A fast developing market There have been dramatic developments in the mobile banking and payments sphere in recent years. Customers of the UK’s largest retail banks made more than 18 million mobile transactions per week in 2013 – twice as many as in the previous year. We expect these numbers to continue to increase.
Although innovations in this field have the potential to provide great benefits to consumers, the Financial Conduct Authority (FCA) is keen to ensure that consumers’ interests are protected. It has therefore conducted a thematic review of the industry to determine whether market participants are achieving good outcomes for consumers when delivering mobile payment and banking products. The FCA published the findings of its review (document TR 14/15) in September 2014 (the Review).
Key findings of the Review It is encouraging that the FCA did not find any evidence of consumer harm in the mobile banking and payments arena. The Review also does not prioritise issues in relation to fraud prevention and anti money laundering measures. Although these are important considerations, and they were raised in the the FCA’s interim report in August 2013 on which the Review builds, the FCA was satisfied that firms were addressing these areas, although it encouraged firms to continue to do so as products and services develop in popularity and complexity.
The FCA identified five areas that were important in influencing consumer outcomes for firms developing mobile banking products and services.
Consumers’ understanding of their rights and obligations
Consumers must understand that they have the same protection when using mobile banking technology as they do when using traditional payment mechanisms. Firms have an important role to play in helping their customers know when and how to report unauthorised transactions.
Key decision-makers having the most up-to-date understanding
Considering the speed with which mobile banking has taken off in recent years, with consumers increasingly using mobile technology to perform simple banking transactions, it is vital that senior managers in firms have the depth of knowledge to understand how their products and services can best be delivered to consumers.
The FCA has suggested that examples of firms achieving good outcomes include the conducting of thorough research into how consumers interact with their mobile devices, and more specifically their behaviour when using mobile banking services.
Technology and security must be sufficiently robust to keep consumers’ data protected. All firms sampled in the thematic review safeguarded consumers’ data by encrypting it.
However, as technology develops to allow customers to interact with their bank, more and more, firms’ systems are likely to come under increasing pressure. Security measures will therefore need to evolve based on market developments.
Third party oversight
Mobile banking relies on a number of different service providers, including mobile network operators, mobile phone manufacturers and operating system manufacturers.
The regulated firm with overall responsibility for providing the mobile banking service therefore must perform thorough due diligence before contracting with third parties, and actively monitor them to ensure appropriate standards of delivery are being observed.
New payment firms
The FCA desires to strike a balance between promoting competition by encouraging new entrants into the market, and the need to protect the consumer. However, the FCA has made clear that new entrants to the market will be expected to consider consumer rights and protections when bringing new products to the market, including the rules around immediate refunds for fraudulent transactions.
The European dimension The FCA notes in the Review that it is fully engaged at European level in discussions regarding a number of initiatives that will impact the mobile banking and payments industry. A new payment services directive is expected to come into force by 2016 or 2017. In addition, the European Banking Authority is carrying out work on the risks posed by the use of new payment methods and the European Central Bank has formulated proposals for tighter security.
Who should take account of the FCA’s findings? The FCA recognises that, while many market participants are authorised firms, there are a large number of products and firms which fall outside its regulatory scope but nevertheless have a significant impact on the market. So while the findings are aimed primarily at FCA authorised firms, all firms active in the mobile banking and payments market should, in the FCA’s view, consider how the industry can work better for the benefit of consumers.
The FCA makes clear in the Review that firms operating in the market should satisfy themselves that, as new innovations unfold, they have appropriate controls in place to prevent consumer harm and damage to the market. What is required from each firm will differ depending on the precise nature of its business and the services offered. Given the level of regulatory scrutiny the mobile payments industry has attracted, market participants should consider whether their product offerings comply with the FCA’s findings in the Review. They should also evaluate this on a continuing basis as and when their business develops or offers new products or services.