Big Tech Can't Protect Its Own Data. Why Are We Giving them Access to the Federal Reserve?

America’s Big Tech companies are, to put it bluntly, a complete mess. On November 6, 2019, Facebook admitted to yet another privacy breach. According to Facebook’s Director of Platform Partnerships, the social media platform accidentally exposed sensitive, personal user data to approximately 100 app developers that shouldn’t have had access to that information.  

This error is yet another in a long line of data protection blunders for Big Tech. Just last year, Google suffered a massive security breach that left the data of some 52.5 million users unsecured. Clearly, these companies have shown that they struggle to even protect their own data. So it shouldn’t be controversial, then, that these same institutions which regularly face such major security issues shouldn’t be given direct access to the Federal Reserve. 

You might think it’s crazy to provide companies like Facebook and Google the keys to the single most powerful financial institution in the United States, and you’d be right. But that could very well be the direction the Federal Reserve is heading with the introduction of FedNow, the Federal Reserve’s proposed Real-Time Payment (RTP) system.   

If initiated, FedNow could theoretically facilitate the instantaneous transfer of money from any U.S. bank account to another. It’s something that private companies, like The Clearing House and Zelle, already offer, connecting more than half of deposit accounts. Despite FedNow seeming unnecessary with the private sector’s success, it is a system that Big Tech companies are pressing hard for—and it’s easy to see why. More than anything, these businesses want power, and they know the public sector is their best chance at receiving it.   

Absent FedNow, various tech companies currently offer their own form of real-time payments. Google Pay, for instance, allows its users to instantly transfer funds from their bank to pay for goods and services. The difference is that it must facilitate these RTP transfers through using federally chartered banks that serve as intermediaries—entities replete with regulations designed to prevent the misuse, abuse, and mishandling of potentially compromising financial information. As financial institutions with money transmitter licenses, Big Tech does have some data, privacy, and information security requirements it is supposed to hold to, but nowhere near the amount required of chartered banks. Those very consumer protections are exactly what Big Tech companies seem to be looking to circumvent.

Under the Fed’s proposed RTP system, non-depository institutions (entities other than banks) could be given unprecedented access to the Federal Reserve, allowing them to use FedNow just as banks would despite them not having to hold to the same strict safety and soundness regimes. This change would be a massive boon to Big Tech, as it would offer companies like Google and Facebook the thing they seem to crave above all else: an artificial competitive advantage over their competitors. 

Indeed, FedNow’s implementation creates the potential for major consumer data privacy violations to occur. It is, therefore, incumbent upon Congress to act, ensuring that Big Tech companies do not have the opportunity to mishandle the Federal Reserve’s extensive financial resources. Luckily, Congress will soon have its chance.  

On Wednesday, November 13, 2019, Jerome Powell, the current Chair of the Federal Reserve Board, is set to testify before the Joint Economic Committee. Senator Mike Lee and the rest of the committee must take that opportunity to question the Chairman about his proposed RTP system.  

Questions like how FedNow will integrate with current RTP systems—and how that will affect competition within the banking industry—are all vital issues to consider. But more than anything else, Big Tech’s role within FedNow must be heavily scrutinized. Will the Fed’s RTP system provide tech companies like Google and Facebook with unfettered access to the Reserve’s resources? If so, how does Powell hope to prevent the mishandling of consumer data that will almost inevitably result? 

These are questions to which Americans deserve answers. And come November 13, it will be Congress’ job to demand them.