodonnell_ Sam Sutton @samjsutton   Follow us

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