The mobile payments revolution has provided consumers with unprecedented options at the checkout counter. In addition to cash, consumers have myriad payment options, including prepaid cards, debit cards, credit cards, virtual currency, gift cards, mobile phone billing, and person to person payment systems. While these different payment systems allow consumers convenient access to their money, there are numerous potential pitfalls, both for individuals and the industry, by way of regulatory gaps and inconsistencies. These issues are magnified by the fact that these different payment methods may be loaded onto and initiated by mobile devices, which can compound the regulatory, cybersecurity, data privacy, and consumer protection concerns.
- Regulatory Concerns: Depending on the payment method effectuated by the mobile device, consumers may find themselves with little or no right to redress and financial institutions may find themselves answerable to the FTC, CFPB, various state level regulators, or even the FCC. As regulators become increasingly aware of these new forms of value transfer, new regulations will develop and existing regulatory gaps will close. It is imperative that the financial institutions offering these services and products remain aware of all regulatory developments and adjust their compliance programs accordingly.
- Cybersecurity Concerns: Each transaction method has its own cybersecurity strengths and vulnerabilities which may expose sensitive consumer data and leave both the financial institution and consumer exposed. The financial and reputational risks are great and must be met with robust cybersecurity protocols which, though they may not be required by law, will leave everyone more secure.
- Data Privacy Concerns: Mobile payment platforms may expose consumer data to both merchants and mobile payment providers. Because this data is tied to a single individual, it is quite valuable and may be aggregated into databases and then sold. As regulators become more attune to the risks presented, they are likely to step up efforts to implement privacy protection around mobile devices.
- Consumer Protection Concerns: Though mobile payment platforms potentially offer lower fees and are therefore attractive to the young, underbanked, and unbanked, the multiple entities involved in these transactions may drive up fees and negatively impact the consumer. The necessary fee disclosures may differ depending on payment method and increased regulation in this area is likely.
The market for mobile payment platforms is growing and is on pace to supplant more traditional payment methods, especially as financial institutions shift away from brick and mortar and into an increasingly digital environment. Regulators are certain to monitor these developments and will focus on closing existing regulatory gaps and drafting new regulations where necessary. Equally, as industry adopts new products and technology, it must analyze whether their existing compliance functions are sufficient or must also be modernized.