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An article earlier this week from Politico called "Mobile Payments – Who will regulate?" focused on a big topic, and one that probably isn't receiving enough attention: mobile payments and the future impact of government regulation. I'm surprised there aren't more discussions and articles on the subject. I'm even more surprised that when articles are written about it they are more likely to be published by a site not focused on technology.
I’ll admit it: I'm part of the problem. I joked in my last post that payments is an unsexy topic, but government policy about payments? That’s as unsexy as it gets. Forgive me for whining, but it's tough to write articles about government policy and payments. But that doesn't make them any less necessary, and ignoring the issues won't make them go away.
The fact is mobile payments represent the forced marriage of two of the most regulated industries we have: telecommunications and financial services. On one side is the mobile part, watched over by a myriad of organizations from the Federal Communications Commission ruling the airwaves to the Federal Trade Commission protecting consumer interests. On the other side, banking and financial services are supervised by a host of agencies, commissions and bureaus like the Federal Reserve. And that's only at the federal level. That doesn't include state commissions, bureaus and attorneys general all waiting in the wings to jump in and tax, fine and prosecute with abandon.
That's a lot of regulatory authority hovering over the industry, and yet there's an Alfred E. Newman, "What, me worry?" attitude toward the topic. Why worry when mobile payments are still a nascent technology, right?
The answer is neatly summed up in one sentence from the Politico article:
"Although mobile payments are just getting off the ground, public interest groups are already sounding the alarm about the potential harm consumers may face."
Or said another way: "No one knows what the heck is happening yet, but somewhere, someone is looking for a problem."
And a problem will occur. That's not being alarmist. It's a recognition that mobile payments aren't just an arranged marriage of highly-regulated industries, they're also the patching together of highly complex businesses. The chances are quite good that something will break, a data breach will occur or a security hole will be exploited. At some point, and probably sooner rather than later, consumers will be negatively affected. When that occurs, regulators will be forced to pay attention.
As Kurt Helwig, the president and CEO of the Electronic Funds Transfer Association, told me, "(Regulators) tend to pay attention after something big and bad happens."
The issue won't be that something bad happens necessarily, or even the scale of it when it occurs. As with most issues affecting consumers, it will be about perception. Will consumers feel secure without the government doing something? On that point the Politico article is especially important for being written on a political site and not a technical blog. The article represents what people not involved in the mobile payments industry understand about what's happening.
The Politico article gets a few things wrong. It conflates a few technologies. It doesn't differentiate between the assortment of transaction types that fall under the general rubric of "mobile payments." But to non-payment types, i.e. most consumers, that doesn't matter. When something bad happens, whether it has to do with mobile point of sale or contactless payments or whatever, if the perception isn't there that the mobile payments industry as a whole is doing what is necessary to protect consumers, the regulatory headache will affect everyone.
A common statement heard from both sides of the recent Square/VeriFone debate was that a problem caused by any bad actor in the industry will cause a backlash against the entire mobile payments space. Fair or not, it's true. Not only will it negatively affect the adoption of mobile payments by consumers and merchants, but it will also make regulatory scrutiny more likely. Whether that's a good or bad thing is debatable, but it will be a reality. And it means I should start learning to love writing about government policy.