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Innovations and Payment Systems

Survey: Fear keeps consumers from making mobile payments


Despite the rise of mobile payment technology, a March 2012 Federal Reserve study says consumers remain skeptical about the safety of mobile payment transactions

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Despite the rise of mobile payment technology, a recent study says consumers remain skeptical about the safety of mobile payment transactions.

Mobile payment use has quadrupled in the past three years but is still only used by about one in eight mobile phone users. According to the Federal Reserve’s March 2012 “Consumers and Mobile Financial Services” report, the primary reason mobile phone users do not make mobile payments is that they’re afraid the transactions aren’t safe. Respondents worried about phones being hacked, lost or stolen, for example.

Linda Sherry, director of national priorities at Consumer Action, says she is not surprised by the survey’s results.

“We use these phones for just about everything you can imagine, but people still have doubts about things like being tracked,” Sherry says.

See related:Going mobile? Link payments to credit cards for more protection

What’s in the report

The report details the results of a survey conducted by the Fed in late 2011 and early 2012. Nearly 3,000 respondents answered questions regarding online and mobile banking and payments. The report was released in March 2012.

While the study found that just 12 percent of mobile phone users take advantage of mobile payment services, this number has quadrupled since 2009. The survey also asked those who didn’t use mobile payments why they haven’t adopted the technology. Here’s what they said:

  • 42 percent are concerned about security.
  • 37 percent said they didn’t see any benefit from using mobile payments.
  • 36 percent said it was easier to pay with another method, such as cash or credit card.
  • 31 percent said they didn’t have the necessary feature on their phones.

Sherry says she found it interesting that so many people did not see the benefit in using mobile payments, and she added that some of those people may already be using mobile payments and not even know it. For example, to download an app or purchase a ringtone, a mobile transaction must take place.

As with any new technology involving payment transactions, consumers can be slow to adopt. Sherry says she believes that in an increasingly cashless society, mobile payments should only grow in significance.

“I see a tremendous value in things like [peer to peer] transfers, provided we have consumer protections,” Sherry says. For example, “You could go to dinner with a friend and use your phone to send them some money to help pay for the bill,” she says.

Complicated rules and regulations

Consumer protections are complicated, however, and the rules are often confusing. The rules for mobile transactions can vary depending on what type of payment system the phone is tied to. For example, if your mobile payment app is connected to your credit card, you’re likely covered by myriad protections found in credit card law. If the app is tied to your debit card or checking account, the rules governing those types of accounts will apply. If the payment system is run by a utility, such as a phone company, your protection consists only of company policies, not law.

“Giving people messages about rapidly evolving technology is a difficult thing,” Sherry says. “People are kind of confused about the mismatch of protection laws with different financial services.”

The Federal Reserve’s report does not give any recommendations of how to make things safer, but Sherry says that extending Regulation E — the rules containing federal consumer protections for debit card transactions and other banking activities — to all mobile transactions is an easy fix. This would include, among other things, requiring banks to investigate unauthorized transactions as well as mandating banks to send written notifications of any changes pertaining to a customer’s account.

Still, Sherry says, protection ultimately starts in the hands of the phone owner.

“Lock the phone. Put a password on the phone. So many people fail to do this,” Sherry says. “Locking the phone is of paramount importance and it will go a long way to protect you.”

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