Ahead of Money 2020, Las Vegas, our market-leading Payments team picks up the topic of Mobile Payments following on from our November 2012 Newsletter, Mobile Payments: Partnering Arrangements, and addresses three key themes:
- Mobile payments developments
- Money remittance through social media
- Fat fingers
Mobile payments developments
Apple Pay’s launch on September 9th was fascinating for a number of reasons:
- The timing just ahead of a turning point in card acceptance in the US where the end of mag stripe cards is nigh, providing a mandatory change in customer behavior, which can be channeled towards contactless in addition or separate to chip and PIN.
- The focus on security, such as the use of fingerprint technology, one time authorizations and tokenisation (the latter gaining ground in Europe), plus the assurance that Apple does not intend to use customer transaction data, all playing directly to concerns of both customer and regulator.
- The consolidation of underlying technology – in a contactless transaction, a handshake is required between two TSMs (Trusted Service Managers). In partnering arrangements to date, these have been engaged by the mobile network operator and the issuer. Apple Pay appears instead to rely upon a device-based TSM with a TSM provided by the card scheme. This reduces the ‘cast of many’ required to enable mobile payments, and so potentially opens up the market to many other new providers, albeit it through the Apple device.
The re-conception of the mobile wallet in this way is potentially game-changing. It will though need, as well as taking all of a customer’s credit and debit cards, to integrate loyalty and reward programmes.
Money remittance through social media
Rumours exist (based upon a hacker’s findings) that Facebook’s Messaging has hidden functionality, not yet switched on, which will enable Messaging users to send money to each other. In France, Twitter users have just gained the same functionality, with the ability to tweet money to their followers, so enabling P2P (person to person) money transfers. The service is available to anyone with a bank account and a French twitter user.
The money remittance market is ripe for disruption, with products that are cheaper, faster, more convenient – and social media has real potential to be this source of change. However, money remittance is a heavily regulated field, with no uniform approach globally – multi-jurisdictional surveys typically result in two options, i.e. offer the service yourself and become regulated accordingly or partner with a third party financial institution (as Twitter has done); even the latter can require authorization or registration in some countries.
Social media also tends to transcend jurisdictional borders, however, the same borders create legal and regulatory issues – where is the service being provided? What is the location of the provider, or of the user? Does the transfer contravene any foreign exchange controls? If there is a currency conversion, how does the sender agree to the exchange rate and any fees? These issues are not unfamiliar ones for social media, but now they need to be considered in a different, regulatory light.
In the field of Payments, the UK has often been ahead – chip and PIN, the first near-real time low value payments system (ACH), Faster Payments, and the Mobile Payments Service (which runs off the rails of Faster Payments), which enables P2P payments by texting the recipient’s mobile number to the sender’s bank.
With the increasing use of self-service electronic and mobile payments, there is the potential for misdirected payments to become more common. The UK banks have developed a best practice for dealing with misdirected payments resulting from ‘fat fingers’ which transpose digits leading to funds being transferred to the wrong accounts. It is all to easily done, but senders who make blunders cannot readily recover their funds and receiving banks can’t automatically disclose the unintended recipients because of data protection laws and can’t take the money out of their accounts without their permission. The voluntary code of practice is designed to help those who have made misdirected payments, but in addition some UK banks are changing their terms and conditions to help facilitate with this issue, allowing them withdraw money from a recipient’s account if the funds have been paid in error and the recipient is not entitled to them.
Interestingly, one of the commitments in this best practice is that the relevant channel should not use ‘predictive text’ or auto-fill in critical fields for payment instructions for P2P payments. However, it goes on to recognize for customers the balance of convenience as compared with the risk, and to allow such auto-fill for pre-registered payee bill payment details or regular payees.
The key takeaway is that the UK banks have taken this action, outside formal regulation, to deliver a customer outcome-focused approach, with pragmatic steps, applicable to all types of payments, including mobile payments.