Wednesday, August 8, 2012
The Federal Reserve is closely following mobile payment events. Among the Fed's concerns is the entry into the payments industry of companies with no payments background.
Cynthia Merritt, Assistant Director of the Retail Payments Risk Forum at the Federal Reserve Bank of Atlanta, confirmed in an Aug. 6, 2012, blog post that authorities are beginning to look at mobile payment developments. "The rapidly changing environment and the entry of nonbanks in mobile-enabled financial services create a new paradigm in regulatory oversight for consumer protections, bank safety and soundness, and regulatory compliance," she wrote.
The Federal Reserve Banks of Atlanta and Boston recently hosted a meeting between members of the Fed's Mobile Payments Industry Workgroup and regulatory authorities. The group includes representatives from the biggest companies across the spectrum of the payments industry, including mobile wireless providers, financial institutions, payment processors, industry associations, retailers and technology companies.
According to a summary of the meeting released Aug. 6, 2012, and available at www.frbatlanta.org/documents/rprf/rprf_pubs/120730_wp.pdf?d=1&s=blogpr, the participants concluded no additional regulation is needed to oversee mobile payments, but there is a need to better understand existing regulations and how they apply to mobile payment service providers.
The group noted that rapid change in mobile payments requires the close attention of regulators who will "require that financial institutions adequately manage vendors when they outsource and partner with third parities in new mobile payment business models."
At the juncture of Europay/MasterCard/Visa (EMV) and the mobile sphere, Visa Inc. promoted mobile payments by posting videos online from London during 2012 Summer Olympics. In one video Bill Gajda, Visa's Head of Global Mobile Products, gave a demonstration of a near field communication (NFC), tap-to-pay mobile phone payment on a ViVOtech Inc. terminal in a London business.
Gajda said Visa is working with mobile network operators to introduce secure EMV mobile payments in the United States "later this year." He expects 2013 is "really going to be a growth year for NFC."
Gajda feels NFC transactions are secure because they are "based on well established technology Visa has been using for many years." He also pointed out when a bankcard customer loses a regular wallet, it can take weeks to receive a replacement card, but if a phone is lost, the bank can create a new account "over the air in a matter of minutes."
Tom Goldsmith, Director of Communications and Public Relations for the Electronic Transactions Association, does not appear to be as enthusiastic about NFC. On Aug. 6, he wrote in the ETA's Daily Scoop blog that he doubts NFC will be ubiquitous any time soon. "Mobile commerce is doing just fine without NFC," he wrote, noting a study showing the game changers in mobile payments are "primarily" the iPad and iPhone from Apple Inc.
"While the big players in the industry are focused on a hardware solution to mobile transactions, software – using bar codes, QR codes, web-based apps with e-commerce functionally and other approaches – is leading the way," he said.
A new partnership that could affect both mobile and traditional POS transactions is also of note. Jack Dorsey, co-founder and Chief Executive Officer of mobile payment technology startup Square Inc., and Howard Schultz, CEO of coffee retailer Starbucks Corp., appeared together on a national news program to herald Starbucks' $25 million investment in Square.
Schultz, who is also joining Square's board of directors, said the two companies want to encourage rapid adoption of Square among retailers. The deal calls for Starbucks to build the Square Directory into its apps and in-store Digital Network in 7,000 stores.
In a press release about the deal, Dorsey said it will give Square "new visibility, driving more customers to opt-in to Square." He also said that the large number of Starbucks locations that will soon be accepting Square will create new payers who will "be able to find your business (including coffeehouses) and pay with their name, building community and creating value." 
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