[Dave Birch] Earlier in the year, I read an excellent report about the future of mobile payments in the US.

Mobile Payments in the United States: Mapping Out the Road Ahead” by Darin Contini and Marianne Crowe, Federal Reserve Bank of Boston; Cynthia Merritt and Richard Oliver, Federal Reserve Bank of Atlanta; Steve Mott, BetterBuyDesign

[From Mobile Payments in the United States Mapping Out the Road Ahead – Boston Fed]

It’s a serious piece of work that sets out to develop a practical roadmap around mobile payments and contains a tremendous

The foundational components of success suggested by the work group include:

  • The proposed environment is best defined by the concept of an “open mobile wallet.”
  • The mobile infrastructure would likely be based on Near Field Communications (NFC) contactless technology resident in a smart phone and merchant terminals.
  • Ubiquitous platforms for mobile should leverage existing rails, including the ACH network for non-card payments, and support new payment types that meet emerging needs.
  • Some form of dynamic data authentication would be at the heart of a layered mobile payments security and fraud mitigation program.
  • Standards would be designed, adopted, and complied with through an industry certification program to ensure both domestic and global interoperability, including a standard to ensure that devices used to facilitate mobile payments do not create any electronic interference problems.
  • A better understanding of a regulatory oversight model should be developed in concert with bank and non-bank regulators early in the effort to clarify compliance responsibilities.
  • Trusted Service Managers should oversee the provision of interoperable and shared security elements used in the mobile phone.
[From Mobile Payments in the United States Mapping Out the Road Ahead – Boston Fed]

These components seem to me to be developing rather nicely. The handsets are coming along, there’s a nice war developing over control over secure elements (I’m very hopeful that competition will lead to innovation in this area) and non-banks such as Google are active.

The digital wallet wars have begun. And credit card giant Visa and search behemoth Google are likely to be among the first to face off in the market as they each try to convince consumers to ditch their real wallets for ones that store credit cards and other information on their cell phones.

[From Visa vs. Google Wallet in mobile payments | Signal Strength – CNET News]

But the area where there may need to be more concentrated pressure from “the industry” is in the area of regulatory oversight where, to my mind, the start of the separation of banking and payments regulation along European lines would be an excellent step.

The goal should be to put all providers of payment services onto a level playing field where banks and non-banks, technology providers and entrepreneurs can compete to find new ways to exploit the new technologies to deliver the new payment services that we need as the bedrock for the evolution of commerce. It is quite right that providing credit should be a banking business and properly regulated, but that is only one part of the payments business. It’s not as if non-banks don’t already have a big share of the business.

According to the study, more than 25% of all US households are unbanked or underbanked. Most of those households are low-income and/or minority. Unbanked households do not have anyone in the house that has a checking or savings account. Underbanked households may have checking or savings accounts but rely on other financial services such as nonbank money orders, nonbank check-cashing services, payday loans, rent-to-own agreements, or pawn shops at least once or twice a year.

[From National ACH: 25% of US households Unbanked or Underbanked]

These non-banks might be able to offer innovative services that banks don’t, or they might be able to offer the same services as banks but cheaper or faster. Or they might offer the same services but in a better location or more attractive bundle.

The new “Consumer Financial Protection Bureau” will, as I understand things, end up regulating payment entities like PayPal and Amazon. Title X, Section 1002 gives the bureau power to regulate entities that provide “payments or other financial data processing products or services to a consumer by any technological means, including processing or storing financial or banking data for any payment instrument, or through any payments systems or network used for processing payments data, including payments made through an online banking system or mobile telecommunications network”. This is getting closer to the European notion of a non-bank payment institution, which I think ought to be the basis for competition. It would be nice for this to happen at the Federal level. Earlier on, for reasons not germane to this post, I happened to be looking at the list of licences that Western Union holds to send money in the US. It would make life so much better, and foster more competition and better services for consumers, if non-banks could obtain the equivalent of a PI licence for the whole US.

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers

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