Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.
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November 15, 2010
Retail Payments Risk Forum publishes white paper on mobile payments
Everyone has a cell phone these days, and that ubiquity is paving the way for wide acceptance of mobile money person-to-person transfer services, also known as MMT. Emerging countries, where the mobile channel provides a safe, efficient environment for conducting financial transactions and improving financial inclusion, have been especially quick to adopt MMT. In contrast, mobile payment adoption in the United States has been slow, but many experts believe that, with more people acquiring smart phones and having access to all the applications that go with them, MMT is on the brink of becoming widely accepted.
As roaming agreements between wireless carriers and the globalization of commerce in general work together to render our world's geographic borders irrelevant, how quickly can we expect these services to migrate to the United States? More importantly, as various forms of electronic payment crimes emerge, what should the industry do to prepare for new mobile services in a cross-border environment?
To answer these questions, the Retail Payments Risk Forum recently published a white paper titled "Mobile money transfer services: The next phase in the evolution in person-to-person payments," which describes the current landscape for these services and examines the risk environment for mobile money for both developed and emerging countries as new business partnerships between bank and telecom firms take shape.
MMT has the potential to catalyze the mobile financial services market
Infrastructure developments to support MMTs could support the evolution of other financial services. According to the GSM Association, this infrastructure provides the basis for the concept of the mobile wallet, which will allow mobile phones users to conduct banking, proximity payments using the phone at a merchant's point-of-sale terminal, and remote mobile payments, including domestic and cross-border mobile transfers.
The mobile money risk environment
The risks inherent in all retail payments are also present in the mobile space, including money laundering, privacy and security, consumer protection, fraud, and credit and liquidity. As mobile financial services evolve, there will be a number of issues to consider for managing the new risks mobile phone-based payments stand to introduce. The emergence of more nonbank participants in the distribution of mobile payments, including telecom firms and their agents along with technology vendors, may create additional risk considerations for payment regulators. Since mobile technology-enabled payments do not require the face-to-face interaction that takes place with traditional banking, the resulting opaque, anonymous experience can also create more opportunity for criminal activity. This will be increasingly important in a future where mobile retail payments will occur rapidly and across geographic borders, potentially outside the purview of traditional regulatory oversight. Payments regulators have limited expertise and experience in identifying electronic payments crime in communication systems—so the potential for abuse is a real and imminent threat that is still abstract and not well understood in this early stage of the game.
Policy considerations for industry stakeholders, policymakers, and regulators
The integrity and safety of the world's retail payment systems rely on cooperative information sharing about service developments and potential gaps in regulation. A number of considerations should remain at the forefront of industry discussions.
- The new mobile landscape will require dialogue between the regulatory authorities for financial services and telecom firms. Financial and telecom sector regulators will need a comprehensive understanding of the emerging risks in mobile payments with a collective eye toward the potential need to establish new regulatory concepts of electronic money regulation. This may demand a program for routine communication to ensure that regulators understand payment system risk issues and provide effective risk-based supervision for payment services providers.
- An oversight infrastructure for mobile payments, including the financial services of telecom firms, should be established. This oversight might be established through a routinely convening workgroup representing applicable regulators or the creation of a new organization with expertise in the unique and dynamic risk issues in mobile services.
- Cross-border mobile payments may require improved customer-data sharing on an international basis. The anticipated growth in mobile remittances may demand a new environment of international cooperation and sharing of customer data and analysis.
- U.S. mobile payments services providers should be required to establish programs to mitigate the risk of money laundering. Mobile services will require new methods for detecting and monitoring data flows. All service providers, including telecoms, will need to establish risk management programs commensurate with the risk in their service offerings.
- Converged regulatory authorities should examiner consumer protection risks for potential gaps in regulatory oversight. In the United States, it may be necessary to reexamine the applicability of Regulation E protections to stored-value payments as they become more prevalent in the mobile channel, in order to prevent consumer confusion in error resolution scenarios.
The experts are right in saying that mobile adoption still low. But the rapid pace of change means that industry stakeholders, and especially regulators, need to be forward-looking and anticipate where the winds of change will blow. A rearview mirror approach to addressing emerging risks in mobile payments can be modified with proactive thinking, dialogue, and global collaboration.
By Cindy Merritt, assistant director of the Retail Payments Risk Forum
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