The Clearing House, an advocacy group owned by the world’s largest commercial banks, is gunning for payment startups.
The body said in a report seen by Business Insider that startups and tech companies playing in the payments space should be regulated like big Wall Street banks.
The report, titled “Ensuring Consistent Consumer Protection for Data Security: Major Banks vs. Alternative Payment Providers,” argues that payment startups collects and transmits roughly the same level of personal data and financial information as the banking industry but “avoids the reach of traditional financial regulators.”
It argues that the Federal Trade Commission and the Consumer Financial Protection Bureau should apply the same rules to startups and tech companies that it does to banks.
The report has not been made public yet. The Clearing House declined to comment when reached by Business Insider this morning.
Startups and big tech companies alike are slammed in the report. It highlights security failings in the Google Wallet and PayPal’s Venmo app and says startups and big tech companies alike should be conducting more regular security reviews to ensure consumers’ security.
It also argues that social networks like Twitter and Facebook that are partnering with startups like Stripe to process payments via an in-network “buy” button must work to secure consumer data that is collected as part of transaction processing.
The report says startups are “likely exempt” from accepted self-regulatory standards elsewhere in the industry that would require banks to store and monitor cardholder data and authentication data.
“Additional legislation might make clear that [alternative payment providers] are subject to the same type of scrutiny with respect to data security as banks,” the report states,”by directly giving the FTC and CFPB examination authority… or by directly requiring the CFPB to exact rules defining larger participants in the industry.”
What happens next could impact some of the hottest startups to take on Wall Street.
Monitoring and protecting consumer data is expensive, and having small startups take on increased compliance costs could throw companies’ cost base out of whack.
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