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Friday, July 18, 2008

Mobile Wallet? Whose money is it?

My brother works for a large investment bank & spends a lot of time thinking about the finer details of various financial instruments.

He raised an interesting issue, specifically about London's Oyster card (stored-value card for Tube & Bus travel), but I'm wondering if it applies generically to mobile payments as well.

It's a simple question which is surprisingly difficult to answer: Does the money on a stored-value card belong to the user, or the provider? If Transport for London (in the Oyster example) or a mobile operator (for a mobile wallet or even prepay credit) goes bust, can you get the money back? Or are you at the back of a long list of other creditors? Related to this is what happens if the phone or card breaks.

Given the huge % of the world that uses prepay accounts for mobile - and presumably given that operators will want to avoid credit risk for postpaid users with mobile wallets in future - this is far from an academic question. I've seen some estimates recently that suggest $10's of billions may get spent annually on mobile payments with NFC.

At that level, it's certainly relevant to ask who it belongs to, and what happens when things go wrong. Let's face it, given recent events it seems that normal banks aren't as safe as we used to think - so would you trust a mobile operator to give you better protection for your cash deposits?

(Incidentally - my brother tried to get an answer about Oyster credit, but eventually gave up. He couldn't even find someone who understood the question).

5 comments:

Simon Cavill said...

Without boring people to death here, like everything else it depends...

Most stored value providers will have to obtain an eMoney licence from the FSA or equivalent to trade. This is meant to cover the consumer in the event of the company going bust. However, in thinking about it, I'm not sure if the Oyster scheme is covered by this.

However mobile operators have a waiver which means they don't need this for pre-pay phones although the payforit initiative could get them on sticky ground if they go too far outside the telco space...


Simon

Dean Bubley said...

Simon

Many thanks, that's much clearer.

I'll follow up on this & see what else I find

Dean

Shai Berger said...

Somewhat related... in California there is a law specifically dealing with retail "gift certificates". It puts the consumer at the "front of the line" for getting their cash back if the store declares bankruptcy.

Digital Evangelist said...

Dean,

With the Oyster Card the money is covered by the eMoney regulation and so TFL will refund and outstanding money. Having in the last three years killed two Oyster Cards the system seems to work well with prepaid cards having declined to register the card the ticket office have been able to discover what was outstanding and replaced the card and then charged it with that amount. It being TfL the system is slow however.

With regards to payments on mobile in the developing world what you see is the user having to register to use the service. Once the user is registered then payments can take place and the stored funds are secure.

In the US you can witness the development of mobile banking and move towards mobile payments. Over the last 10 months a number of the leading banks have launched Banking on Mobile using a mixture of SMS, Browser and JAVA based solutions. At present some 8M Americans will have Banked on their Mobile in the last week. Under half of those feel safe enough to make a payment but when they do it has a higher value than the standard credit card payment. (Take a look at some of the posts on my blog over the last few weeks as I have been writing a report on MBanking.)

Here in the UK we can expect to see changes as the Mobile Payments Group look to set up P-2-P Mobile Payments that can be used by SME's that do not at present have merchant card services that will use the Faster Payments Network to facilitate low cost payments.However before you and your Brother get excited the service will be using the Mobile Number as an alias for your Bank Details and will not be a stored value service.

Hywel said...

This kind of thing happens a lot with new technology. A friend's father recently signed up for Setanta, and then died shortly afterwards. It turned out that Setanta did not have yet have a system in place for cancelling an account without the subscriber actually verifying it. They eventually relented when told that a seance would be required to speak to the subscriber. Dunno how mobile companies do it.