Architects of the emerging mobile-payments industry may not have bargained on potentially significant regulations some legal experts are envisioning for it.
During the second of two Senate Banking Committee hearings on July 10, three legal scholars serving at witnesses outlined various opportunities and risks emerging in conjunction with mobile payments in prepared testimony.
A law professor and an economics professor urged lawmakers to carefully consider mobile-payment regulations to offset potential problems. Another law professor warned that overzealous early regulation of an industry in its infancy could stunt its development.
The hearing to discuss development of a "framework for safe and efficient mobile payments" followed an initial hearing on the same topic in April.
The gist of the testimony is that mobile payments will require a rethinking of existing payments regulation, but it is too soon to know exactly how new rules would take shape or when they would go into effect.
Consumer security and privacy are the two most-critical elements in the legal sphere surrounding mobile payments, Michael L. Katz, an economics professor at the University of California, Berkeley, told the committee.
Moreover, the convergence of banking, telecommunications and Internet services in mobile payments likely will require a complex interplay of regulatory laws that could be "problematic" for the mobile-payment industry and confusing to consumers, Katz said.
But with thoughtful planning, "properly implemented" regulation could help promote mobile-payments adoption, he suggested.
"Given the importance of information and the complexity of the issues involved in regulating the collection and handling of it, public-policy concerns regarding privacy will loom large for years to come," Katz said.
Apart from possible encroachment on consumer privacy and possible antitrust concerns among whatever companies emerge as dominant players, new types of fraud could derail mobile payments, warned Sarah Jane Hughes, a professor at the University of Indiana's Maurer School of Law.
"Mobile payments offer a new set of opportunities to money launderers and those who would fund terrorists," Hughes said, noting the speed and "ease of transport" in person-to-person mobile payments and funds-transfer technologies raises serious new fraud concerns.
But money-laundering laws today are "notoriously hard to enforce" and usually require a great deal of merchant compliance, she noted. "Merchants hate these compliance responsibilities for their complexity and the effort required to train their rotating staffs," Hughes said.
But consumer protections are needed nonetheless, she said. Urging considerations of regulations that would protect consumers and other payment-industry participants, Hughes called for "suitable supervision from federal and state regulators.” She also said suitable enforcement resources “to protect individuals and this nascent industry from bad publicity is an important goal."
It is "far too early" to pick winners and losers in the emerging mobile-payments arena, and no new regulations are needed for the industry yet, testified Thomas A. Brown, an adjunct professor at University of California's Berkeley School of Law.
"The payment industry, including the mobile-payment piece, is already heavily regulated," Brown said. "New layers of regulation could easily stifle innovation and benefit some providers at the expense of others."
Noting that regulation ultimately will be necessary to protect consumers and ensure a safe and efficient platform for mobile payments, Brown said any new laws or regulations directed at mobile payments "should be developed on the basis of a concrete understanding of the laws and regulations now in place."