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In anticipation of a large-scale migration of consumers to a new type of payment technology known as mobile wallets, lawmakers are wondering how best to regulate the industry, or if they should at all.

Late last month, federal lawmakers held a pair of hearings on the future of mobile payments, and the necessity of regulating the rapidly emerging industry was a subject of considerable debate, according to a report from American Banker. On the one hand, those in favor of creating specific regulations for mobile wallet companies say that there are significant gaps between regulations for credit card lenders and payment processors and those for telecommunications companies like cellphone service providers. Consequently, it may be difficult to get companies that create and manage mobile wallet services on the same page as far as what will be required of them. This is especially true because even companies outside these two industries are already developing their own payment platforms.

“There needs to be some cooperation between the wireless and banking regulatory frameworks, because otherwise we’re going to have a mess,” said Suzanne Martindale, a staff attorney for Consumers Union, according to the news site. There is no one clear regulator who is in charge of all mobile payments. It’s very fractured right now. It’s an accident of history that technology moves beyond what’s on the books.”

However, there is also a large contingent which believes that more regulation is unnecessary and even redundant, the report said. They argue that while existing laws may not cover a handful of the complexities involved in bridging the gaps between mobile and financial regulations, these are not so egregious that they couldn’t be covered with patchwork regulations under existing framework. However, even this group concedes that there will need to be cooperation and coordination of regulatory oversight across several federal agencies, including the Consumer Financial Protection Bureau, Federal Trade Commission, Federal Communications Commission and more.

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While mobile wallets are still burgeoning, it’s expected that when widespread adoption hits, it will hit hard. Estimates by outside analysts show that by the end of 2015, the industry could be worth as much as tens of billions annually.

Image: Phil Campbell, via Flickr.com

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  • http://www.attochron.com Tom Chaffee

    Having just watched Suzanne Martindale, attorney with Consumers Union give testimony to the House Committee Financial Services (on CSPAN http://www.c-spanvideo.org/program/MobileP) a key bit of her testimony spoke volumes. For background, the discussion concerned the evolving ‘ecosystem’ with all the prospective players (i.e. credit card compaines, network owners, content providers…and others) in any financial transaction over mobile.

    The fact that many transactions involve getting a data-based product (a film from Netflix for example) over the network itself is a key dimension — the time/bandwidth aspect. Sounds wonky but almost 90% of the network activity involves ‘big’ data packages (video) being delivered ‘door-to-door’ over wireless broadband networks. And so the amount of avaialble network bandwith (‘capacity’) available for the transaction limits all activity ultimately.

    So Ms. Martinadale mentioned that while the overall number of people doing their banking on mobile is growing exponentially, it is still a relatively small group with few proven ‘business models’. One she noted taking root in Africa (I don’t recall the country offhand) was one where the network operator was itself a sort of bank where the combination of very few people having a pre-existing bank account, but needing phone service ‘forced’ the network operators into playing the role of banker with a good example being a pre-paid calling cards.

    We should note that this model is proven among demographics where the wages are some of the lowest in the world yet there is becoming universal cell phone ownership. That shows the ‘scale’ of the model works at any level.

    So, with the challenging world economy are we ‘looking for complexity’ when a successful business model is already proven? All those in the current value chain might not like the idea but there is a way for everyone to benefit.

    A model exists where the network operator is the financial institution too and (besides actual cash on deposit from pre-paid usage) have available, a ‘gold standard’, the bandwith it can provide in the first place. With loss of network ARPU globally and experts like Tellabs spelling doom for wireless networks because of thinner margins and rising network CAPEX and OPEX, carriers might be wise to take initiative in the global wireless financial opportunity.

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