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FTC issues report on increased use of mobile payments

April 11, 2013 by Terry Dooley — SVP & CIO, ITS, Inc

The Federal Trade Commission recently issued a staff report titled "Paper, Plastic … or Mobile?" The report, which is based on an FTC workshop, highlights key consumer and privacy issues resulting from the increasingly widespread use of mobile payments.

According to the paper, the FTC recognizes the benefits of mobile payments, including ease and convenience for consumers and potentially lower transaction costs for merchants. However, the FTC points out some areas concerning consumer protection within the mobile payments system. Of particular note are dispute resolution and privacy.

The report recommends that companies develop clear policies on how consumers can resolve disputes. The FTC notes that mobile payments have different funding sources conferring different levels of protection and recommends that companies establish and communicate well-defined policies regarding disputes.

Furthermore, the paper expresses concern with "cramming," which is a crime involving third parties placing fraudulent charges on consumers' mobile carrier bills. This practice threatens to undermine consumer confidence in mobile carrier billing. The FTC recommends that companies implement three steps to counter this crime.

Give consumers the ability to block charges.
Inform consumers that charges may be placed and explain how to block them.
Develop clear and consistent procedures for disputing suspicious charges.

The report recognizes consumers' concern that their sensitive financial information may be vulnerable when mobile payments are made. In response to this concern, the FTC notes that technological advances provide increased protection. The report describes technologies that can encrypt the entire payment chain or generate unique payment information for each transaction.

The FTC notes that mobile payments bring about many privacy concerns because of the amount of data collected and the number of companies involved. The report recommends that companies adopt "privacy by design" by considering and implementing privacy at every stage of product development.

The FTC notes that privacy by design is particularly important in the mobile payments context because mobile phones have the ability to store and transmit geolocation information and facilitate data collection.

Companies developing mobile payment services should create them with these and possibly other protections in mind. Building a framework for mobile payments that keeps customers at the forefront will go a long way toward developing consumer trust.