Lead Agency, Faster Adoption, Adequate Security Lacking In Mobile Payment Space

Mobile payments are expected to generate $215 billion by 2015, said ranking member Carolyn Maloney, D-N.Y. As the industry moves forward “it creates innovative and exciting opportunities for citizens at home and work,” she said. As mobile payments become more prevalent, “it’s important to look at the hurdles facing their implementation,” the cost to merchants and the cost of protections for consumers when hackers steal their data, she said. “We have to make sure security is not abandoned for the sake of this technology.” Technology is moving so fast, “it’s hard to keep up with it,” said Rep. David Scott, D-Ga.

While the payment services industry has protections for consumers conducting transactions in the mobile space, it’s working to add more layers, said Ed McLaughlin, chief emerging payments officer at MasterCard. As mobile payment use evolves, “we need to constantly focus on making payments as simple as possible” and provide the highest level of security to consumers, merchants and financial institutions, he said. MasterCard offers built-in safeguards and a “zero-liability” protection making its “PayPass” digital wallet service as safe as swiping an actual credit card, he said. MasterCard plans to transition payment products in the U.S. to the Europay, MasterCard, Visa standard, which ensures “interoperability and acceptance of payment cards on a worldwide basis,” he said. Protecting mobile payments is a shared responsibility across the payments ecosystem, said Troy Leach, PCI Security Standards Council chief technology officer.

The existing regulatory framework applies to near-field communication (NFC)-based transactions, said Randy Vanderhoof, Smart Card Alliance executive director. Although NFC payments are used with a phone instead of a card, the account remains a credit or debit card account and “is already well-protected for consumers and industry stakeholders by existing laws and regulations,” he said. Consumers will benefit from and trust a structure “that has a strong focus on security,” he said. Without standards, cardholder data can be too easily accessed, “and then used to commit fraud,” Leach said. This year, PCI plans to release guidelines for merchants on effectively using security requirements with encryption technology, he said.

The U.S. is behind other countries in adoption of digital wallets, said Suzanne Martindale, Consumers Union staff attorney. Some systems in the U.S. “remain limited in scope and availability,” she said. Google Wallet is only available for Sprint Nextel phones and Bling Nation is only available through pilot programs in Chicago; Palo Alto, Calif.; and Austin, Texas, she said. In developing countries, it has taken off “like wildfire,” but those systems may not be replicated in the same way in the U.S., she said. In those countries, “the wireless carrier helps you manage your funds,” Martindale said: Consumers still have security concerns and “the level of protections varies depending on whether a consumer links payment to a credit card, debit card,” phone bill or other account. The use of prepaid products can lead to more adoption among the “underbanked” population, McLaughlin said. The widespread use of mobile devices in that population will let payment services “reach the individuals that we haven’t been able to reach through traditional bank branches."

Some witnesses said oversight in this arena is on shaky ground due to the overlap in responsibility among the FCC and other agencies. The FCC oversees the wireless industry, “but they have no experience with payments,” said Richard Oliver, co-author of Mobile Payments in the United States: Mapping Out the Road Ahead. When it comes to overseeing the use of a phone in a non-communication transaction, “the fingers point in all different directions,” Martindale said: Consumers will expect the carrier to act, “but that is, at best, unclear.” Scott bemoaned the uncertainty: People “lose their phones all the time. … It seems the consumer can really get bamboozled here with a lot of financial burden and now all this is going on, and we don’t have a regulator for it? We've got some work to do.”