Platform Money 

The public rightly considers the traditional banking system expensive, slow, and unfair. In response, technology companies have developed an ‘open banking’ sector. They combine transaction data from financial institutions with other datasets to develop applications for additional financial services, including personalized financial management and credit underwritten by data that credit bureaus have not historically collected, such as cash flow data.

The open banking sector also includes companies like PayPal, Venmo, and Cash App, which offer “digital wallets” (smartphone applications) that store customer balances outside banks. These companies claim to enable free, faster, fairer balance transfers and payments. Roughly one in three Gen Xers, Millennials, and Gen Zers consider a wallet their primary checking account. However, the Federal Deposit Insurance Corporation does not insure the balances, and many scholars have argued that these business models undermine broader goals of banking regulation.

In this Article, I synthesize concerns based on banking law with concerns about data governance to promote a regulatory proposal for the Consumer Financial Protection Bureau (CFPB) to govern this digital wallet ecosystem and advance a new conceptual approach toward open banking.

I refer to stored digital wallet balances as “platform money” to highlight how technology companies are stacking data-intensive consumer applications on top of the U.S. banking system, profiting from its deficiencies, including deposit volatility and unenforceable entry restrictions.

I analyze the practices of “data brokers,” which supply the infrastructure for transferring funds and data in the platform money ecosystem. Brokers use this data to profit in other markets, including credit reporting, identity management, and targeted advertising. They exercise platform power in ways that unnecessarily threaten the integrity of the traditional banking system and risk harm to consumers in the open banking system, including loss of funds, theft, identity fraud, and operational failure beyond the danger posed by previous practices in financial data usage, such as credit reporting. Unfortunately, background laws encase brokers from private challenges, while existing statutes and regulations do not sufficiently govern their business model or practices.

I argue the CFPB should prevent data brokers transferring funds between bank accounts and platform money apps from collecting, using, or retaining more data than is strictly necessary to transfer those funds in compliance with existing laws (such as laws against money laundering). I argue the risk platform money poses to consumers underscores the need for a revitalized ‘regulated industries’ approach promoting a continuum of public governance over critical networks, platforms, and utilities in new forms of consumer banking. This approach is crucial for ensuring cheaper, faster, fairer banking while avoiding emergent risks for the public.