The FDIC has issued general guidance on the emerging market for mobile payment services, encouraging supervised banks to be proactive in addressing a new technology—mobile payments—that is expected to achieve a significant share of the traditional market for consumer payment processing. The FDIC defines “mobile payment” as the use of a mobile device, often a smartphone or tablet computer, to initiate a transfer of funds. The FDIC’s concern is that while traditional banks remain an integral part of the mobile payment market, these banks have much less control over the process, and often must rely on unrelated non-bank entities to complete the mobile payment transaction. For this reason, the FDIC emphasized the need for institutions to be “particularly conscious” of the potential risk of fraud in mobile payments. The FDIC also advised institutions that the regulatory expectations for managing mobile payments are “generally consistent” with those associated with other financial services, and that there are no safe harbors or carve-outs for mobile payment transactions. For example, institutions are required to provide disclosures under the Truth in Lending Act for mobile payment transactions using credit cards.Looking ahead, the FDIC highlighted a number of the legal and broader business challenges mobile payment transactions present for traditional financial institutions. For example, the FDIC noted that the problem of “disintermediation,” which involves the elimination of an intermediary between two parties could result in banks finding themselves “displaced” by non-banks offering financial products in the mobile payment marketplace.
Alert January 10, 2013