Article

CFPB turns its attention to mobile financial services

The regulatory agency seeks to understand the impact of emerging technologies on the un- and underbanked.

June 12, 2014

The Consumer Financial Protection Bureau in the U.S. Wednesday turned its attention to mobile financial services, with a particular focus on the impact of emerging technologies on financially underserved consumers who have limited access to traditional banking systems.

The agency launched a Request for Information period and will collect comments from the industry about these services through the first week of September. Given the CFPB's history of proposing legislation based on past comment periods, companies serving this area are officially on notice.

"Whenever regulators request information, it's always kind of a scary thing for the industry because you have the risk of, once they get information, they're going to do something with it," Ben Jackson, director of the prepaid service at Mercator Advisory Group, told ATM Markeplace sister publication Mobile Payments Today.

But for now, the CFPB is in an information-gathering stage and cited a number of reasons why it decided to explore this corner of the financial services industry.

Smart device ownership is on the rise with consumers, who are in turn using smartphones and tablets daily to access financial information and make payments. The agency mentioned in a press release a recent study from the Federal Deposit Insurance Corporation that concluded mobile financial services have the potential to help financially underserved consumers gain access to the mainstream banking system.

The agency's main areas of interest in regard to mobile financial services and products include, but are not limited to, access for the underserved, real-time money management, customer service, privacy concerns and data breaches.

Michelle Jun, an attorney who has dealt with the CFPB in the past and now advises both nonprofits and startups working to meet the demands of the financially underserved, said that the agency's inquiry into these areas is based on the current technology environment and the continuing effort from financial service providers to get more consumers into the financial mainstream.

"There is no question that there is a great need to provide financially underserved consumers with fair and robust products and services," she wrote in an email to Mobile Payments Today. "Right now, all bets are on mobile technology, due obviously to the ubiquity of mobile devices, particularly for low- to moderate-income consumers, and the number of companies and new entrants is enormous. 

"So, it isn't surprising that this is an area that the CFPB is interested in, or interested in enough to make a formal request for information. It also isn't surprising that segments of the industry will be nervous that regulations will soon come next, but in my experience with the CFPB, it is likely the agency is conducting its due diligence in gathering information from all interested and involved stakeholders and will likely be taking its time in figuring out how best to address any issues or concerns that have been or might be raised."

The CFPB included a list of 35 questions, some with multiple parts, in its Request for Information. Some are simpler to answer than others, but Jackson said companies providing comment should be careful how they answer some questions, because current regulations such as the Durbin Amendment touch on services such as mobile bill pay.

"If I'm an unbanked person and I have a Chase Liquid card, or I have a card issued by Regions or BB&T, I can't have a bill-pay option on my app unless it uses the card number directly to make the payment," Jackson said about one of Durbin's outcomes that affected banks with more than $10 billion in assets. "That's a regulatory thing and people aren't necessarily thinking that way as they respond to some of these questions."

Another question from the CFPB that could trip up companies is whether mobile financial services present a cost benefit to providers.

"If you're doing a balance notification or even a transaction alert to someone, they don't have to call a customer service line," Jackson said. "You're looking at a two cent per text cost compared with a $2 live agent fee.

"That's all well and good. But when you think about things like payroll laws and customer behavior, it becomes much more difficult to easily say, yes these things sort of perfect the business in some way. The ability of these types of tools to reduce cost depends a lot on the cardholder behavior, especially with prepaid."

Jackson and Jun agreed that while the comment period could cause companies to fret about future regulations, this is a time for them to get out in front of potential issues and show the CFPB that they have good intent in providing these services.

"While there is a consistent fear that regulations will stifle innovation, there are also a number of startups and companies who also make it a priority, and proactively keep regulators informed and aware of their new products and services," Jun said. "It is beneficial to all parties to keep each other informed, so yes, this comment is a good opportunity to keep regulators up to date, and to demystify and better inform each other."

Cover photo: U.S. government

inset photo: intel free press