Mobile Payments: Regulate Or Run Rampant?

June 2012 Integrated Solutions For Retailers

By Matt Pillar, editor in chief

The Federal Trade Commission hosted a workshop on mobile payments earlier this quarter. It came on the heels of a March House Financial Services Committee hearing on the topic, which has also garnered the attention of the Senate Banking Committee and Congressional Internet Caucus, each of which recently held briefings on the expected groundswell of mobile payment applications and adoption.

As the huge and growing development market scrambles to create open and proprietary mobile payment applications, as retailers implement those applications, and as consumers adopt them, the scene is being set for an uninvited guest: federal regulatory intervention.

It’s been a long time since the payment landscape was simple. PCI rules, PIN debit, payment mediums like NFC (near-field communication), and the integration of consumer and loyalty programs are among the dynamic forces that propelled us well past the days of cash, check, or credit. Today, payment complexity is poised to grow exponentially thanks to the introduction of payment application layers such as:

• PayPal in stores;
• Merchant-specific mobile payment apps such as the card on file, password-protected options like that offered by Chipotle, and pre-paid, bar code-based options like that made available by Starbucks;
• Multiple merchant “group” mobile payment options such as Square, LevelUp, and TabbedOut.

We’re now well past the tipping point in terms of smartphone adoption, and that’s just a small sampling of the in-store mobile payment tools to which smartphone-wielding consumers have access.

An April 2012 Pew Internet study suggests the majority of smartphone users will have embraced the mobile wallet concept by 2020. But the volume of smartphone-based payments being made in retail settings today simply doesn’t support that prediction. In study after study, mobile device-based payment is still lumped in the single-digit “other” category behind cash, check, PIN debit, and credit card. I wonder if the fragmented state of today’s mobile retail payment options is contributing to the smartphone payment app usage malaise. If that’s the case, perhaps a little marketmeddling regulation would pare the competition down to a more palatable few. If the wheat were separated from the chaff with tight security and consumer protection guidelines for developers, perhaps many flash-in-the-pan applications would fall by the wayside. Simultaneously, perhaps consumers would shrug off the fear and uncertainty associated with mobile device and network security, which still lies dauntingly on the path to widespread mobile payment adoption.

As it was with PCI standards, the question is whether the retail tech industry can handle this shakeout privately, through standards and collaboration and without federal oversight, before consumers cry foul and the feds sweep in. I hope so.