US congressional subcommittee looks at mobile payments

March 23, 2012 | by James Wester

The U.S. House Financial Services Subcommittee on Financial Institutions and Consumer Credit, a subcommittee of the House Committee on Financial Services, convened a hearing exploring mobile payments. The subcommittee is responsible for overseeing financial regulators in regard to consumer credit, access to financial services, and the safety of the banking system.

The hearing, entitled "The Future of Money: How Mobile Payments Could Change Financial Services," was held Thursday, March 22 at the Rayburn House Office Building in Washington D.C. Witnesses included representatives from the Federal Reserve Bank of Atlanta, PCI Security Standards Council, MasterCard and Consumers Union.

Chaired by Congresswoman Shelly Moore Capito (R-W.Va.), the hearing was the first of three planned hearings looking at various aspects of mobile payments. The first hearing considered security and privacy concerns.

Calling mobile payments a fundamental change in the way money is exchanged between consumers and businesses, Capito said the hearings are an important regulatory exercise.

"We meet today to begin what I think is an exciting and important task: making sure our financial system and its regulatory structure are prepared to enter the new world of mobile payments," Capito said in her opening remarks.

For their part, witnesses testifying at the hearing explained various concepts of mobile payments to the subcommittee members.

Richard R. Oliver, a retired EVP at the Federal Reserve Bank of Atlanta, stressed the need for an open set of standards over what he called "a set of dramatically dissimilar proprietary initiatives." He also said that while other technologies might be used for making mobile payments, NFC appears to be a likely base for any mobile payment program.

While at the Fed, Oliver was a member of the Mobile Payment Work Group and the author of an important white paper proposing basic requirements for a mobile payment system. Oliver said the MPWG believes education for consumers and merchants about mobile payments is necessary.

"[The MPWG] has been outspoken in asserting the need for a widespread education effort to inform businesses and the public of the characteristics, controls, and value of mobile payments and efforts are underway to fulfill this need," Oliver said.

Ed McLaughlin, chief emerging payments officer for MasterCard, told members of the subcommittee that however mobile payments standards evolve, consumer value and security are paramount.

"Regardless of the payment environment or device, we need to constantly focus on two goals — making paying for something as simple and compelling as possible for every participant in the payments chain while providing the highest levels of security to consumers, merchants, and our financial institution customers," McLaughlin said.

McLaughlin told the subcommittee that mobile payments also promise to provide benefits like financial inclusion for the unbanked. "(P)ayment card solutions like prepaid cards coupled with mobile technology can unlock the global commerce grid to consumers who currently do not have access to financial services," he said. 

Not every witness before the hearing extolled mobile payments. Suzanne Martindale, an attorney with consumer advocates Consumers Union, warned that mobile payments potentially represent a serious problem, especially in regard to fraud and errors.

"The different ways to pay by mobile device, and the varying consumer protections that apply to each create the potential for confusion when a consumer is faced with a transaction gone wrong," Martindale said. "Consumers need to know where to complain and how to get their money back in case of errors or unauthorized use."

Martindale said consumers cannot afford to lose precious funds due to inadequate protections, and that low and moderate income consumers are particularly at risk.

Martindale said that the newly created Consumer Financial Protection Board, a regulatory agency created by the Dodd-Frank Act, is in the best position to clarify regulations and responsibilities for protecting consumers using mobile payments.

For more stories on this topic, visit the Regulatory Issues research center.

(photo credit: ttarasiuk)

Topics: Regulatory Issues

James Wester / James Wester is a technology writer and blogger with over 15 years of experience in marketing and communications in the technology and payments sectors. Prior to joining as editor he worked as Director of Corporate Communications for Chase Paymentech and ran payment operations for AOL. James has a BA in English from Drury University in Springfield, MO and an MS in IT Management from the University of Virginia.
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