Paper, Plastic, . . . Mobile? The question isn’t about how you bag your groceries — it’s about how you pay for them. Are you going to use cold hard cash? Swipe a credit card? Wave your smartphone? Last year the FTC hosted a workshop to look at the innovative ways consumers can use their mobile devices to pay for things. The latest steps: a Staff Report just issued by the FTC and a workshop on May 8, 2013, to consider some of the consumer protection challenges presented by mobile billing.
The mobile payments industry is in its infancy and already people have scads of choices — mobile apps, online checkout wallets, technologies like Near Field Communications, and mobile carrier billing, to name just a few. For consumers, mobile payments can be a convenient way to pay for things, get discounts through mobile coupons, and earn or use loyalty points. For people who don’t have ready access to traditional financial services like banking and credit cards, mobile payments may open doors that have been closed until now. The news is good for businesses, too. Mobile payments may lead to reduced transaction costs by letting shoppers use funding options other than credit or debit cards.
While mobile payments offer many potential benefits, they also raise consumer protection concerns. As the FTC Report explains, workshop panelists identified three areas where issues are likely to arise:
Dispute resolution. According to the Report, consumers need to understand their rights and protections when choosing to use a mobile payment service. Companies should develop clear policies regarding fraudulent and unauthorized charges and clearly convey those policies to customers. To the extent consumers need additional protections, policymakers will have to consider the benefits of providing consistent protections across mobile payment options and weigh that against the costs of implementation. One particular concern: cramming — the practice of third parties placing fraudulent charges on people’s phone bills. The way mobile carrier billing works makes this a challenging problem to solve. That will be the topic of the FTC Roundtable on May 8th.
Security. One thing is for sure: Mobile payments involve the movement of lots of sensitive financial information through the payment channel. The Report suggests that mobile payment providers increase data security and encourage the adoption of strong security measures — for example, end-to-end data encryption – throughout the system. The Report also encourages stakeholders to help raise awareness about the security issues involved and the steps consumers can take to protect themselves.
Privacy. The large number of companies involved and the huge amount of data collected mean that mobile payments raise consumer privacy concerns. The Report calls on industry members to adopt the three basic practices set forth in the FTC’s Privacy Report: 1) privacy by design, 2) simplified choice for businesses and consumers, and 3) greater transparency.
Yes, the industry is new, but companies developing mobile payment services should nevertheless create them with financial, security, and privacy protections in mind. Building a framework for mobile payments that keeps customers at the forefront will go a long way toward developing consumer trust. The FTC will continue to monitor the mobile payment marketplace to evaluate whether consumers have adequate protections and the information they need to make informed choices about these new services.