[author: Karen Ross]
Law Seminars International hosted a mobile payments conference in Atlanta, Georgia on May 17th and 18th that featured high profile players such as American Express, PayPal and Starbucks, major bank regulators, and faculty from leading law firms, consulting firms and industry associations. The conference’s objective was two-fold – to educate attendees about the current mobile payments landscape and to discuss the future of mobile payments. Panels covered, among other things, system options and economics, overseas business and legal ecosystems, the m-commerce customer experience, privacy and data security, and US regulatory considerations.
Throughout the two-day conference many presenters parroted the concept that US consumers will require a robust m-commerce experience with ‘payment’ as one component of a larger value-added experience. For example, Starbucks mentioned that the impetus for its payment app was to provide its customers with Starbucks card balance information, and the payment component followed later. In terms of mobile payment platforms, the consensus was that while most players continue to place their bets on near field communication (NFC) as the system leader, even those that believe NFC is the future have started implementing products based on today’s technology (i.e., cloud computing) to test the mobile marketplace. Bank regulator representatives in attendance also weighed in about their respective agency objectives as they relate to mobile payments and the efforts of their organizations to better understand and regulate the space.
Summary of Select Panel Discussions
Mobile Payments Marketplace
One panel included a mobile payments industry consultant and a representative from the Federal Reserve Bank of Atlanta, which leads the Federal Reserve’s efforts on mobile payments. We learned that the Federal Reserve Banks of Atlanta and Boston plan to update their mobile payments paper entitled Mobile Payments in the United States: Mapping Out the Road Ahead, later this summer. This panel discussed the mobile payments landscape generally and the role of e-commerce as a driver of m-commerce in terms of consumer comfort with online banking and mobile banking leading to more comfort with peer to peer payments, remote mobile payments and NFC payments. The panel discussed how US stakeholders could emulate overseas players where US demographics mirror the foreign market. On the regulatory front, a panelist raised the issue that, in multi-party mobile payments models, banks are being held accountable for their non-bank partners which may not have the expertise or resources to perform the necessary due diligence and, some banks have responded by requesting more regulation over their downstream partners. Another panelist re-characterized the payments race as a battle for data and the ability to mine and use that data in a way that creates a product that is bigger than payments.
Lessons From Around the World
Another panel provided lessons from around the world, in the context of business and legal considerations as mobile payment systems are implemented in major countries outside the US. The panel highlighted population growth statistics around the world and attributed interest in globalization to such growth, but also cautioned that all payments law is local as every country has an interest in protecting its consumers. The panel focused on data protection and privacy laws in the European Union and China, and identified them as a great source of agony to many companies seeking to map US payment products across the world, especially those with Internet based products which could cause a global compliance problem. According to the panelists, some countries even impose criminal sanctions if their data protection laws are violated. Panelists encouraged companies to decide first how they want to play in the space, whether at the margins or full assimilation, then consider the time and money involved in compliance before developing and implementing global payment products.
American Express, PayPal and Starbucks presented on the features of their mobile payments products Serve, PayPal Mobile and the Starbucks App, respectively. A common thread throughout the presentations was each company’s objective to have commerce drive payment and not vice versa.
Data Security and Privacy
On the privacy and security front, Davis Wright Tremaine LLP attorney Randy Gainer highlighted the deficiencies of current technology in the quest to protect consumer data and the privacy compliance issues faced by mobile payments stakeholders. After detailing the weakness of current computer security, he identified NFC, cryptograms and dynamic CVVs as some of the potential solutions to the existing hacking and fraud problems. Randy also discussed the rampancy of class action privacy suits and a courts’ general unwillingness to side with a company that has not provided its consumer with a privacy disclosure that accurately reflects, in a clear and obvious manner, the type of data that is collected and how it is used. However, he identified a pending Supreme Court case Edwards v. First Am. Corp., that may resolve the question of whether actual damages are necessary prior to initiating a class action suit, and a ruling in the affirmative could change this legal landscape because, according to Randy, most privacy plaintiffs would have a difficult time making this showing.
Representatives from the Federal Deposit Insurance Corporation (FDIC), Federal Trade Commission (FTC), Financial Crimes Enforcement Network (FinCen) and Consumer Financial Protection Bureau (CFPB) agencies were also in attendance to discuss the regulatory considerations in the mobile payments space.
FinCen is focused on the types of “activities” it would like prohibit which it hopes would result in regulations that are technology agnostic and that offer flexibility in the constantly-evolving mobile payments space. FinCen points to the recently passed prepaid access rule, which we wrote about here, as a manifestation of that principle. The prepaid access rule — which requires that sellers of prepaid access comply with certain anti-money laundering obligations — applies to sellers of more than $10,000 in prepaid access to any single person in any single day unless the seller has policies in place to prevent the same. When questioned about the types of policies and procedures that would be sufficient to avoid being covered, FinCen clarified that while there are no prescribed policies and procedures, the agency would look to low caps on sales of prepaid access (e.g.., a system that prevents a buyer from buying more than a certain amount of prepaid access at once) or the seller’s ability to leverage existing anti-fraud and anti-theft systems (e.g., surveillance that ensures the same person isn’t purchasing large amounts of prepaid access several times a day). As an aside, FinCen also hinted that it will likely treat virtual currencies as a form of money transmission in the future and virtual currencies would therefore subject to FinCen’s anti-money laundering regulations.
The FDIC believes mobile banking is more likely within its purview than mobile payments. It issued a supervisory journal on the agency’s views on mobile banking and plans to work on a follow-up journal article that will focus on mobile payments for release in the summer of 2012.
The FTC mentioned its organization of a mobile payments task force in an effort to gather the appropriate persons at the FTC together to think about agency objectives in the mobile payment space. Toward that end the FTC has also hired its first Chief Technologist, Edward Felten, hosted its first mobile payments workshop which we wrote about here and a dot com disclosures workshop on May 30, 2012 to discuss advertising and privacy disclosures in online and mobile media. Within mobile payments the FTC plans to focus on dispute resolution, data security and privacy and even where its previous enforcement jurisdiction has been transferred to the CFPB it plans to fulfill its education directives within these areas.
The CFPB plans to approach mobile payments regulations cautiously by evaluating existing rules and determining which rules apply, how they apply and whether they are effective in this space. The agency’s focus is primarily on mobile wallets where new entrants without a long history of compliance (i.e., non banks) could make mistakes and fail to adequately protect consumers.