FDIC: Mobile payments set for rapid growth

It’s not breaking news that mobile phones have changed how businesses and consumers interact, but a report issued Monday (Dec. 17) by the Federal Deposit Insurance Corp. addresses the legal, regulatory and marketing issues of mobile access for the financial sector.

Most banks in the Fort Smith and Northwest Arkansas areas provide some level of mobile phone service. In early 2012, Fayetteville-based Signature Bank rolled out its “XpressDeposit” service that allowed customers to make deposits from anywhere using a mobile phone.

Bank of America has had a similar service for its Arkansas customers, although 29 of the bank’s branch operations in Arkansas, Kansas, Missouri and Oklahoma will soon fly the Arvest banner.

Arvest recently rolled out a mobile check deposit app for the iPhone and plans to have an Android app available later in December.

“This is among the most sought-after services by today’s banking consumer and is changing the way deposits are made,” noted the Dec. 7 statement from Arvest announcing the new service.

Beth Presley, Arvest’s marketing director in the Fort Smith area, said bank officials are pleased with the early response.

“We have had an overwhelming positive response to the new mobile application from our customers and they love its functionality. The usage since its rollout has exceeded our expectations,” Presley explained.

BANK V. NON-BANK
Mobile check deposits use special software and a phone’s camera to conduct the transaction. Arvest noted in its statement that the process was first used in the banking sector in 2009.

A more complete range of banking services – especially with mobile payments – using mobile devices is likely to be a reality in the near future, according to the FDIC report.

The report provides more than 87% of Americans now have a mobile phone and more than half of those are smartphones. Also, about one-third of mobile phone users in 2012 reported using mobile devices to make a purchase. The FDIC report said purchases with a mobile device totaled more than $20 billion, “and this number is likely to grow as smart- phone ownership increases and mobile payments platforms become more widespread.”

And while the new technology provides new opportunities for a bank to connect to customers, it also allows non-bank companies to squeeze banks out of the process.

“Non-bank mobile payments providers are devising ways to streamline the current payments system and reduce transaction costs by limiting the role banks play in mobile payments or eliminating them from segments of the payments process altogether,” according to the FDIC report. “Financial institutions should not assume their place in the new mobile payments marketplace is assured because they are an integral part of the existing payments infrastructure.”

NEW TECH, RISKS
An emerging technology is called near-field communications (NFC), which allows a cell phone user to conduct a transaction within a certain range of a point-of-sale system. For example, a smart phone user could swipe his phone near a ticket machine to buy a movie ticket for immediate or future use.

“At least six NFC-equipped cell phones are for sale in the United States, and 50 percent of smartphones could be NFC-equipped by 2014,” noted the FDIC report.

All players in the process are required to abide by laws designed to protect against fraud, provide consumer privacy and a host of other government mandates. Some of the “mobile payment risks” identified in the FDIC report include:
• Failure to satisfy recordkeeping, screening and reporting requirements intended to detect financial crimes, deter illicit cross-border payments, and prevent terrorist financing;
• Failure to prevent or deter unauthorized transactions, the interception of confidential information, or other fraudulent activity;
• Negative consumer experience may reflect poorly on the bank or discourage the use of mobile payments; and,
• Third party may fail to meet expectations, perform poorly, or suffer bankruptcy.