May 7, 2012

FTC Workshop: Introduction to Mobile Payment Systems (Part 1 of 2)

Consumer Advertising Law Blog

This is the first of a two-part series on the FTC's April 26 workshop on mobile payments, Paper, Plastic… or Mobile? Mobile payments is an umbrella term which includes alternative payment technologies that enable consumers to pay for products using their mobile phones. The morning session involved a panel discussion of industry participants with representatives from Google, MasterCard, Intuit, LevelUp, the National Consumer Law Center, and academia. An overarching theme of the morning session was that mobile payment systems are in a nascent stage and while they will have a significant effect on the payment services and retail industries, it is still too early to tell precisely what the effects will be.

According to mobile payment system providers, the potential benefits to consumers of mobile payments are widespread. Consumers will benefit from the increased convenience mobile payments offer as they are less likely to forget their phone than their wallet, they will receive savings and other benefits from loyalty programs, and they will have access to digital receipts. Mobile payments also allow for a merging of the customer shopping and paying experience, thereby improving customers' overall retail experience. Finally, mobile payments allow for micro-accounts which will give underbanked consumers access to convenient payment systems. These consumers will also benefit from the ability to have real time balance checks, enabling them to make more informed decisions while shopping.

The mobile payment system providers also agreed that merchants also stand to benefit from mobile payments. First and foremost is the information that mobile payments can provide. This information on sales and customers will allow merchants to develop more successful loyalty programs and offer targeted discounts to increase customer loyalty. Smaller merchants will have access to detailed analytics which were previously only available to large merchants willing to pay. The ease of convenience of mobile payments will allow for quicker check-out times, mobile cashiers that are untethered from the cash register, and a better overall shopping experience for the customer. Mobile payments may help merchants cut costs by reducing printed coupons.

While mobile payments will provide ample benefits to consumers and merchants, the overall net effect is not quite so clear. Consumer rights groups are concerned that the increased convenience may actually be a detriment to consumers as it could encourage over-spending, although the industry countered that mobile payments just eliminate transactions costs and facilitate consumer choice. Mobile payments also bring privacy concerns (which were discussed in more detail later in the workshop and will be covered in part two) and questions relating to translating the traditional consumer protections of cards to this new form of payment. While disclosure and consumer education may help alleviate these concerns, consumer rights groups are skeptical that those tools will be effective in the mobile payment context because of the small screens on mobile devices. Mobile payments also bring many more parties to the payment processing table - mobile phone device manufacturers, operating software developers, app creators, telecom providers just to name a few. These additional parties are obviously seeking to make money, but, according to industry participants, the additional parties also bring additional opportunities to innovate which can only help drive down prices.

While there are significant hurdles for mobile payments to overcome, whether financial, legal, regulatory, or technological, mobile payments are causing significant change to both the payment services industry and the overall shopping experience.

© Arnold & Porter Kaye Scholer LLP 2012 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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