What's in your mobile wallet? An analysis of trends in mobile payments and regulation.

• Author: Lowry, Carolyn

TABLE OF CONTENTS I. INTRODUCTION 355 II. BACKGROUND 357 A. Mobile Has the Potential to Significantly Change Commerce and Business 357 B. Mobile Devices Can Be Used to Make Various Types of Payments 359 1. Mobile Payments Can Be Made Through Websites or Mobile Apps, Facilitating Remote Transactions 360 2. Mobile Payments Can Be Made Through Text Message Transactions 362 3. Mobile Payments Can Be Made Through Point-of-Sale Transactions 363 C. Payments Are Subject to a Variety of Existing Regulations 365 1. The Fair Credit Billing Act and Truth in Lending Act Protect Consumers' Credit Card Purchases 366 2. The Electronic Funds Transfer Act Protects Consumers Who Make Purchases by Debit Card 367 3. Purchases Made by Stored-Value Cards Are Provided Different Statutory Protections 367 4. Money Transfer Rules Vary by State and May Apply to Companies That Provide Certain Mobile Payment Transaction Services 369 5. Data Collected in Connection with Mobile Payments May Be Subject to Privacy and Data Security Regulations 370 D. The CFPB and FTC Have the Responsibility to Enforce Consumer Protection Laws 371 III. IN ORDER FOR MOBILE PAYMENTS TO BE WIDELY ADOPTED, CONSUMERS NEED AN OVERWHELMING REASON TO CHANGE THEIR BEHAVIOR 372 A. Companies Involved with Mobile Payments Must Alleviate Consumers' Privacy and Fraud Concerns 373 B. Businesses Should Strive to Ensure Mobile Payments Are Convenient for Customers 374 C. Businesses May Need to Revamp or Incorporate New Incentives to Encourage Customers to Adopt Mobile Payments 375 IV. EXISTING LAWS AND REGULATIONS APPLY TO THE UNDERLYING TRANSACTIONS OF MOBILE PAYMENTS AND PROVIDE SUFFICIENT PROTECTIONS TO CONSUMERS 375 A. Existing Regulations Provide Robust Protections to Mobile Payments and Should Not Be More Extensively Regulated 376 1. Mobile Wallets like Apple Pay and Google Wallet Should Be Treated like Traditional Payments 377 2. Technology Companies Do Not Necessarily Fall Under the CFPB's Supervision as a Result of Their Involvement in Mobile Payments 379 B. Even Without Existing Regulations to Ensure Consumer Protection, Products like Apple Pay and Google Wallet Are Designed for Security 381 V. CONCLUSION 384 I. INTRODUCTION

In September 2014, Apple announced the launch of Apple Pay, a mobile payments solution integrated into the new generation of iPhones, joining Google Wallet as a mobile payments option. (1) A few months later, Microsoft began applying for state money transfer licenses, a move that all but confirms Microsoft's soon-to-occur entry into the mobile payments space. (2) These announcements are significant because mobile payments, while popular in other countries, have been generally slow to catch on in the United States. (3) The emergence of technologies and services like Square, Uber, and Apple Pay allows consumers to leave their checkbooks, cash, and even wallets at home, a shift that could significantly transform commerce and business. (4) In fact, the idea for Venmo, a mobile payment application (app), came about in 2009 when one of the cofounders forgot his wallet and wondered why he was not able to simply transfer money to his friend through his cell phone instead of dealing with cash or paper checks. (5) The shift from paper to plastic to digital for everyday activities and transactions may seem far off to some, but increased convenience, security protections, and endorsement and adoption by government entities and major retailers may make the shift to e-wallets and mobile payments a near-term reality.

Mobile payments emerged as the result of the colliding worlds of technology and banking. As these industries collaborate and merge together, financial regulations must be examined to ensure existing regulations are able to provide the appropriate protections to consumers and, if not, to determine how such regulations should be modified to meet our increasingly mobile-centric world. Historically, banking has been a very heavily regulated industry, with state-level agencies and several federal government agencies overseeing the financial services space, including the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC). Additionally, the financial crisis and resulting Dodd-Frank Act led to the establishment of the Consumer Financial Protection Bureau (CFPB), an entire agency devoted to consumer financial protection. There are also statelevel banking agencies and regulators in addition to state attorneys general. Compared to the banking and financial services industry, the mobile industry experiences a fairly hands-off approach with respect to regulation, despite its predecessors in the wireline industry being heavily monitored.

As technology becomes more ingrained in our lifestyles, products are emerging that straddle the financial services and wireless industries. For example, mobile wallets such as Apple Pay and Google Wallet are both apps, which are functionally a feature of a phone, not a new financial service or provider. Regardless of this distinction, because of the association of mobile payments with financial services, the legacy baggage of regulation exists.

As use of technology grows and the adoption of mobile payments becomes more prevalent, regulators will likely increase their level of attention and scrutiny upon these products. These new mobile payment technologies have raised the question of whether existing regulations are sufficient and provide an appropriate level of protection to consumers. The legal and regulatory framework affecting mobile payments should be comprehensive and effective while at the same time allowing innovation and development of new products. While existing regulations relating to payments were drafted before the emergence of mobile payments, these existing regulations provide robust legal protections for consumers. The introduction of new technology does not render existing regulations inapplicable, and point-of-sale mobile payments should legally be treated the same as the traditional, underlying transactions. Creating an additional layer of regulations could cramp innovation and lead to consumer confusion.

Part II of this Note provides an overview of the development of mobile payments, the types of mobile payments, and existing regulations that apply to electronic and mobile payments. Part III critically analyzes the extent to which existing legal and regulatory frameworks apply to mobile payments and examines the transformative effect that mobile payments may have on commerce. Part IV concludes that existing regulations are sufficient to protect consumers while allowing for innovation.

2. BACKGROUND

   1. Mobile Has the Potential to Significantly Change Commerce and Business.

      Mobile phones have revolutionized the way that people interact, communicate, shop, and conduct business. It is estimated that 2.6 billion people worldwide use smartphone mobile devices that are Internet-enabled, with this number predicted to more than double to 6.1 billion by 2020. (6) In the United States, use of mobile phones is similarly widespread, as shown by 87 percent of the U.S. adult population owning a mobile phone and 71 percent of these mobile phones being smartphones. (7) The availability of Internet on-the-go is changing the way that people shop and conduct financial business, and the mobile payments industry is expected to grow and become mainstream. (8) Recent studies have reflected this predicted growth; 17 percent of mobile phone users made a mobile payment in 2013, increasing to 22 percent in 2014. (9) This growth is expected to be "explosive" over the next few years, with a Business Insider Intelligence report predicting growth of the U.S. mobile payment volume at a five-year compound annual growth rate of 172 percent, increasing from less than $100 billion in 2014 to more than $800 billion in 2019. (10)

      It is interesting to note, however, that the prevalence of mobile phone use for commerce and banking varies significantly by country and for a variety of reasons. (11) While some countries are still tied to the brick-andmortar bank, others have adopted newer mobile-based technologies such as mobile payments through text-based data transfers. (12) Many of these technologies have been widely adopted, as illustrated by the fact that in nine African countries, the number of mobile money accounts exceeds the number of traditional bank accounts, providing a payment solution for many who may otherwise be unbanked or underbanked. (13) This widespread adoption of mobile payments in Africa has not gone unnoticed; both government and business have realized this trend and found ways to make use of mobile payments. (14)

      Nordic countries have similarly experienced a shift towards cashless societies. (15) Denmark has taken great strides toward adopting mobile payments, with 1.8 million of the country's 5.6 million residents using an app provided by Danske Bank called "MobilePay." (16) The Danish government has even gone as far as proposing regulations that would make retail businesses no longer required to accept cash payments, with the goal of economic growth through reduced costs and increased productivity. (17)

      While mobile payments have been successful in some global markets, they have been slower to catch on in the United States. (18) One major reason for this is that the United States has a robust banking system that promotes traditional financial products like credit cards and debit cards. While it cannot be overlooked that approximately one out of every four Americans is "unbanked" (19) or "underbanked," (20) more than three out of four African adults lack a bank account or financial product with a formal banking entity. (21) As a result, mobile payments have been an attractive option for many people in Africa who do not have access to traditional banking...