Federal Rules Coming for Mobile Banking, as Adoption Numbers Rise with Smartphones
Federal agencies are still working on how to approach mobile payments, said Kate Kingberger, U.S. Treasury mobile payments specialist, at an event Monday. The Financial and Banking Information Infrastructure Committee (FBIIC) at Treasury is working to maintain security and consumer protection and to define federal regulations, said Kingberger. Adoption rates have been increasing for mobile banking because of growing smartphone adoption, but security remains an issue for some, said Federal Reserve Board economist Max Schmeiser at the event on mobile payments.
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Mobile banking is primarily used by young people, said Schmeiser, citing a Federal Reserve Board report comparing trends in mobile banking from 2011 to 2012 (http://1.usa.gov/11O33Lm). The report evaluates an online survey conducted by the Federal Reserve in November 2011 and 2012, said the report released in March. Nearly 28 percent of mobile phone users in a survey report using mobile banking in 2012, compared to 21 percent from 2011, said the report. The use of mobile banking is higher for smartphone users at 48 percent, up from 42 percent in 2011, said the report. Mobile phone users expressed interest in using their phones for comparing prices when shopping (39 percent), receiving and managing discount offers and coupons (27 percent) and keeping track of finances on a daily basis (25 percent), said the report. Schmeiser said usefulness and security are the reasons why consumers would not use mobile banking.
Consumers were concerned with hackers gaining access to their phone remotely (30 percent), losing their phone or having it stolen (11 percent), and experiencing data interception by a third party (9 percent), the report said. Through the FBIIC, Kingberger said she’s working to address some of these concerns. “We need to think about the input of information and if it is coming from Wi-Fi or the cellular service,” said Kingberger. With prepaid accounts, there’s also the worry of how secure connections will be, she said. “If you prepay $100, there’s another level of obscurity, rather than having $5 deducted from your account each month,” said Kingberger. While the FBIIC, which first began meeting only six weeks ago, is still its early stages of working on mobile payments, it’s trying to figure out what the risks will be to financial institutions when it comes to mobile payments. Bitcoins, purchased with real money and sent digitally using a special software client to merchants that accept the currency, are the latest innovation in mobile payments, Kingberg said. “Bitcoins are an important topic right now, but there could be other implications when they are used for illegal purposes,” she said.
Nineteen federal agencies hold some sort of regulatory authority or interest in the mobile wallet sector, including Treasury, FCC, FTC and Federal Reserve, said Brooks Harlow, an attorney with Lukas Nace, in a separate presentation. “Carrier” model mobile wallet services -- those that work directly with a carrier and charge for the service on a carrier’s bill -- face “heavy” federal regulation through the FCC, particularly over cramming and privacy issues, Harlow said. Mobile wallet services that have a relationship with a carrier must comply with expanded regulations over the use of customer proprietary network information in marketing, he said. All mobile wallet services must comply with other privacy rules, such as the Children’s Online Privacy Protection Act and the Telephone Consumer Protection Act, which bans telemarketing unless a consumer provides “express” consent beforehand, Harlow said. All services must get that consent “in writing” as of Oct. 16, he said. There’s also continued dispute over access to a phone’s near field communication and secure element, Harlow said.
Other mobile wallet service models face their own regulatory issues, Harlow said. Mobile wallet services that follow the “bank” model -- all of which are backed by legally recognized banks -- face massive federal and state regulation, he said. Many services attempt to avoid falling into the bank model because of the high level of regulation, with PayPal being a prime example, Harlow said. PayPal instead falls into the “money transmitter” and “merchant/aggregator” models because it acts as an intermediary, placing undisbursed PayPal funds in commercial interest-bearing checking accounts rather than storing the money itself, Harlow said. “Merchant/aggregator” mobile wallet services also act as intermediaries, he said. “Merchant” mobile wallet services -- essentially an electronic gift certificate -- is the simplest model, but still must comply with merchant-related laws like the Uniform Commercial Code, the Electronic Funds Transfer Act and the Federal Reserve’s Regulation E, Harlow said.