As we've mentioned a few times in this blog, mobile payment developments in the United States lag the initiatives undertaken in Asian and African countries. Last week, the payments research teams at the Boston and Atlanta Federal Reserve Banks published a position paper on how the United States should promote the adoption of mobile payments. The paper, "Mobile payments in the United States: Mapping out the road ahead," represents collective views from 15 months of discussions with various representatives of the mobile payments ecosystem, a group that over the course of 2010 came to be known and the Mobile Payments Industry Workgroup (MPIW). The paper lays out the strategic vision for the future and outlines the foundational principles of an efficient and secure mobile payments system.

Convening the MPIW
The Fed brought this group together for several reasons, which we described in an earlier post. We wanted to understand how the key industry stakeholders in this conjoined industry of banks and telecom firms were working together. We hoped to engender a cross-industry dialogue to perhaps develop a mutual understanding between these two groups of the industry direction and consider a noncompetitive strategy to address barriers to industry adoption. The summary of this meeting was published on both the Atlanta and Boston Fed websites to ensure transparency to the industry.

The key takeaway from the meeting was that there is a lot to do to bring the various players together in the United States, where our payment systems are considerably more advanced and suitable for most consumer needs. The group agreed to meet on a quarterly basis to discuss issues of mutual interest, such as how the various participants viewed the drivers and barriers to adoption and how the business models were shaping up, as well as the industry roles and responsibilities. Of course, the group was interested in getting clarity in regulatory and legal oversight for new telecom-enabled financial services.

The group shared ideas and opinions throughout the course of the year. Oftentimes, group members disagreed on specific points. Even on some points of agreement that are outlined in the final paper, in some instances there is still no clear consensus yet on how to move the ball forward. At the very least, the paper represents issues of consensus and those where the industry must collaborate to achieve agreement.

The MPIW foundational principles for successful mobile payments in the United States
The group recognized that the past year has been marked with activity in the form of numerous trials and product rollouts—but without a vision for success shared among all the parties. Ideally, for mobile payments to take off, all participants should have common goals and still be able to flourish in the mobile ecosystem. Standards are necessary for a ubiquitous mobile commerce environment but at the same time, firms need to have the flexibility to differentiate their service offerings and add value to their shareholders. In acknowledging the need for a common environment, the group agreed on a set of foundational principles that represent the business requirements for success, which are described below.

  • Most important to the group is the concept of an open mobile wallet that carries broad payment and merchant options for consumer choice and is based on a platform that would enable a wide range of payment methods and networks.
  • Near-field-communication contactless technology must be embedded in the handset and support all payment methods and networks, and must comply with business rules and standards for existing payment methods.
  • The industry needs to establish a ubiquitous platform for mobile that not only uses existing clearing and settlement channels and rails, such as credit, debit, ACH, prepaid, and carrier billing, but also supports innovative efforts to create new rails.
  • The technology supporting the new mobile handset must enable dynamic data authentication to ensure long-term integrity and security.
  • The industry must have a global interoperable platform for standards and certification of payment methods for the mobile wallet and all its resident applications —leveraging existing standards when possible.
  • The industry needs regulatory clarity to avoid gaps in oversight and ensure robust consumer protections.
  • The group acknowledged the importance of the trusted service manager role to manage security and other account management functions.

The goal of the paper is, ultimately, to broadly circulate the ideas and discussions from the MPIW so we can ignite industry leaders to foster further collaborative work. As the paper notes, "[C]learly, there are many more (interested) parties who will need to support the ideas set forth in this document." Further, there are clear benefits to establishing a coordinating entity and forums to continue to build the roadmap for the future.

Photo of Ana Cindy MerrittBy Cindy Merritt, assistant director of the Retail Payments Risk Forum