Senate Committee to Hold Series of Hearings on Mobile Payments on Cellphones

"You're probably looking at one of the most important areas of growth over the next couple of decades,” said Sen. Mark Warner, D-Va. “You could end up having a marketplace set a whole bunch of fees that could be hidden, baked into your telecom bill, or baked into your provider bill, or pre-baked in if you've got a prepaid card. … I don’t have an answer on what that should look like.”

Warner said mobile banking should “have appropriate rules of the road, but we don’t want to inhibit it going forward.” Warner, who before his government career helped found Nextel, called for more hearings. “Somebody is going to bear this risk -- different type on pre-paid, different type on putting it on telecom, different type in directly putting it on the retailers.” By preparing now, “we can set the rules before this industry grows too quickly,” he said. “I'd make a bet that this payment system around mobile is going to be huge.”

Ranking Member Richard Shelby, R-Ala., interrupted Warner to warn of the dangers of over-regulation. “We want this to grow,” Shelby said. “The market will grow it, innovation will grow it. But we also could choke it to death by regulation and pricing and price fixing.”

"I agree with you, we don’t want to choke this off through over-regulation,” Warner responded. “We just ought to know what we're getting into ahead of time.”

Data privacy and security are key concerns, said Kenneth Montgomery, chief operating officer of the Federal Reserve Bank of Boston. “Consumers need to have the option to opt out from information that is being collected about them,” he said. “Likewise as they're using particular services provided by mobile phone and mobile payments, they should be very much informed about what that data is that is being collected.” Montgomery added, “We have to ensure that there is security through the entire channel of delivery.”

"Industry is very concerned about security,” said Sandra Braunstein, director of the Division of Consumer and Community Affairs at the Federal Reserve. She said an increasing number of consumers are using their mobile phones for banking, with one in five conducting some banking activity in the last 12 months. “Consumers below age 29 have readily adopted mobile banking and make up almost 44 percent of all consumers surveyed who use such services,” she said. Blacks and Hispanics also are more likely to use mobile banking, she said. “Of those consumers who had not adopted mobile banking, the primary reason given was that they felt their banking needs were being met through more traditional means,” she said. “Security concerns were the second most-cited reason for not using mobile banking."

Consumers also increasingly are using their phones to check their account balances or available credit before making a major purchase, Braunstein said. Consumers also report using their phones to browse product reviews or get pricing information while shopping.

"This will be the first in a series of hearings, and future hearings will delve deeper into discrete policy areas,” Johnson said. “I would note that today we are exploring mobile payments, not mobile banking. Although both require a cellphone or a smartphone, mobile banking is simply a service that allows consumers to access their bank account over the Internet, on a mobile device, so they can perform account transactions. Mobile payments are much more. They allow consumers to pay for a purchase or transfer money using a mobile device. The device takes the place of cash, check or card.” The bottom line, Johnson said, “is that as the mobile payment system evolves, it is important for this committee to provide proper oversight so that these payments can be secure and convenient.”