Monopolists’ Holy Grail

The quest to combine banking and commerce has been one of the holy grails of robber barons for centuries. In the nineteentth century, industry tycoons like John Pierpont Morgan and Jay Gould used their banking fortunes to finance the expansion of their own railroad projects. In the twentieth century, banking empires such as A.P. Giannini’s TransAmerica (now Bank of America) controlled manufacturing ventures from oil and gas to home construction and even frozen foods before Congress forced the conglomerates to divest from commercial enterprises.

Bankification usually follows the same pattern: Once businesses dominate their market, monopolizing the heavy-industry sectors isn’t enough. Companies instead set their sights on acquiring the lifeblood of commerce: banking, where they can make money off of money by lending capital to be repaid with interest and collecting fees on financial transactions.

Instead of haggling with risk-averse bankers or courting new investors for financing, corporations could set up their own financial institutions to receive customer deposits, tap these pools of capital to fund their own projects at better rates, and cut off banking access to competitors that encroach on their market share or unions that meddle with the business.

Ever greater financialization, however, has crippled the American economy.

After a wave of financial deregulation in the 1980s, Wall Street looked to expand beyond the bounds of traditional finance. In the corporate raider era, private equity firms and hedge funds began acquiring ever more Fortune 500 companies through buyouts and stock market ownership. The pressure to deliver shareholder returns pushed companies to outsource manufacturing jobs overseas, leaving the United States with an economy dominated by high finance and software technology.

Despite industry titans’ plans for total control of the financial economy, lawmakers have long recognized that cross-ownership of banking and commerce would concentrate too much financial risk.

“We treat banks as systemically important to our society, so we subsidize them as a public good through things like FDIC insurance, because if they go out of business, that’s a problem in a way that Macy’s going out of business isn’t,” explained Brad Lipton, the director of the corporate power and financial regulation program at the Roosevelt Institute and a former senior consumer financial protection regulator during the Biden administration. “You don’t want to mix the two.”

Regulators first established a firm legal separation between the sectors with the National Banking Act of 1864, which codified rules for national banking charters. The Bank Holding Company Act of 1956 shored up those rules, taking aim at the banking subsidiaries that conglomerates were using to circumvent regulations.

But corporate America has continuously found ways to circumvent these legal prohibitions.

The last major fight to ensure a clear separation between banking and commerce took place in the wake of the 2008 financial crisis. In the lead-up to the disaster, which would result in over five million foreclosures and roughly ten million job losses, giant commercial firms like General Motors and General Electric used a decades-old legal loophole to operate “industrial loan companies.” These largely unregulated financial arms made poor lending decisions, such as acquiring growing portfolios of risky subprime mortgages. The mass defaults of these mortgages ultimately contributed to their owners’ bankruptcies, requiring federal bailouts.

The Dodd-Frank Act, passed in 2010, tried to put an end to these industrial banks by issuing a federal moratorium on new bank charters, among other banking reforms. But since then, a bold new wave of bankification has taken shape, further diverting companies’ resources from production to financial extraction.

The Digital Horsemen of the Banking Apocalypse

In 2020, a general partner at the venture capital heavyweight Andreessen Horowitz delivered a speech titled “Every Company Will Be a Fintech Company.” The presentation outlined the vision behind a nascent industry called “embedded finance,” urging companies of all kinds to integrate financial services into their operations or lose out on future growth.

“Embedded finance” now appears in startup pitch decks and conference panels nearly as regularly as terms like AI and crypto, acting like a Pavlovian bell to get the attention of financiers for seed capital.

“The business world realized that adding a financial services element to nearly every product is a way to supercharge their attractiveness to Silicon Valley and Wall Street,” said Seth Frotman, former general counsel at the Consumer Financial Protection Bureau during the Biden administration.

Along with other major investment firms, Andreessen Horowitz now holds substantial stakes in these ventures. The venture capital fund has estimated that adding financial services, from selling insurance product warranties on goods to speeding up the online checkout process by leveraging data collection, can boost companies’ revenues by two to five times per customer and generate $230 billion in added revenue by the end of this year.

Big Tech’s main focus so far has been payment processing services, for which they can charge fees on each transaction. Apple Pay, the largest of these networks, already boasts nearly 750 million active users worldwide and facilitates transactions worth trillions of dollars.

Google, Meta, Amazon, and now even OpenAI also operate their own payment networks, which act as middlemen to facilitate contactless transactions and manage customers’ money. Along with financial technology companies like PayPal, Venmo, and CashApp, these payment apps offer digital wallets, usually connected to customers’ bank accounts, that store balances and transfer funds.

These payment networks have transformed the financial services industry so quickly that Wall Street banks are running scared.

Despite these products’ ostensible convenience for consumers, payment processing services come with a variety of financial risks.

For starters, while payment networks’ transaction fees are far lower than the credit card companies’ swipe fees, as these payment networks become more ubiquitous and acquire market power, rates could increase. Apple Pay collects a standard commission of less than a percent on every transaction, which in aggregate amounts to a billion-dollar windfall for the company.

Tech companies are also effectively managing their customers’ digital balances without the protections of traditional financial institutions. When money sits in a bank account, it’s usually insured by the Federal Deposit Insurance Corporation (FDIC), a federal agency that reimburses depositors’ money if it disappears during an event like a bank run. But funds sitting in a Venmo account or a stored-value account in Apple Wallet are not insured.

Financial regulators estimate that these payment apps are holding billions of dollars of completely uninsured deposits. If the apps suffered a technical glitch, got hacked, or unexpectedly went bankrupt, customers could lose their money. This happened in 2024 when Synapse, a technology company connecting fintech apps like Juno and Yotta with banks, suddenly collapsed, putting nearly one hundred thousand customers at risk of losing their life savings. Thousands did.

Amanda Fischer, a financial policy expert at the research organization Better Markets, notes that there’s also a taxpayer risk if these payment processing services collapse. With their current growth rate, tech giants’ banking footprints could become “too big to fail,” potentially requiring a taxpayer bailout to avoid a nationwide economic collapse.

“Imagine the millions of people that use Amazon are now maintaining balances on their account, and something goes wrong with Amazon corporate,” said Fischer, who served as the chief of staff and senior counselor to the chair of the Securities and Exchange Commission during the Biden administration. “It’s a really good way to take the U.S. government hostage.”

There’s another concern: A driving factor behind Big Tech’s payments networks — as with all embedded finance — is the new opportunities it provides for consumer surveillance.

“Payments have gone from this really sleepy blackwater to the cutting-edge forefront of consumer issues, and a lot of that is due to the monetization of financial data,” said Frotman, the former Consumer Financial Protection Bureau general counsel. Frotman added that users’ financial information is one of the last remaining frontiers for data privacy. That’s because sensitive financial data, unlike online shopping patterns or location tracking, has typically been well protected at tightly regulated banking institutions.

By running payment networks, Google, Meta, and Amazon have a God’s-eye view into financial transactions that take place not just on their own platforms but across others when users pay with their digital wallets.

In a 2023 speech, former Consumer Financial Protection Bureau Director Rohit Chopra said that the tech firms “have a strong incentive to surveil all aspects of a consumer’s transactions, since this data can advantage the rest of their businesses.”

By identifying users’ purchasing habits, tech companies could exploit those tendencies to sell people more goods or keep them on the platform. What’s more, by controlling banking services, tech companies can also cut users out of the financial system for any reason, in a process called “debanking.”

“Corporate surveillance activities can also raise a range of questions about espionage, tracking, and censorship,” said Chopra.

Simultaneously, Silicon Valley’s entry into banking has also created a countervailing bankification effect: Threatened by Big Tech’s encroachment, Wall Street firms are now trying to edge into tech’s core business. JPMorgan, for example, launched an advertising brokerage last year to compete with Big Tech’s digital advertising empire.

Credit Card Companies That Fly Planes

It’s more likely than not that bankification is already hiding in plain sight in your wallet. While your credit cards used to be simply branded with big bank names like Chase, Capital One, and American Express, now they’re often linked to specific corporate brands, like Costco, Disney, Netflix, and even NASCAR.

More and more businesses, especially in retail, are offering credit cards to encourage consumer spending on their brands. More than half of the country’s top one hundred retailers, for example, now offer their own business-specific credit cards, including Target, Macy’s, and Nordstrom.

The resulting revenues, split between businesses and the partnered credit card companies, are highly lucrative. For the top segment of large retailers, payments on store-specific cards generate up to 14 percent of company profits, a critical income stream for businesses operating on relatively thin profit margins. If not for the hundreds of millions it makes from its widely used credit cards, the Kohl’s department store chain would be in the red.

No sector is more dependent on its credit cards than the airline industry. Even though all of the country’s major airlines lost money on flying passengers last year, the companies still earned billions in operating profits — mostly from revenues they earned from unregulated frequent-flier programs they operate through branded credit cards.

In 2023, Delta Air Lines, the world’s most lucrative airline, generated the bulk of its $4.6 billion in operating income from its deal with American Express, and so far this year, nearly all of its earnings have come from the credit card company. This arrangement led the legal scholar and airline expert Ganesh Sitharaman to conclude that “frequent-flier [points] systems… turned airlines into something more like financial institutions that happen to fly planes on the side.”

While these frequent-flier programs promise rewards like discounted seats or free flights, experts say these perks are rarely good deals for consumers.

As recent investigations and government probes have revealed, airlines have been known to put their thumbs on the scale to devalue and distort points when it helps their bottom line. That includes a 2024 Department of Transportation investigation that probed the airlines for systematically devaluing their point systems and raising reward thresholds to reduce the number of free flights and other perks offered to customers.

“Airlines will [deviate] the point prices compared to the dollar price… in order to affect the overall value of the monetary supply of points,” said Brian Shearer, director of competition and regulatory policy at the Vanderbilt Policy Accelerator. “It’s almost as though they’re acting like their own central bankers.”

For example, Delta in 2023 switched the metric for its SkyMiles points system from miles traveled to total customer spending, which dramatically devalued the points accrued by its customers. The changes were met with widespread outrage by budget-conscious travelers, since their flights would no longer generate as many points. One well-known blogger at the credit card–focused travel site The Points Guy declared that he would “stop chasing airline status.”

Similarly, credit card reward programs in other industries rarely pay off for customers.

“Consumers think they’re getting convenience, but businesses get new ways to monetize your data and make revenue [off] you,” said Adam Rust, director of financial services at the Consumer Federation of America. “The trade-off in the end balances out to favor companies in ways many consumers don’t realize in terms of the security and privacy of their money and data.”

At a basic level, loyalty rewards work similarly to a punch card at a coffee shop. The difference is that credit card rewards programs use far more sophisticated financial tools and technology to create a vastly more intricate system that stacks the deck in favor of companies’ bottom lines.

Take Starbucks and Dunkin’, which run two of the country’s largest retail rewards programs. Starbucks boasts over thirty million users, while Dunkin’ claims over ten million.

Both programs reward customers with a free coffee if they preload a certain amount of money onto their digital rewards apps, to be used at the stores’ locations.

The total balances held across these digital apps have exploded, in Starbucks’ case to nearly  $2 billion, larger than the balances managed by many small- and medium-sized banks — except without any of the same regulatory oversight.

A significant portion of the clientele who sign up for these programs forget about their balances and never spend them. Customers have essentially placed their money in a savings account that accrues no interest, while giving these conglomerates an interest-free loan to use at the company’s discretion.

If Starbucks or Dunkin’ ever experienced financial difficulties or went out of business, these digital funds could evaporate. That might not be as implausible as it sounds, considering how Wall Street firms have acquired and stripped once-powerful retail empires like Toys “R” Us for parts. When the private equity-backed bowling alley chain Bowlero merged with bowling competitor Lucky Strike and rebranded in 2023, the balances that customers had stored on their Bowlero rewards card vanished overnight.

The Consumer Crunch

Loyalty reward scams aren’t the only problem with retail credit cards.

For one thing, the cost of such credit cards is usually higher than that of non-retail cards. In 2024, 90 percent of retail credit cards had annual percentage rates (APR) above 30 percent, compared to just a third of other cards. According to government regulators, retail credit cards are, in general, among the most expensive credit options, thanks to their excessive fees and interest charges.

These high fees are so important to the credit card companies that a Biden administration rule to cap late fees at $8 threatened to significantly cut into industry profits. The Chamber of Commerce, the country’s largest business lobbying group, immediately sued the agency to block the rule.

To take advantage of these high fees, retailers are forcing their workers to become credit card salesmen. “Companies are enlisting low-wage workers to target other low-wage earners with predatory products,” said Frotman.

At employers such as Macy’s and Kohl’s, retail workers’ compensation is reportedly dependent in part on hitting sales quotas for signing customers up for store credit cards. Such requirements have become the source of contract disputes during union bargaining at some stores.

With their salaries on the line, retail workers are often forced to hawk cards to customers without adequate training to evaluate creditworthiness. For this reason, regulators have warned that the underwriting standards for retail cards are less stringent, which may be driving customers into bad deals and debt.

“Does anyone think this is going to end well?” asked Frotman.

On average, retail cardholders are more likely than other credit card customers to carry a balance and only pay the minimum monthly amount due, which increases the likelihood of going into debt, according to government findings.

In health care, the peddling of credit cards can be even more exploitative, contributing to the nation’s ballooning medical debt crisis.

For the millions of Americans who lack health insurance or aren’t fully covered, doctors and nurses are now offering these cards or other installment loans to help them pay their medical bills. While these cards were historically offered just for elective procedures, they’re increasingly being promoted for basic health expenses and medical emergencies. CareCredit from Synchrony Financial, one of the largest financial players in the medical space, now carries 11.7 million cardholders and lists over 250,000 health care partners.

While medical credit cards can reduce care providers’ billing and administration costs, regulators have found that the sale of these cards often comes with minimal disclosure of the unforgiving terms, high rates, and other predatory practices. In some instances, the cards have been sold to patients whose procedures, unbeknownst to them, might have been covered by their insurance or nonprofit hospitals’ bill-forgiveness programs.

“We transcribed phone calls that we had with hospitals to kind of show how they’re softly nudging people toward these payment products,” said Eli Rushbanks, the general counsel at the patient advocacy nonprofit Dollar For, which submitted a public comment in 2023 calling for a government inquiry into the matter. “We took screenshots of websites that really blend the ideas of what’s Medicaid, what’s charity care, and what’s a payment plan under just sort of a nebulous umbrella of financial assistance.”

The American Prospect even reported that regulators have learned of instances in which patients had no memory of agreeing to use a medical credit card. It turned out that they had been signed up for the service while they were under anesthesia.

On the Cutting Edge of Predation

In their quest to embrace embedded finance, companies are venturing into new, unregulated areas of banking and lending.

Rideshare apps Uber and Lyft have developed company-issued debit cards, payment processing apps, and even in-house auto lending programs that they offer to their drivers. These payment services aren’t covered by the FDIC, and the lending arms have been taken to court for illegal, exploitative practices such as charging higher interest rates than the industry average. All of these financial arrangements threaten to lock rideshare workers into their jobs, as their employer serves as their de facto banker.

Amazon similarly began offering workers a product called “earned wage access,” which lends them their salary before payday, putting them in debt to their boss. The earned-wage-access industry has been criticized for exploiting low-income workers by charging steep penalties for late payments.

Most prominently, big-box retailers and grocery stores are increasingly offering “buy now, pay later” options at checkout, providing consumers short-term financing for purchases that they often can’t afford.

Buy now, pay later is a short-term financing option that provides smaller loans to be paid back in incremental installments. Sometimes promoted as zero-interest loans, buy now, pay later options often involve costly late fees and sneaky terms that can saddle borrowers with sky-high interest rates if they don’t pay off the loan on time.

While buy now, pay later programs often charge merchants higher transaction fees than credit cards, nearly all major chain stores now offer the option because it helps generate more sales. A number of companies, including Costco, are now integrating buy now, pay later options from providers like Affirm, Klarna, and Afterpay directly into their websites and apps to capture a larger share of the resulting revenues.

These deals encourage retailers to push a largely unregulated financial product. Over a quarter of all Americans now use buy now, pay later programs, and according to a recent survey from LendingTree, roughly 25 percent of those customers regularly use the option to pay for basic items like groceries. Even more concerning, 40 percent of buy now, pay later borrowers reported missing at least one of their installment payments, leading to late fees.

“The marketing of buy now, pay later loans can make them appear to be a zero-risk credit option,” read a 2022 Consumer Financial Protection Bureau report identifying “several areas of risk of consumer harm.” The report concluded that borrowers with buy now, pay later plans were more likely “to be highly indebted,” to “have delinquencies in traditional credit products,” and to exhibit “high levels of financial distress.”

The agency’s assessment also noted that buy now, pay later lenders may be engaging in a form of “regulatory arbitrage” by strategically operating in the shadows and avoiding stricter legal standards imposed on other financial markets.

Along with preying on consumers, embedded finance also targets small, independent businesses.

Fintech companies such as Shopify, PayPal, and Twitter founder Jack Dorsey’s Square offer business-management services for nascent enterprises, including transaction processing, one of the biggest logjams in digital retail. But these benefits come with a catch: The platforms steer small businesses toward merchant cash advances, a virtually unregulated financial service that’s been accused of exploitative practices.

Merchant cash advances provide businesses with lines of credit, but instead of expecting direct reimbursement, lenders take a fixed percentage of the businesses’ sales until the end of the loan term. By arguing that their product is not a loan covered by financial regulations but rather an investment in their borrowers’ business, merchant cash advance providers are free to saddle businesses with exorbitantly high payments and avoid state caps on excessive interest charges.

Regulatory Disaster

America’s long-standing efforts to separate banking and commerce haven’t kept up with the breakneck growth of nonbank financial institutions. While these businesses engage in many of the same kinds of lending as banks, they don’t accept traditional commercial deposits. That means they’re not subject to the same regulatory oversight from banking authorities tasked with protecting consumers from financial risk.

The digital app Juno, for example, advertised itself as a “complete replacement for banking” with better savings rates — except without consumer protections like FDIC insurance. So when Synapse, a software company that Juno relied on for back-end tech services, collapsed in 2024, many Juno customers lost their entire savings.

During the Biden administration, the Consumer Financial Protection Bureau and other agencies pursued a range of actions and investigations aimed at mitigating the risks associated with the burgeoning embedded-finance market. Government investigators probed predatory practices in retail credit cards, medical debt loans, buy now, pay later services, and digital payment apps. Some of the probes led to new regulations, such as a 2024 rule that extended financial regulators’ supervisory authority to Big Tech payment platforms and regulated them as strictly as banks.

That rule drew ire from the tech industry and was immediately terminated by the Trump administration, along with a host of other Biden-era financial reforms. Since then, one of the country’s top financial watchdogs, the Consumer Financial Protection Bureau, has been systematically dismantled under the direction of the White House.

The Trump administration has even indicated it will reopen applications for industrial loan companies, the auto industry–owned banks that played a role in the 2008 financial crisis. The news inspired each of the country’s Big Four auto companies to file new applications to operate their own banks.

The result is that consumers have been left to navigate the strange new world of bankification on their own — with troubling consequences.

Take Paula, a Florida resident, who had to undergo an emergency dental procedure that cost thousands of dollars. Her insurer wouldn’t cover it, so her dental practice recommended she sign up for a CareCredit payment plan to afford the bill.

According to a public comment letter submitted to consumer regulators by the advocacy group Consumer Reports on her behalf, Paula paid the requested amount each month — but when the plan’s zero-interest promotional period expired, she still had a remaining balance of $700, so interest payments kicked in. The following month, Paula’s bill doubled to $1,400. It turned out that thanks to Care Credit’s unregulated fine print, the company charged interest on the total up-front cost of her medical bill, rather than her remaining balance.

For Paula, the frictionless convenience offered by embedded finance wasn’t a panacea — it was a debt trap.

As she put it bluntly in her comment letter, “I would rather be in pain and suffer than pay the exorbitant interest charged to me.”