Introduction

The FCA has published its findings from a thematic review on mobile banking and payments (TR14/15). The review is a response to the ever growing use by consumers of mobile banking services.  The FCA’s purpose was to consider and determine how firms achieve good consumer outcomes in the delivery and expansion of the mobile banking and payments service market and to take a view on developments.

“Mobile” banking services – what are they?

This sector involves the provision of mobile payments and banking services. Mobile payments services enable consumers to make payments using a mobile phone, tablet or other handheld device. Mobile banking refers not only to mobile payments services but also to services that a consumer may use to access information such as statements or account balances.

Regulatory Landscape

Whilst the FCA only regulates part of the mobile banking market in the UK it reports that firms and products outside of the regulation still have a significant effect on the market. In this regard, the FCA’s stated objective is to ensure that financial markets work well. Even though the findings of the review are aimed at regulated firms, the FCA calls upon non non-regulated firms to take note of this review and consider mobile banking and how it may work better for consumers.

Firms involved in mobile banking may require access to UK payment systems to make transfers. The FCA confirms that it is working closely with the Payment Systems Regulator (PSR)[1] to ensure a consistent and joined up approach. It also confirms that it is closely following events relating to the Payment Services Directive II (PSD2) and the European Banking Authority’s work on the risks emanating from innovative payment methods. 

Scope and methodology

TR14/15 must be read in conjunction with the FCA thematic review of August 2013, Mobile banking and payments – supporting an innovative and secure market (TR13/6) (the “Interim Review”).  The findings of TR14/15 build on the areas of risk identified in the Interim Review. Notably TR14/15 does not consider issues as to fraud or anti-money laundering. The FCA considered that firms were suitably addressing these issues.

The current market

The FCA encourages innovation and competition. However, this must not come at the expense of consumer protection. 18 million mobile transactions were reportedly made per week in 2013 and the FCA is encouraged that this review found no evidence of crystallized harm to date as a result of mobile banking and payment services sector.

The FCA estimates that 25% of account holders are active users of mobile banking services and that this number is growing. The FCA is keen to ensure that as consumers begin to access more and more routine services in a mobile manner, that consumers who do not have access or who do not use mobile or online services for their retail banking, do not find themselves financially excluded. The FCA warns that this could occur if firms begin to exclude certain routine services from being available “in branch”.

Customer profiles may well be easily generated to target and offer simple forms of insurance and loans in a mobile manner, however firms must be aware that complex products may not be as straight forward to offer in a mobile way.

The key findings

TR14/15 identifies 5 areas for firms developing mobile banking and payment services:

  • How easy it is for consumers to understand their legal rights and obligations when using mobile banking products and services, and what firms are doing to aid consumer education.

Firms are encouraged to ensure consumers are aware of their rights when using mobile services and understand that the protections afforded are the same as are in place when making payments by other means. The FCA flags two particular examples: Consumers must know (i) how to report unauthorised transactions (and so potentially help them identify fraud) and (ii) what they can do if they make an error in a payment transaction.

  • How firms ensure that the knowledge and understanding of key decision makers in the business is in line with the pace of innovation.

Senior management need to have sufficient knowledge and understanding of the products on offer to ensure they are right for consumers and delivered in the right way.  The FCA stressed the importance of strong governance and control frameworks to ensure that appropriate information regarding mobile banking would be suitably escalated to be considered.  It was reported that where senior management were most informed, they had access to data and consumer indicators on mobile banking in management information, to assess performance and outcomes.

  • How firms ensure consumers’ sensitive personal data and funds are secure, and technology is sufficiently robust to cope with changes in consumer behaviour when making payments.

The FCA reported that the most common reason for consumers not using mobile banking and payment services was a fear of security being compromised. The FCA’s work suggests that firms understand the importance of having high standards of security and good practices in place to protect the consumer as regards (i) data protection, (ii) protection of the funds held and (iii) the use of encryption for security. Firms were reminded however of the importance of investment in security. The FCA has also indicated that increase in usage of mobile services would be a significant factor for resilience. Accordingly firms are encouraged to (i) monitor consumer usage, (ii) be prepared for the periods when usage is highest and (iii) have firm measures in place to resolve technology issues quickly.

  • How firms providing mobile banking products and services retain oversight of third parties and outsourced functions involved in the delivery of their product offering to consumers.

The review identifies participants such as network operators, device manufacturers, software providers, credit institutions and technology providers as pivotal to this sector. Despite these participants, the ultimate responsibility to the consumer lies with the firms – it is the firms that must carry out appropriate research and monitor these participants in order to protect consumer outcomes.

  • How new entrants to the mobile payments arena ensure they have adequate knowledge and understanding of the regulatory framework surrounding payments.

The FCA has implemented “Project Innovate” and Incubator – initiatives to help educate new entrants understand the regulatory environment surrounding payments. 

What Next?

The FCA will continue to work with firms to understand developments in this sector – firms are encouraged to be open with the FCA therefore and to adopt a business approach focussing on consumer outcomes. In the meantime, firms should consider the areas commented on, how they apply to their business and how their mobile banking products and services are working well for consumers.

A focus on the FCA’s findings and due caution over mobile banking products and services will ensure firms keep up with the challenges of the mobile banking market in line with the pace of any growing complexity of the services. The FCA clearly wants to avoid a situation where participants cannot keep up with innovation of this market to the detriment of the consumer.

In all, mobile banking is well received by the regulator and it is good news that to date no harm has been found. The work in this area is aimed at promoting competition in a bid to generate wider choice, encourage improved services and better outcomes for consumers. As technology develops and the mobile banking markets grows, with the FCA already closely following any developments from PSD2 and the European Banking Authority,  it is not unlikely that the FCA may seek to gain regulatory ground in this area.