How building a framework for mobile payments that keeps the consumer experience in mind will go a long way towards developing consumer trust and widespread adoption of these new products and services
by Duane Pozza, Patricia Poss, James Chen, Carrie Gelula,FTC
For years, there has been growing anticipation about the use of mobile payments as a regular way for consumers to pay for goods and services. Recently, this anticipation has reached a fever pitch. For instance, one survey of 1000 financial services, technology, telecommunications, and retail executives revealed that 83 percent of those executives believed that mobile payments would “achieve widespread mainstream consumer adoption” by 2015.
As a result, it is no surprise that in just the past year, several large and most well known companies – including Google, Intuit, AT&T, Verizon, T-Mobile, Visa, Mastercard, and Verifone – have entered or increased their presence in the mobile payments market. Smaller start-ups such as Dwolla, LevelUp, and Boku also are vying for a seat at the table. As the nation’s consumer protection agency, the Federal Trade Commission (“FTC”) is committed to staying abreast of technologies that affect consumers to ensure that consumer protections keep pace with these technologies.
Emerging technologies
Towards that end, the FTC has actively addressed developments in mobile technology through workshops, policy initiatives, and enforcement actions. In 2000, the FTC held its first workshop to examine emerging mobile technologies and the issues they raised for consumers. Since then, it has held workshops on the applications and implications of Radio Frequency Identification (“RFID”) technology, the role of mobile commerce, the emergence of contactless payment systems, and advertising and privacy disclosures in mobile environments.7 In addition to workshops, the FTC has brought law enforcement actions relating to mobile technology issues, including a number of actions against mobile application (“app”) developers.
The agency also obtained settlements with large players in the mobile marketplace such as Google and Facebook, requiring them to implement comprehensive privacy programs for all of their internet and mobile services.
The FTC has further issued policy reports, including a report setting forth a privacy framework that would govern players in the mobile ecosystem,10 and two staff reports highlighting the lack of meaningful privacy disclosures associated with mobile apps directed at children. The FTC also has developed and disseminated consumer and business education on mobile apps.
Its interest in mobile payments stems from 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. Mobile payments frequently involve entities such as hardware manufacturers, operating system developers, application developers, data brokers, coupon and loyalty program administrators, payment card networks, advertising companies, and retailers and other merchants.
Jurisdiction
The FTC has jurisdiction over all of these entities and this jurisdiction also extends to telecommunications providers when they are not engaged in common carrier activities. Thus, mobile phone operators engaging in payment functions such as mobile carrier billing are under FTC jurisdiction.
Additionally, the FTC enforces provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that regulate interchange fees involving entities such as card networks, state-chartered credit unions, and other entities not regulated by the Federal Reserve. The FTC further shares joint enforcement jurisdiction with the Consumer Financial Protection Bureau over non-depository providers of financial products or services, such as payment processors.
A study issued last year by the Board of Governors of the Federal Reserve System, entitled Consumers and Mobile Financial Services, examined the growth of mobile banking and mobile payments.
The Federal Reserve found that 87% of the United States population owns a mobile phone, 44% of which are smartphones. Only about 12% of mobile phone owners had made a mobile payment in the past 12 months, and the most common use of mobile payments was to make an online bill payment (47% of mobile payment users). Concerns about the security of the technology were the primary reason given for not using mobile payments (42%). However, there appears to be significant interest among mobile phone users in expanding how they use mobile technology to access financial services.
Under-banked
The Federal Reserve found that even among mobile phone users who do not currently use mobile banking, 28% report that they will definitely or probably use mobile banking at some point. Further, the under-banked make comparatively heavy use of both mobile banking and mobile payments, with 29% having used mobile banking and 17% having used mobile payments in the past 12 months.
To learn more about the mobile payments industry and its effects on consumers, the FTC convened a workshop, taking a very broad view of mobile payments and included technologies and products in which a payment is made using a mobile device, such as payments made through Near Field Communication (“NFC”) technologies, mobile apps, online checkout wallets, and mobile carrier billing.
The workshop began with an overview of the innovative products and services being developed and the potential changes coming for consumers and merchants. The first panel explored the emerging options for consumers using mobile payments. Panelists spoke about the potential benefits that mobile payments offer. For consumers, mobile payments can be an easy and convenient way to pay for goods and services, get discounts through mobile coupons, and earn or use loyalty points.
Alternative systems
Mobile payments also may provide under-served communities with greater access to alternative payment systems. For merchants, mobile payments may lead to lower transaction costs by allowing a consumer to utilize funding options other than a credit or debit card. Mobile payments may also spur competition among payment methods, benefitting consumers and merchants alike. While mobile payments offer many potential benefits to consumers, they also raise consumer protection concerns. Panelists identified three primary areas where concerns are likely to arise with the increasing use of mobile payments: dispute resolution, data security, and privacy.
The FTC issued an in-depth report surrounding these topics and highlighted those areas where they believe continued monitoring and attention are warranted. They found it was clear that building a framework for mobile payments that keeps the consumer experience in mind will go a long way towards developing consumer trust and widespread adoption of these new products and services.
Their overall findings stated that without question, mobile payments have the potential to provide significant benefits to consumers and businesses. Industry is experimenting with many technologies, business models, and partnerships that provide consumers with new and exciting products and services. Although the industry is still young, FTC staff encourages those developing mobile payment products and services to create them with financial, security, and privacy protections in mind. The FTC will continue to monitor mobile payment options, and to evaluate whether consumers have adequate protections and the information they need to make informed choices about these new and innovative services.