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Banking

Atlanta Fed Exec Dispels Mobile Payments Myths

mobile phoneAs with anything new and unfamiliar, the emerging mobile payments system has a number of misconceptions about it. But as this system grows more robust in the United States, fact and fiction surrounding mobile payments require clarification for a public often reluctant to embrace new ways of paying for goods and services.

Cindy Merritt, assistant director of the Atlanta Fed's Retail Payments Risk Forum (RPRF), attempted such clarification in a recent interview and blog post. The interview with Merritt, featured on the online payments industry forum PYMNTS.com, highlighted some common myths about mobile payments and suggested ways in which banks and merchants can help dispel them.

Drawing important distinctions
One common misperception is that mobile payments and mobile banking are essentially the same. But in fact, they are quite different in terms of the way they appeal to consumers and the risks they carry, noted Merritt. When consumers use their mobile browsers to make online purchases, the cell phone has essentially replaced the PC. Consumers must still enter their card information. Incidents of fraud in these card-not-present transactions are actually on the rise, noted Merritt. Mobile payments, on the other hand, involve consumers using their mobile phones to pay for goods and services at the merchant's point of sale.

Merritt also dispelled the myth that mobile payments lack regulation. This is not the case in the United States, where mobile payments simply offer an alternative channel to existing payment networks. "All of the rule sets, laws and regulations, and consumer protections that govern retail payments today will simply migrate to the mobile channel," Merritt wrote. In emerging economies, a different form of mobile payments has grown around airtime minutes, which are used to pay for goods and services. As a result of these differences and others, the regulatory structure around each system is different, too.

Discussing security features
Last, Merritt addressed the misperception that mobile payments are less secure than other methods such as credit cards or checks. "The security functionalities resident in the mobile handset provide authentication capabilities that don't exist in the current payments environment," she said, pointing to features such as the ability to add passwords and GPS location functionality. Further, existing payment technologies, such as magnetic-stripe technology, have become increasingly vulnerable to fraud. Mobile devices can use a contactless technology in the form of an embedded chip, making the mobile wallet "a much more secure payment device than the plastic cards we use today," she explained.

What can banks and merchants do to help dispel the myth that mobile payments are less safe than traditional payment mechanisms? Banks are taking steps that include offering trials with interim technologies like stickers that affix to the phone and enable mobile payments, Merritt said. Indeed, the outpouring of monetary donations following the Haiti earthquake showed that consumers will use mobile payments when they are offered a service that they want and that is easy to use, she noted.

To learn more about the emerging mobile payments system in the United States, listen to the PYMNTS.com interview, read Cindy's post on the RPRF's Portals and Rails blog, or read the RPRF's recent white paper on how a successful mobile payments system could evolve in the United States.

June 23, 2011