The Law (and Business) of Mobile Money: Notes From the UW Mobile-Payment Conference

Parker A. Howell

While mobile payments – exchanges of money using cell phones – may not be commonplace in the United States yet, the technology has arrived.  One need look no further than Starbucks’ recent rollout of an iPhone application that displays a barcode that can be scanned as payment, or to banks that allow clients to upload pictures of checks for electronic processing.

However, various outstanding business, legal, and technological issues must be resolved before consumers ditch their cash and credit cards for their Blackberrys, according to panelists at today’s conference on mobile payments, hosted at the University of Washington School of Law.

The basic question is one for businesspeople, not necessarily lawyers: There must be a “value proposition” for these services in a credit-card dominated market, as put by Adam Levitin, associate professor at the Georgetown University Law Center.

“If all it is is just another set of pipes, it doesn’t really change anything,” Levitin said.  “It may need some little tweaks here and there in the law to make sure that … there’s proper statutory coverage. … If that’s all it does, I don’t think we’re going to see widespread mobile taking off really in a big way because our current system is working pretty well.”

The most “readily apparent” business model is “the possibility of integration with nonpayment services,” such as advertising and coupons, Levitin said.  For example, a customer at a store might receive a text message offering a discount if the person pays using a phone; this would allow merchants earlier influence over payment modes (remember that credit card companies charge those pesky percentage fees).

Speaking of fees, Levitin points out that more players – telecomm companies, hardware manufacturers, software providers – means more revenue may be needed to split among those parties to support mobile payments.  And will incumbent banks be willing to give up a piece of their business?

Mobile payments also raise concerns for consumer advocates, such as Georgia State University College of Law Professor Mark Budnitz.

“There’s a lot of gaps in the law,” he said.

Telecommunications companies are not regulated like banks, he said. (In developing countries, this could be a good thing, according to researcher and conference keynote speaker Ignacio Mas.)  The more consumers bypass banks by having charges tacked directly onto their phone bills, the less likely someone will clearly be on the hook if something goes wrong.  For example, if a consumer wants to complain that a telemarketer tacked on a charge without authorization, who eats the loss?  The wireless provider? If there is a problem with a handset, the UCC applies.  But the law is more complicated for software, he said.

Budnitz also questions whether phone-based payment systems would be secure in the case of loss or theft.  Thus, he suggests that laws should clearly allocate the loss to companies that provide mobile payment services, offering them incentives to provide security.

These worries merely underscore one of the biggest unknowns in this emerging area: what form will mobile payments take?  They may use Near-Field Communication (NFC), the next big thing slated to roll out soon in the UK.  They may involve on-screen bar codes, like Starbucks’ system.  Or, they could be more like PayPal, only accessed via a mobile phone.  Payments could be tied to existing bank accounts or credit cards, or exist independently.

The rationale for promoting mobile payments in the developing world is quite compelling, as Mas aptly described.  But Americans (and Europeans) already have a bevy of payment choices, ranging from cash taken from the local ATM to the airline-rewards credit card.  As the business case for domestic mobile payments becomes more apparent (or not), the law will need to evolve to fill in the gaps Budnitz and others describe.  To learn more about how companies are looking to advance this technology, and the regulatory response, check out the presentation slides from today’s conference (they are slated to be posted in coming days).

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