Mobile Payments and Looming Regulation

by Daryl Cornell 0

The March 8, 2013 Federal Trade Commission staff report, Paper, Plastic… or Mobile? was the first shot across the bow. It should be a wakeup call to anyone in the industry who thinks that Federal regulation of the growing mobile payments industry is not imminent. The report cites the FTC’s interest in mobile payments as “…its mandate to protect consumers in the commercial marketplace, as well as its broad jurisdiction over many of the companies that participate in the mobile payments ecosystem.”

Specifically called out in the report are “hardware manufacturers, operating system developers, application developers, data brokers, coupon/loyalty programs, payment card networks, advertising companies and retailers and other merchants.” This report would seem to indicate that it is not a question of if FTC regulations are coming but when and which?

The report is extremely bullish on mobile payments and projected industry growth, citing the high rate of smart phone penetration and the large number of well-known participants jockeying for position in this potential multi-billion dollar industry. Strong consumer willingness to engage in mobile payment use is tempered only by the high level of consumer security concerns. Interestingly, it appears that the FTC is far more concerned about consumer privacy issues than are consumers themselves.

Reading between the lines, it would appear that the FTC is focused on fixing a number of payments issues not exclusive to mobile, including:

• The disparate treatment of consumer fraud protection by credit, debit, and prepaid products. Look for the FTC to push for standardization around the current credit statutes.

• The general lack of mandatory fraud liability limits, fee disclosure and dispute resolution for prepaid/reloadable card users. This appears to be a hot button for the FTC as many prepaid users are classified as under-banked. Look for the FTC, in conjunction with the CFPB, to push for increased prepaid protections along the lines of current credit statutes.

• The overall lack of an effective dispute resolution process as mobile products add charges to consumer cellular bills. Look for the FTC to mandate that mobile carriers act more like card issuers in tracking and resolving disputed charges; and

• Consumer privacy concerns as more detailed customer data is collected through mobile payments technologies. Look for the FTC to restrict consumer data collection or, at a minimum, allow for consumer opt out of the collection of non-transaction data.
While the FTC encourages the development of secure mobile payments technologies, the FTC has made it clear that they will continue to monitor this space to ensure that consumers have adequate protections. Mobile payments constituents would do well to consider not only evolving technologies but the evolving regulatory framework as well.

Daryl Cornell is President and CEO of Triton Systems. If you would like to read more from Daryl, visit Triton’s blog. Read Cornell’s Executive Spotlight on Payments Journal. Visit the Mobile Payments Strategy Session, as well as the Self Service and Convenience Strategy Session.