October 25, 2010
Can mobile payment adoption define the "end game" for technology investment?
Payment cards in the United States have been stuck for years in a chicken-and-egg quandary when it comes to chip technology. Merchants are reluctant to invest in developing the technology until consumer demand for it is there. But without the technology, it may be that consumer demand just won't be there. Add to this the competing forces that are at play: various stakeholders are pulled in different directions—contact versus contactless technology—and the cost of capital for technological investment is borne disproportionately among these stakeholders.
At the same time, we hear anecdotal evidence that losses from payment card fraud are on the rise. As we've described in previous posts, like this one, this trend could change the paradigm, spurring those in the industry to invest in more fraud-resilient, smart-card technologies. With this pressure, it's inevitable that payments card will shift from magnetic strip to chip card technology. But the problem is that chip card technology is constantly evolving, and those stakeholders bearing the costs for investment in new computer chips and terminal hardware infrastructure want some assurance that their investments are sound before they choose which technology path to follow, contact, or contactless.
In the interest of promoting global interoperability as well as battling magnetic-strip payment card fraud, now may be the time for an industry dialogue on a strategy for investment in smart technology. One question we should be asking ourselves in this discussion is, should we avoid investing in contact card technology if contactless mobile payments represent the end game?
Smart card basics: Contact versus contactless
Contact and contactless smart cards are so named because of the way that the embedded computer chip communicates with a terminal at a merchant's point-of-sale or at an ATM. In the case of contact technology, the data stored in the embedded computer chip is transferred to the reader when the card physically touches the reader. With a contactless card, the data is transferred using some type of radio frequency transmission such as near-field-communication (NFC) technology, which is the current contactless card technology standard. NFC technology, of course, precludes the need for a physical connection between the card and the reader. The user can use it in a variety of devices, including the mobile phone. Importantly, contactless technology in the chip can work with the phone itself to authenticate the user and thereby reduce payments fraud.
Countries that rely on smart card payments are using various combinations of contact and contactless payments that conform to certain security standards and specifications to protect consumers and merchants from payments fraud. To encourage consumer adoption, some issuers have introduced dual-interface cards, with both contact and contactless functionality, so that consumers can use either card at the point-of-sale terminal. This approach, with a dual-interface card, optimizes utility for consumers as retail payments evolve to the mobile channel, potentially empowering both the use of contact cards and contactless mobile payments.
The outlook for contactless mobile payments
Although the evolution of mobile payments in the United States has so far been slow, merchants are introducing new pilots with increasing frequency, and many industry stakeholders want to accelerate the deployment of a universal contactless mobile payments infrastructure. Moreover, U.S. consumers are relying more and more on their mobile phones for new and unexpected applications, which points to a good chance of success for mobile-based payments and related activities in the future. In fact, according to a report from the Pew Research Center, 85 percent of American adults today own a mobile phone, more than any other device.
|
|
|
|
Building consensus in the face of market forces
The recent deployment of contactless card payments in global markets is contributing to the establishment of an infrastructure for contactless mobile. In essence, here in the United States, we can go in either direction, contact or contactless. However, in a world where all stakeholders shared the same fully transparent information and vision for the future, could it be possible to leapfrog spending our investment dollars on contact cards and readers and instead use capital on contactless technology? We can avoid the costs for interim technology solutions if industry stakeholders can agree on a future direction despite the different economic incentives and costs demanded. Really, if NFC deployment is the ultimate endgame for mobile payments, bypassing the investment in contact technology as an interim step is a viable, if not ambitious, consideration.
By Cindy Merritt, assistant director of the Retail Payments Risk Forum
October 25, 2010 in cards, chip-and-pin, consumer protection, contactless, mobile payments | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a01053688c61a970c013488750d21970c
Listed below are links to blogs that reference Can mobile payment adoption define the "end game" for technology investment?:
Comments
July 19, 2010
Soccer balls and payment cards: A push for global standards
I am generally not a soccer fan but over the past few weeks I found myself curiously engaged in that nationalistic spectacle called the World Cup. Despite my general disinterest in low-scoring games and Oscar-quality performances by slightly injured players, I got caught up in the intensity of play and extraordinary skill levels displayed by these world class athletes. Then one day a debate erupted regarding standards. Apparently, soccer balls are not standardized and the one being used seemed hard and "skitterish." How bizarre!
Of course, my thoughts immediately turned to a more consequential global-standards issue taking place in the payments card world—the debate about the United States' reliance on the magnetic-stripe card standard as opposed to the chip-and-pin standard being adopted throughout the world, including in neighboring Canada.
Chip-and-pin technology has been deployed in Europe over the last decade as a means of reducing fraud by using the enhanced capabilities of a computer chip embedded in the plastic card to store and manage customer authentication data. Its success has been widely documented in recent fraud studies. This standard has been implemented using a specification called EMV, an acronym of Eurocard, MasterCard, and VISA, the original founders of the standard. In fact, EMV is now a corporation whose ownership has been expanded to include JCB (a Japanese card company) and American Express. So, what's the big deal? We survived the soccer ball dispute, so can't we survive the fact that the United States is not on board with the emerging global payments card standard? The answer may be a resounding "No!"
Various reports from payments research firms such as AITE have suggested that as many as 10 million U.S. travelers experienced difficulties with incompatible card technologies when traveling abroad during the past year. I learned some time ago that the least expensive and most secure way to acquire cash overseas is from an ATM machine. I now foresee a time when I will have to ask a European hotel concierge for the location of an American ATM (one capable of reading mag stripes), only to find out the nearest one is two miles away.
So why doesn't the United States adopt the emerging global standard? While there are many technological and political issues in play, the bottom line is that the overall cost of deployment to the U.S. payments system as a whole, and to merchants specifically, is a staggering number made even more daunting by the current state of the economy and available investment dollars. The Smartcard Alliance estimates that as many as six million merchant terminal devices may need to be replaced or upgraded to embrace chip-and-pin technology, with the bulk of the cost falling on the shoulders of merchants. Consequently, we are left to assume that we are likely to have to travel a long and winding road to migrate to the emerging global standard.
This observation is not in itself calamitous since past roads to worldwide standards are littered with the relics of failure (remember the push to implement the metric system?), but the stakes here are considerably higher in two important ways. First, we may become the only substantial economic power dependent on a payments standard that is less secure than that of the rest of the world. That means that criminals, intent on profiting from card fraud, will continue to migrate to the United States in growing numbers. The second issue is that chip-and-pin technology is a critical element in progressing toward an even more secure and visionary goal—the deployment of mobile phone-based payments capabilities using a chip embedded in the phone. Industry conference agendas are crowded with sessions describing the way a smartphone can be waved near or tapped against a merchant terminal device using radio wave-based near-field communications (NFC) technology to capture the customer's payment credentials. Chips embedded in the phone, coupled with applications loaded on the phone from card-issuing banks, will create the effect of a "mobile wallet" that promises to be more convenient and, yes, more secure than what we use today.
So what should we do about this mess of the United States being out of step with respect to payments card technology? I would suggest that this issue could eventually reach the public policy level. Perhaps it is time for policymakers to consider whether migrating to an increasingly adopted world standard is in our best national interest. After all, we just mandated a move to digital television. While this change facilitated my ability to watch the World Cup in high definition, it cannot possibly be of the same importance as this brewing card issue. If we want to mitigate the possibility of the United States being a center of card fraud and enable our consumers and business folks to travel abroad more easily, it may be time to charge someone in government with developing a well-thought-out, participatory, multi-year plan to move this country to the emerging global payments card standard.
By Rich Oliver, executive vice president, FRB Atlanta's Retail Payments Risk Forum
July 19, 2010 in consumer fraud, mobile payments, risk, telecom | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a01053688c61a970c01348589ba65970c
Listed below are links to blogs that reference Soccer balls and payment cards: A push for global standards:
Comments
July 12, 2010
The confluence of payments, social networks, and malware: Elements of a perfect storm?
Thanks to a rapid increase in functionality and convenience, consumers are becoming more comfortable conducting e-commerce and participating in social networking with mobile phones instead of computers. At the same time, though, social networks are providing cybercriminals with a ready population of potential victims for emerging malware attacks. Similarly, cell phone applications that serve to extend the customer network reach may actually create vulnerabilities to malware attacks. How can the industry manage the security vulnerabilities in social networks as they migrate to the mobile channel?
More consumers using mobile devices to access social networks
A recent report from digital media firm comScore says social network activity is one of the fastest growing access categories on mobile devices. The report states that the number of mobile channel network users more than tripled over the past year, increasing 240 percent to 14.5 million users by April 2010. The report also says that accessing bank accounts is one of the fastest growing mobile phone functionalities, both by mobile application and Internet browser. As of April 2010, consumers used bank access applications 113 percent more than the prior year.
|
|
| ENLARGE |
Social networks represent a growing target for phishing and malware
Social networks are beginning to compete with financial institutions and e-commerce sites as a favorite target for phishing attempts, according to a Microsoft Security Intelligence Report published in November 2009. This chart reflects a dramatic increase in phishing impressions in May and June of 2009 for social networking sites. (The report defines "impression" as a single attempt to visit a phishing page and being blocked by a filter.) Phishing schemes are frequently used to lure consumers into exposing personal data and introducing links to sites with malware downloads.
|
|
| ENLARGE |
Gaming services—such as Farmville and Mafia Wars—available on these sites provide an additional entry point for phishing, spamming, and other schemes. Users are lured to fraudulent Web pages, where they can earn game points by completing surveys and quizzes. A specific example of a malware attack was the 2009 Koobface Worm. Koobface infiltrated numerous social networking sites including Facebook, Myspace, and Twitter by embedding a malicious link in messages that appeared to be from trusted parties. When users clicked the link, they were redirected to a page that appeared legitimate but actually included a download for malware. Once the malware installed itself on a user's computer, it gained access to the user’s personal data, facilitating identity theft payment fraud.
Malware coming to mobile phones
According to a report from security firm Mxlogic, social network malware is targeting mobile phones through subscriptions to these same gaming services, such as Farmville and Mafia Wars. It reports that when users sign up for the subscriptions, they inadvertently consent to receiving text spam that has the potential to infect a phone. Smartphone manufacturers act as gatekeepers to ensure that application developers design apps that meet their proprietary criteria and standards for leveraging their operating platforms, but with thousands of applications on the market today, mobile phones are increasingly vulnerable to data exposure. Application store operators have been proactive in policing applications for security and authenticity. For example, in December 2009, Google withdrew dozens of unauthorized mobile banking applications known as "09Droid" from its system for violating its trademark policy.
Conclusion
Since criminals follow the money, so to speak, it is reasonable to expect that malware authors will be interested in mobile payments and banking applications going forward. The rapid pace of phone application innovation and deployment will challenge efforts to detect and mitigate new malware schemes and other forms of cybercrime. For the consumer, the best line of defense to guard against viruses and malware attacks in any electronic environment is caution, by avoiding links in unfamiliar messages and social network games and choosing downloaded smartphone applications judiciously, if possible.
By Cindy Merritt, assistant director of the Retail Payments Risk Forum
July 12, 2010 in fraud, identity theft, malware, mobile banking, mobile payments, risk, social networks | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a01053688c61a970c013485620cfb970c
Listed below are links to blogs that reference The confluence of payments, social networks, and malware: Elements of a perfect storm?:
Comments
June 21, 2010
Will the migration to mobile payments be tempered by potential money laundering risks?
Generally, mechanisms that hold value, store it, and transfer it anonymously create a potential money laundering risk. The mobile phone in the United States today is slowly beginning to function as a conduit for payments while possibly providing users a certain degree of anonymity. Researchers predict that almost half of all mobile phone users worldwide will migrate to mobile payments by 2014.
Mobile phones serve as a means for accessing financial services, and, in some parts of the globe, mobile payments are providing access to financial services where traditional banks could not. Arguably, monitoring the movement of money via mobile transactions, particularly with a prepaid mobile, can be challenging. According to a senior trial attorney with the Department of Justice, users who provide false identification at the time of purchase or service providers who maintain poor records thwart the mechanisms that could track the origination or transfer of funds, making the mobile payments channel vulnerable to use by money launderers. In fact, the Bureau of International Narcotics and Law Enforcement Affairs of the U.S. Department of State released an article identifying the potential for mobile payments to be used as vehicles for money laundering.
But how much do we know about the money laundering risks potentially associated with mobile payments?
Emerging payments technology: Smurfing goes digital
Money laundering is generally described as having three sequential elements: placement, layering, and integration. However, not all money laundering transactions involve all three elements. Keeping up with shrewd money launderers who look for ways to exploit the payments system can be challenging. Smurfing is one basic technique of money laundering. Essentially, criminals move large sums of money by breaking the funds down into smaller amounts to avoid triggering currency reporting requirements and thereby lessen the risk of detection by authorities. Smurfing requires some ingenuity, but mostly it requires a small army of people, or smurfs, willing to go from one bank to the next to make the small, daily deposits.
In recent years, a variation of smurfing known as digital value smurfing (DVS) has emerged. DVS also involves the breakdown of large sums of money into smaller sums, but the money launderer moves the money electronically. DVS is considered the next generation of smurfing because as the shift from paper to electronic payments grows, digital smurfers can exchange cash for digital value in the form of stored value cards or possibly stored value on the mobile phone. Unlike traditional smurfing, which requires multiple smurfs to move numerous sums of money between financial institutions, a single smurf can do all the work by operating with multiple accounts, including mobile payment bank accounts, prepaid mobile phone accounts, or Internet payment accounts.
If smurfers are able to transfer stored value funds from one mobile phone to another or to other devices without using a bank for the transfer, they would bypass financial reporting requirements. They could also seriously hamper law enforcement's and the banks' monitoring and detection efforts. Could this convergence of financial services and telecommunications impede anti-money laundering efforts?
Making mobile payments more secure
Responding to the global growth in mobile payments, some vendors are providing improved security solutions for mobile money transfers, while other service providers have set limits on the number and amounts of mobile payment transactions and sources of funding and have employed comprehensive "know your customer" programs. Money laundering detection and prevention is an ongoing and difficult undertaking, one that must keep pace with advances in technology that promote fast and efficient movement of funds.
The rapid global growth of mobile payments presents ostensible opportunities for the adoption and enforcement of anti-money laundering compliance requirements in the mobile space. On May 26, 2010, a bill was introduced that would institute an identification requirement for the purchase of prepaid mobile devices, closing the anonymity gap and enhancing the monitoring and detection of potential payments activities. Examining the potential for money laundering risks in mobile payments is the best way to ensure that this new payments channel is not abused, all the while permitting its continued growth and adoption.
By Ana Cavazos-Wright, senior payments risk analyst in the Retail Payments Risk Forum at the Atlanta Fed
June 21, 2010 in mobile payments, prepaid | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a01053688c61a970c0133f1898c92970b
Listed below are links to blogs that reference Will the migration to mobile payments be tempered by potential money laundering risks?:
Comments
June 01, 2010
Mobile P2P money: Contemplating new risks while analyzing adoption potential
Cell phone ubiquity and the growth of wireless networks are helping the world's poor to transcend from informal, cash-based societies to societies with more efficient and safer payments systems. The recent success of mobile operator-led payments services in emerging markets is galvanizing market experimentation in developed countries such as the United States.
Technology ripe for advance of mobile P2P
Mobile network operators and other nonbank firms are beginning to offer mobile-enabled payments transfer services in cross-border environments, using "agents" such as the corner store to accept cash deposits and accommodate withdrawals in lieu of traditional bank branches. These money transfer services, including both domestic and cross-border person-to-person (P2P) payments, are shifting to the mobile channel, providing consumers efficient, electronic alternatives to paper-based P2P payments. However, improved carrier roaming capacity and increased transaction activity may create opportunities for money laundering abuses and other unforeseen financial crimes. As new mobile financial services such as mobile P2P gain acceptance in markets throughout the world, how will industry participants plan for new and unanticipated risks?
The potential for market adoption
According to CGAP—or the Consultative Group to Assist the Poor—more than a billion people worldwide lack access to traditional financial services, but they do have mobile phones. This ubiquity has the potential to extend even more financial services to unbanked peoples throughout the world. In fact, a 2007 survey conducted by the GSM Association found that respondents expected the number of subscribers using mobile domestic money transfers to grow more rapidly for developed markets than for developing markets. These results imply that consumers in developed markets are interested in electronic P2P payment options and would be willing to conduct them via the mobile device.
|
|
| ENLARGE |
The game changer when we think about payment adoption is the ability of the cell phone to execute domestic transfers in addition to international exchanges. This expanded functionality may fulfill the needs of mainstream consumers, as well as the unbanked, by giving them a convenient, cheap, and efficient alternative to writing checks or going to an ATM for a cash withdrawal for low-value exchanges.
The risk environment
In emerging markets, the risks of money laundering, identity theft, and other fraud are very real—they are merely eclipsed by the risks inherent in informal, cash-based systems, such as theft and extortion and possibly more violent crimes. So consumers in these countries where mobile payments are successful are arguably better off today despite the new risks introduced. However, this may not be the case in the United States, where we have a vast array of secure payment alternatives in place already. If convenience ultimately leads to adoption here, as it has abroad, what risks will P2P mobile money introduce, and how will we manage them?
The risks inherent in all retail payments systems are also present in the mobile space, including money laundering, privacy and security, consumer protection, fraud, and credit and liquidity risks. However, the mobile environment adds a dimension of complexity that makes quantifying risk more difficult. Participants in the payments value chain are increasingly disintermediated and outside the traditional legacy banking environment where the regulatory and legal governances are well established. In addition, there are other risks more unique to telecom firms that financial institutions and their regulators lack experience in detecting and monitoring. Finally, the regulatory domains governing banking and telecommunications are accustomed to operating independently and autonomously from one another and may be challenged to work collaboratively.
Implications for the United States
Domestic and international mobile money transfers are gaining adoption in world markets whose participants are likely to transact with U.S. consumers as wireless carriers provide services cross-border. Today, evidence in support of U.S. consumer demand is inconclusive because of the limited availability of P2P services and limited user experience. However, prevalence in offerings may not be the appropriate benchmark for determining whether discussions on risk management and payment system integrity are important going forward, as risk exposure may not be directly correlated to the rate of adoption. In order to protect the integrity and ensure continued security of retail payments systems in the United States, all participants in the emerging mobile payments industry should engage in proactive dialogue on emerging risk issues inherent in mobile money transfers.
By Cindy Merritt, assistant director of the Retail Payments Risk Forum
June 1, 2010 in mobile money transfer, mobile payments, remittances, risk, telecom | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a01053688c61a970c0134828fbace970c
Listed below are links to blogs that reference Mobile P2P money: Contemplating new risks while analyzing adoption potential:
Comments
May 17, 2010
New Payments Spotlight podcast on mobile payments and banking
Play podcast: Mobile Payments and Banking (MP3 7:58)
Transcript
Hardly a day goes by without an announcement or press release about a new mobile payments application. Although U.S. consumers have not readily embraced mobile banking and payments services, we must consider legal and regulatory questions if an eventual uptick in consumer adoption is to occur. For example, what are the implications of mobile financial services on consumer protection laws? What are the risks to the consumer, if any, when telecoms and other private companies are involved in payments clearing and settlement?
We explored these issues in our interview with Mark Budnitz, a law professor at Georgia State University's college of law and a member of the Retail Payments Risk Forum's Advisory Group. Budnitz lectures widely on payments systems before groups such as the American Bar Association and specializes in consumer protection with a special interest in electronic payments systems. This interview is our latest installment in the Payments Spotlight series, which features recorded interviews with experts in the payments industry on relevant risk and fraud issues.
Among the topics discussed in the podcast is the increased interest in mobile financial services in the United States. Recent consumer demand for access to smart phone applications that simplify everyday activities has prompted financial institutions to explore offering mobile financial services. Banks and nonbanks are entering this emerging ecosystem. Software developers, phone manufacturers, telecoms, and others are all looking for ways to participate in the mobile payments and banking value chain.
Consumer protection is a consideration with adoption of mobile payments
Budnitz also expressed his concerns about the implications of mobile payments and banking for consumer protection laws. One example he provided was the potential confusion consumers may face when trying to resolve billing disputes. He noted that the Electronic Funds Transfer Act (EFTA) typically covers error resolution for consumer electronic funds transfers involving a financial institution, but it is not always clear what law applies when a telecom or private company is involved in payments processing.
For now, Budnitz said, consumer protection laws generally regulate the consumer-card issuer and the consumer-merchant relationship but not the multiple relationships among consumers, telecoms, nonbank private companies, and others that are potentially present in the mobile payments world. This omission presents a valid consumer concern and explains consumers' hesitancy with fully adopting mobile banking and payments and how that hesitancy has affected the pace of growth in the United States.
Privacy and security concerns take center stage with consumers
Another concern raised with mobile banking and payments is the potential privacy and security risks. As Budnitz described, "Mobile financial services offer companies new avenues for invading privacy." These companies are able to collect data about consumers that they can sell to other companies.
Surveys have shown that security concerns are a major factor inhibiting consumer acceptance of mobile banking. For example, a 2008 Javelin Strategy & Research study on mobile banking security found that 47 percent of consumers surveyed did not use mobile banking because of security concerns. Furthermore, the survey found that consumers' top fear is having hackers steal sensitive banking data (73 percent) despite available mobile encryption and authentication tools.
Addressing gaps in regulatory and legal infrastructure for mobile commerce
As with most innovation, there is a potential that the legal and regulatory infrastructure will lag behind the development of new mobile banking products and services. Budnitz suggested that the federal regulatory agencies should work cooperatively to anticipate new developments and quickly respond. One way they could respond to a problem is with regulation or interagency guidance. However, he cautioned that the agencies must strike the delicate balance of making regulation that is not so specific that it stifles innovation and not so vague that it is easily misunderstood by consumers and businesses.
Consumer adoption of mobile payments in the United States will partly hinge on addressing the lingering concerns that consumers have about data privacy and security. Budnitz contends that having strong consumer laws in place benefits both consumers and the mobile financial services industry. Consumers who have greater confidence in the system will more readily embrace mobile payments, thereby building the demand needed to make it an attractive business investment.
By Jennifer Grier, senior payments risk analyst at the Atlanta Fed
May 17, 2010 in consumer fraud, consumer protection, mobile payments | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a01053688c61a970c013480ee5f49970c
Listed below are links to blogs that reference New Payments Spotlight podcast on mobile payments and banking:
Comments
April 05, 2010
Consumer confidence the key to U.S. mobile payments future
Americans may have been first to put a man on the moon, but when it comes to mobile payments, the United States takes a backseat to countries such as Finland, China, India, and the Philippines, where mobile phones are used regularly to pay for common, everyday items such as public transportation, snacks from vending machines or street vendors, expressway tolls, and newspapers.
Studies by Juniper Research predict that mobile payments for digital goods will exceed $300 billion per year globally by 2013, while mobile payments for low-value purchases will exceed $75 billion for the same period. The leading regions contributing to this phenomenon included China, North America, and Western Europe. Other studies project that widespread adoption of mobile payments in the United States will occur more slowly, taking at least another five years. Factors such as the U.S. payments infrastructure and concerns over security have stalled its adoption, but recent pilot programs for mobile payments offer signs of gaining momentum.
Creating the perfect catalyst for mobile payments
As part of a broader plan to introduce mobile payments into the United States, mobile phone companies and service operators are increasingly looking at untapped market areas and age demographics where mobile payments may spark consumer interest. Recently, we noted such interest with how funds were raised for the Haiti Relief Fund via the mobile phone. Other opportunities for mobile payments growth can occur at popular annual events such as Austin's South-by-Southwest (SXSW). The event attracts thousands of attendees (of various ages) from around the globe with an interest in music, film, and technology.
Mobile phone studies regularly reveal that most users of smartphones fall between the ages of 25 and 34, while all other age groups are close behind. And according to Javelin Strategy & Research, smartphone owners are more likely to try mobile banking and payments than basic cell phone users, making SXSW a prime opportunity for service providers to introduce the latest in mobile payments technology to mass audiences.
|
ENLARGE |
Fittingly, SXSW served as a venue for testing out Apple's latest iPhone application: TabbedOut. The app allows users to order, review, and pay for tabs at participating restaurants and bars in Austin during SXSW. TabbedOut allows the consumer to retain control of the entire transaction: when to pay, review, and order food or drinks. The instant a tab is opened with a participating merchant, the stored payment information is provided upfront, and the user is able to view the tab directly from the venue’s point-of-sale system. Another mobile payments app gaining popularity, and also available in Austin, is Taxi Magic. This app allows users to reserve, pay for, and track their taxi through a mobile phone. The reservations are directly integrated with the dispatch systems of participating taxi companies.
Winning over reluctant consumers
For the value proposition of mobile payments to strike a chord with U.S. consumers, all participants—carriers, manufactures, financial institutions, and retailers—must work collaboratively to successfully establish mobile payments as another trusted and secure payment channel. Yet in the past couple of years, consumer demand for mobile payments has been minimal.
ENLARGE |
Is the low consumer demand an indication that consumers are waiting for the resolution of the interrelationships between ease and convenience with security and reliability, and calling for a convergence among industry stakeholders?
Envisioning the future for consumers
The continued progression of mobile payments in the United States is dependent not only on consumer demand, but also on consumer confidence that mobile payments are an effective and reliable method of payment. Pilot programs offering expedient payment ease and efficiency must also effectively address these consumer concerns. Ingenious apps and timely deployment of pilot programs that allow the use of a mobile device as a form of payment are certain to pique consumers' interest, but until the United States is closer to transitioning from cash, debit, and credit cards to mobile payments as the preferred way to pay, mobile payments will remain a novelty and less of a necessity.
By Ana Cavazos-Wright, payments risk analyst in the Retail Payments Risk Forum at the Atlanta Fed.
April 5, 2010 in mobile payments | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a01053688c61a970c013110034c20970c
Listed below are links to blogs that reference Consumer confidence the key to U.S. mobile payments future:
Comments
March 29, 2010
Synthesizing the mobile ecosystem: Resolving customer problems in mobile payments clearing and settlement models
The folks engaging in the early stages of the mobile payments industry have coined the term "mobile ecosystem" to describe the environment into which they are trying to merge the traditional roles of telecommunications with those of payments and banking. While some in this fledgling industry are already becoming disenchanted with the grandeur of the "ecosystem" terminology, the concept does suggest a useful model for thinking about the challenges faced in this new arena.
A few weeks ago I received a new issue of National Geographic that contained a fantastic article (and even more fantastic pictures) of the unique ecosystem of the African island nation of Madagascar. The ecosystem of this large island, located off the southeastern coast of Africa, has yielded an extraordinary collection of plants and animals that live in a tropical setting interrupted by some truly anguished geological formations. The local ecosystem is, of course, actually a collection of subsystems (plants, animals, climate, topography, etc.) that have adapted over time to work seamlessly together. For example, large families of lemurs leap fearlessly and safely among knife-sharp rock formations because their hands and feet have developed coarse, leather-like padding over thousands of years.
In the mobile ecosystem, we see a similar makeup of subsystems that must work together. The technology and operational components, while not trivial, are clearly achievable, and many are in place today. The challenges that lie ahead, however, are in the sub-ecosystems of law, regulation, data security, data privacy, customer care, and profitability. Depending on the nature of some of the mobile payment solution alternatives, the banking and the telecommunications industries find themselves wondering if they can coexist on the same island. Is there enough value to the customer to generate the revenue necessary to fund a mobile payments initiative? Who gets or shares the revenue? Who is responsible for data security and authentication, and how does that credential or certainty get passed along the mobile payment supply chain? Who resolves the customer's problem if a mistake is made? What consumer protection rights exist in case of error or fraud, and do those rights change depending on whether a traditional payments system is used to settle the transaction? Are proven models in other countries transportable, or are the characteristics of the economics and user base too different?
With respect to customer care and protection, I recently asked an audience of representatives from the full span of the mobile payment value chain, "Who owns the customer in a mobile transaction?" Gratifyingly, they agreed they all did. However, the true ownership response may ultimately depend on the nature of the transaction and agreement on who is liable if anything goes wrong. Take the case of a person-to-person payment initiated by Consumer A (Barbara Buyer) to Consumer B (Gloria Girl Scout's Mom) for payment of six boxes of Girl Scout cookies (three Thin Mints and three Trefoils). In a telephone-based clearing model, Barbara would enter the requisite $21 in the payment instruction and designate the phone number of Gloria's mom in the recipient field, and both their phone bills would be adjusted accordingly. Now suppose that Barbara was distracted by her daughter's chiding that she really wanted Samoas and carelessly entered $210. Since the payment never went through the payment system, Barbara Buyer cannot rely on traditional banking regulatory protections or problem resolution processes. She must resolve the problem with her phone provider, who has already credited Gloria's mom. Alternately, given PayPal's March 16 announcement of an iPhone app to send money to another person, PayPal's resolution procedures could be in play.
If, however, Barbara's phone company clears the transaction through a mobile service ACH backend, or Barbara pays Gloria's mom through a P2P service offered by her bank, the error resolution process is likely through normal banking customer service channels, and the adjustment process may be managed differently, assuming an adjustment process is contractually spelled out in either case. In reality, Barbara would probably get Gloria's mom to write her a check for $189 to straighten things out. While this may seem like a trivial example, it does dramatize some of the issues that must be worked out in the new ecosystem of mobile payments to make such services work effectively for the customer's benefit.
Given these difficult challenges, it seems likely that various models will initially emerge within alliance groups (one phone company, one or more application providers, a few partner banks, etc.) before they begin to converge into one or more universal market models. Along the way, one hopes that the key participants can collaborate to anticipate the types of risk issues that could arrive in the real world so that the consumer's experience turns out to be one that encourages growth. In the age of e-mailing, twittering, and facebooking, it is increasingly clear to me that mobile banking and mobile payments are in our future and that they will be a very attractive service to some key sectors of our population. However, they will be extremely slow to develop if critical mass issues such as those mentioned above are not resolved up front. In fact, this would be a good place for banks to try new, customer-friendly approaches to consumer education and disclosure that match the payment channel being used and the customer demographic.
By Rich Oliver, executive vice president, FRB Atlanta's Retail Payments Risk Forum
March 29, 2010 in authentication, data security, fraud, mobile banking, mobile payments, risk | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a01053688c61a970c0133ec4d8601970b
Listed below are links to blogs that reference Synthesizing the mobile ecosystem: Resolving customer problems in mobile payments clearing and settlement models:
Comments
February 16, 2010
Haitian crisis: Are mobile payment discussions an unexpected consequence?
The earthquake in Haiti caused massive destruction that ultimately leveled the capital city of Port-au-Prince and resulted in the deaths of thousands of people. As charitable assistance has poured in from around the world, an unexpected revelation has come to light with respect to the potential for mobile phone–enabled payments. Within a matter of days, wireless network operaters facilitated millions of dollars in donations, demonstrating how quickly people all over the world could assemble to adopt a single payment method for a specific purpose. Through the use of text messaging, or SMS (short message service), via the mobile phone, consumers could send payments to a variety of charitable organizations providing aid to Haiti.
Convenience of text messaging can drive adoption
I heard someone say recently that "convenience is like a drug for consumers." This convenience is possibly why texting is outpacing e-mail messaging as a mainstream form of communication—the ubiquity of mobile phones makes texting increasingly easier, cheaper, more convenient, and perhaps a natural vehicle for sending payment instructions. According to research released by Nielsen Mobile, the typical U.S. consumer sends and receives more SMS text messages than telephone calls. Mobile SMS is already widely used in developing countries to facilitate mobile money transfers for domestic person-to-person payments and cross-border remittances.
What if something goes wrong?
In many developing countries, mobile money transfer payments are transmitted via SMS without a bank partner to facilitate clearing and settlement. As described in an earlier post, Safaricom's M-pesa service provides mobile phone–enabled payments through text message instructions, with cash-out needs accommodated by agents, typically a village store or wireless retailer. But many of the payments are peer-to-peer in nature and funded by topping up the consumer's mobile phone bill. In the Haiti example, customers also could fund the payment by adding the value of the donation to their phone bills or by debiting a bank account.
Of course, the legal and regulatory environments in the United States differ markedly from developing markets like Kenya, where the M-pesa mobile payments service has grown so rapidly. The risk environments also differ significantly. In Kenya, a consumer faces less risk of loss in a mobile-enabled payment environment than the cash-based system that prevailed only a few years ago. U.S. consumers have many choices in payments and enjoy legal protections if service providers fail to consummate the payment transaction.
So what happens if the $20 donation instruction you sent to Haiti appears as a $200 or even a $2,000 charge on your bill? What if there is a disagreement about the error between you and your wireless carrier? What else could go wrong?
Protection for consumers
One of the growing challenges created by payment innovations is the creation of new laws and rule sets, which provide different protections depending on the payment type. This challenge is further complicated as payments converge and assume different formats along the supply chain. For example, a payment initiated via a credit card on a mobile device is subject to error resolution procedures and consumer protection standards established by the card networks. Similarly, Regulation E covers electronic transactions initiated from a bank deposit account. But if you disagree with a charge to your phone bill for a payment, it is questionable whether the error resolution provisions of Regulation E would even apply. As telecom firms become more important participants in retail payments, what laws and rule sets can consumers look to for protection when things go awry?
Of course, these issues are highly hypothetical but also very possible. Telecom firms and mobile payment service providers are filling new roles in mobile payments, forcing business models that we know today into a new paradigm. Perhaps the crisis in Haiti will serve as a catalyst for proactive thinking on risk issues so that all industry participants can work together to build a safe and trusted mobile sector of commerce.
By Cindy Merritt, assistant director of the Retail Payments Risk Forum
February 16, 2010 in collaboration, emerging payments, innovation, mobile network operator (MNO), mobile payments, telecom | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a01053688c61a970c0120a89d1472970b
Listed below are links to blogs that reference Haitian crisis: Are mobile payment discussions an unexpected consequence?:
Comments
December 28, 2009
Mobile money transfers: Benign P2P or hawala money?
Informal value transfer systems (IVTS) such as traditional trade and barter have existed since the beginning of time and still serve legitimate purposes today. While informal payments may provide benefits such as improved reliability and convenience to users over formal systems, they may also create regulatory and risk management challenges. Person-to-person (P2P) payments via the mobile phone, also known as mobile money transfers (MMT), represent an innovation with the potential for use in informal channels as nonbanks, many of which are start-up firms, extend services in a cross-border enviroment.
IVTS were defined by Nikos Passas to describe "any network or mechanism that can be used to transfer funds or value from place to place either without leaving a formal paper trail of the entire transaction or without going through regulated financial institutions." One of those systems is hawala, which has its origins in classical Islamic law and is mentioned in texts of Islamic jurisprudence as early as the eighth century. Hawala drew interest from the U.S. government after 9/11 because payments are exchanged on the honor system without a paper trail. With this arrangement, it could be difficult to determine if a transfer of funds was for legitimate purposes.
In addition to hawala, Passas identified other important IVTS to include gift and money transfer services via Internet sites, Internet-based payments and transfers, and stored value cards, such as prepaid telephone cards, to name a few. IVTS systems and mechanisms range from basic and traditional exchanges to modern and sophisticated ones.
ENLARGE |
Passas' initial work predated the recent developments in the mobile payments channel and certainly came before the growth in mobile enabled P2P and the use of prepaid airtime for remittances, as described in an earlier edition of Portals and Rails. When P2P payments are conducted by mobile carriers in a bank-agnostic ecosystem, do they potentially represent a more sophisticated, modern-day informal payment system?
MMT: The fastest-growing mobile payment
P2P payments represent possibly the fastest form of financial transaction enabled by mobile phones, driven by the steady growth in remittance markets, the ubiquity of cell phones themselves, and the desirability for an electronic P2P payment alternative in developed countries like the United States. Research firm Gartner recently identified mobile money transfer as the first of the top 10 consumer mobile applications in 2012, made possible by developments in smart handsets like the iPhone. Separately, ABI research predicts that almost three times as many consumers worldwide will use mobile phones to conduct P2P payments than those who will use them to conduct mobile banking functions by the end of 2011.
Formal versus informal
GSMA (Global System Mobile Association), the alliance of mobile network operators, launched the Mobile Money Transfer Programme initiative to promote the mobile channel and formalize international remittances. With low barriers to entry, roaming capacity, and a growing unbanked market in developed countries, start-up firms may offer informal MMT services, including international and domestic P2P in cross-border markets to expand their customer reach and network opportunities. While informal payment systems can provide means for legal transactions, the lack of transparency could potentially provide bad actors the opportunity for money laundering and other financial crimes.
Nonbanks, like telecom firms and others, are rapidly entering the financial services arena, creating an uncertain regulatory environment as laws and regulations vary from country to country. Will mobile P2P innovation permit service offerings that are characterized as informal payments with the potential for misconduct? Will violators of money-laundering laws go undetected as stored-value mechanisms move from the plastic card to the mobile device? These questions will no doubt be the focus for regulators in many markets going forward as they attempt to understand both the operational and regulatory risks money transfer services have the potential to introduce.
By Cindy Merritt, assistant director of the Retail Payments Risk Forum
December 28, 2009 in emerging payments, innovation, mobile payments, remittances, risk, telecom | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a01053688c61a970c0120a78682bf970b
Listed below are links to blogs that reference Mobile money transfers: Benign P2P or hawala money?:
