Alternative payments are taking hold at a brisk pace. Now a major bank lobbying group and payment company is crying foul.
The Clearing House, which represents 24 of the largest U.S. commercial banks, issued a white paper this month saying alternative payments companies are riding on the backs of traditional banks, doing business while sidestepping much of the burdensome regulatory scrutiny incumbents endure.
The white paper calls for new regulation, including legislation, requiring enhanced security measures in alternative payments apps. The Federal Trade Commission should enforce safeguards for these new payments firms and even the playing field for banks, the Clearing House says.
Point-of-sale platforms like Square, peer-to-peer money transfer services like Venmo, digital wallets like Apple Pay and application programming interfaces such as those developed by Stripe are all part of a young and "naïve" industry where many have failed "to implement even the most basic of layered security measures," the white paper says.
For example, the paper cited the story of a man whose Venmo account was hacked by obtaining the password. His bank notified him of a $2,850 debit, through Venmo.
These services routinely require their users to submit sensitive data and bank account information, the white paper notes. Although they handle much of the same data and process similar types of consumer payments as banks, financial regulations haven't been modified to cover their activity, TCH contends, and the burden falls still on the banks to eat financial losses in case of a security lapse.
The white paper was first reported by Business Insider.