Leave your ATM cards at home; forget the drive thru at the bank; heck, leave your whole wallet on the kitchen counter -- mobile banking is here and becoming all the rage. Well, maybe not all the rage just yet (like it is in Japan, but certainly, it is becoming easier, with the popularity of the I-Phone and similar devices with interactive capability.
For example, the office supply store, Staples, Inc. reported this month that more than one-fourth of small business owners report having a phone device capable of making mobile payments. About 24% use these devices to make purchases and 3% always do so. Those that do so shop on line frequently. In response to this trend, Staples has enhanced its mobile website.
Other press reports have noted that mobile banking is particularly popular with the young and the underbanked. Indeed, the market research firm Celent reported this month that the attraction of mobile banking lies in ease of access and portability. A lot of the underbanked may not have online access but do have a cell phone. As a result, prepaid card issuers, such as Green Dot are offering mobile account access and intend to upgrade their mobile device offerings.
Banks also are getting in the act, testing new technologies that will allow bank customers to access their accounts and make purchases through their smart phones.
In adopting new banking applications, however, it would be advisable for companies to understand consumers’ rights and the risks. Mobile payment applications are subject to the same banking rules as their technologically older counterparts. Thus, if a user links her phone to a credit card, the consumer protections afforded by federal law to credit cards would apply. These protections limit a consumer’s liability to $50 for unauthorized use (although many credit card issuers have a zero liability policy).
If a user links her phone to a debit card, the consumer protections afforded by federal law to debit cards would apply. These protections also limit a consumer liability for unauthorized use to $50 if the consumer notifies its institution of the unauthorized use within two business days. Otherwise, the liability can go as high as $500.
The protection afforded prepaid cards may differ, depending on the type of card. Payroll cards are given the same protection as debit cards, while other prepaid cards may not provide any protection against unauthorized use at all - they are the equivalent of cash and thus, if there is unauthorized use of the card, it is like your cash has been stolen.
A more insidious risk, however, is the risk that someone not just uses the phone for an unauthorized transaction, but actually hacks into the mobile applications or the merchant’s site, and access consumer account information - taking not just someone’s funds but also potentially their identity.
Consumers Union highlighted some of the these risks in a report issued on Tuesday. While the Consumers Union report focused on consumer risk, and called for possible changes in law, it would be wise for stores or other companies contemplating offering apps for mobile payments to consider data security and other risks, and plan accordingly. Users of mobile payments may want to carefully review the disclosures for the payment mechanism being linked to the phone to know what consumer protections apply to them.
