Are you more likely to leave your house without your mobile phone or without cash? Very few of us carry cash anymore, but according to the March 2016 Board of Governors of the Federal Reserve System report entitled Consumers and Mobile Financial Services 2016, 87 percent of the U.S. adult population has a mobile phone. And the number of consumers using mobile technology to access financial services and make financial decisions continues to grow. As smart phone use becomes more prevalent, so has the demand for alternative forms of person-to-person payment without the use of cash.

The rise in use of mobile banking and nontraditional payment services is prevalent among younger generations, minorities, and unbanked and underbanked consumers. According to the most recent Federal Reserve survey, 56 percent of the unbanked and 100 percent of the underbanked used at least one type of alternative financial service. “Underbanked” was defined as “having a bank account but also using an alternative financial service (typically from a nonbank provider), including a money order, check-cashing service, tax refund anticipation loan, pawn shop loan, payday loan, auto title loan, or a paycheck advance/deposit advance. The adoption of mobile payments, which include purchases, bill payments, charitable donations, payments to another person, or any other payments made using a mobile phone through an app, a mobile web browser or a text message, is also increasing. With mobile payments we also find potentially licensable money transmission activities including “sending money to friends or relatives within the United States (25 percent)” and “sending money to relatives or friends outside the United States (5 percent).”

As the demand for these types of alternative payments increases, more non-depository financial services providers are looking to increase market share by adopting mobile payment services. A quick search on Apple’s app store revels hundreds of available apps under the “finance” category. These apps are not only for traditional brick-and-mortar financial institutions, but also for a variety of money transfer companies, payday lenders, virtual currency wallets, and bill payment and person-to-person payment services. For example, at least seven different apps are available that offer a way to send and receive person-to-person payments. Depending on how these transactions are structured and which parties take possession of funds along the way, the need to hold a variety of different regulatory licenses may be triggered.

Before a non-depository financial institution decides to launch any app-based services, they need to not only engage someone to perform a survey of potential licensing triggers but also engage regulators in a conversation regarding the proposed services so that the first time a regulator hears of the service isn’t in the context of an unhappy consumer.