What exactly defines a mobile payment?

The National Retail Federation would like to know because as the emerging mobile-payments market gradually develops, a variety of legal and privacy issues are surfacing surrounding transactions conducted via portable electronic devices.

The government first must address what specifically defines a mobile payment, including whether regulators and payment industry participants treat transactions conducted on smartphones the same as those conducted via tablet computers and laptops, Mallory Duncan, the federation's chief counsel, told Federal Trade Commission officials April 26.

And any rules the government adopts for mobile payments "should parallel those for the underlying form of payment and not be specific to the technology," Duncan said.

Duncan made his remarks during a panel at a workshop the trade commission convened in Washington D.C. to discuss mobile payments and privacy issues.

Privacy is becoming a hot topic with privacy-rights and consumer-advocacy groups as many mobile-payment innovations begin to mimic social media by inviting consumers to share personal data, preferences and locations for marketing purposes.

Some factions are alarmed by what could be encroachments on consumer privacy, but it is too soon to impose limitations on emerging technology "in order to avoid potential 'harm' based largely on speculation," Duncan said.

And rather than harming consumers, mobile-payment technology that could include such sharing of data might enhance consumers' shopping experiences, saving time and providing more personalized service, he suggested.

"Some of the best innovations on the Internet today might have been suspect a generation ago, but today they are benefits few consumers would want to live without," Duncan said. "The public very often embraces change as the 'future' becomes 'now.'"

A smartphone is “just a device, not a payment,” and the actual payment could take place via a credit or debit card, or the processor could take the funds directly from a bank account. The transaction also could be processed through the user’s phone bill or be made through other means, Duncan noted.

As such, "any privacy rules developed for mobile payments should be no more restrictive" than rules for the underlying payment types, including traditional payment methods, Duncan said.

It is too soon to begin cracking down on privacy in mobile payments before the industry even fully takes shape, Harley Geiger, policy counsel for the Washington, D.C.-based Center for Democracy & Technology, another panel participant, tells PaymentsSource.

But even at this early stage, companies involved in driving mobile payments should start to assume the role as the first line of defense in protecting consumers' privacy, he says.

Areas of concern in mobile payments include the risk of consumers prompting unwanted spam and telemarketing calls when they provide their email addresses and cell-phone numbers to participate in mobile wallets and other mobile-payment channels, Geiger warns.

General rules protecting consumer privacy may not apply for certain types of mobile payments, Geiger explained in a recent blog post (see post).

"The FTC needs to watch the mobile-payment space to see whether regulation is going to be necessary," Geiger says. "But in the meantime, as mobile-payment evolves, companies need to build in strong controls across the ecosystem because the need for regulation will depend in part on the degree to which companies protect their customers' privacy."

Companies may offer customers the opportunity to opt out of sharing important data for marketing and other purposes, but "there is a lot of sensitive data companies keep that could endanger consumers' privacy, and how that is handled may dictate consumer trust in mobile payments,” Geiger says. “You need to protect consumer trust in order to foster adoption, and if companies involved in mobile payment flout that, it will discredit the industry."

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