Yesterday, I participated in an Emerging Issues Forum at the Federal Reserve Board of Governors—they called it “Protecting Consumers in a Mobile Finance World”. Easier said then done. Granted, the Federal Reserve is trying to focus on the future technological trends impacting consumers, and not just the current issues we face on a daily basis. They are looking for the balance to ensure consumer protection while not stifling innovation—a lofty goal. Let’s hope they are up to the challenge.
While the day was primarily focused on identifying ways to ensure that consumer protection must keep pace with technological change, I wanted to share some interesting data points presented throughout the day.
• USAA: A strong 14% mobile banking adoption from its 7.4M members which is considerably higher than the largest US banks; $250M deposited through their Remote Deposit Capture application between August 2009 and Jan 1, 2010.
• E-Bay: $600M processed over the mobile channel in 2009 showing the great opportunity to come from mobile payments
• Telekom Austria Group: 50% of parking meters are paid in Austria using the mobile channel, 1,700 merchants accept the A1 payments brand run by a consortium of mobile operators
• Center for Financial Services Innovation: 21M Americans are underbanked according to a 2009 FDIC survey, 64% of underbanked consumers rate location “extremely important” when choosing a financial institution
These statistics highlight the growing presence of mobile banking and payments as well as the opportunity to expand financial services to more segments of the US population.
But the key question of the day was “What should policy makers look for?”
My answer:
Consumers cannot be left unprotected when we are seeing hockey stick growth in mobile banking, and mounting expectations for mobile payments over the next few years. Not only will security and phishing concerns exist, unscrupulous people will try to steal personal information from consumers. All of this points to the need for consumer regulatory protections.
Past experiences in the prepaid card world and the limitations of Reg E and Reg Z have taught policy makers valuable lessons. In the vain of a great boxer that bobs and weaves, they must be nimble enough to update regulations quickly on both sides of the innovation versus consumer protection equation. Although Washington is not always known for moving quickly, the Federal Reserve should first tackle authentication and security concerns. Regulators should also start by simplifying the state by state licensing requirements, which create difficult environments for start-ups to launch nationwide services and take advantage of economies of scale.
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