Updated report (May 2013): U.S. Mobile Payments Landscape – Two Years Later

Executive Summary

In January 2010, the Federal Reserve Banks of Atlanta and Boston, through their Retail Payments Risk Forum and Payments Research groups, convened a selected set of key players in this country's emerging mobile payments ecosystem. The goal of the meeting was to facilitate a discussion among all involved parties as to how a successful mobile payments (as opposed to mobile banking) regimen could evolve in the U.S.

Over the past 15 months, the self-named Mobile Payments Industry Workgroup (MPIW), met five times to share information and ideas, discuss the barriers and opportunities resident in mobile payments, and ultimately, to suggest a vision for the building blocks of an efficient and ubiquitous mobile payments environment. Ultimately, the discussions of this group, along with additional industry dialogue and literature research, constituted a body of input to the development of a research paper regarding the future for point-of-sale (POS) mobile payments in the United States.

This paper, drafted by the Boston and Atlanta Reserve Bank payments research teams, does not necessarily reflect the opinions of the Federal Reserve Banks, the opinion of the Federal Reserve Board of Governors, or the opinion of any individual member of the workgroup. Rather, the paper represents the collective views of the authors based on the inputs noted above. The paper depicts the current mobile payments ecosystem in the U.S.; discusses barriers, gaps, and opportunities; and sets forth a set of foundational elements that workgroup participants believe are fundamental to the development of a robust mobile payments environment. This "vision" for the future is built upon the recognition that the current environment faces many challenges and that success will require extensive collaboration between participants to ensure that consumers see a homogenous solution as they do today in other payment channels such as checks, ACH, and cards. Moreover, it must be a solution based on agreed upon standards, rules, and practices that ensure seamless interoperability regardless of the handset, mobile carrier, financial institution, payment network, or merchant location involved in any individual's desired transaction.

The foundational components of success suggested by the work group include:

1. The proposed environment is best defined by the concept of an "open mobile wallet."
2. The mobile infrastructure would likely be based on Near Field Communications (NFC) contactless technology resident in a smart phone and merchant terminals.
3. Ubiquitous platforms for mobile should leverage existing rails, including the ACH network for non-card payments, and support new payment types that meet emerging needs.
4. Some form of dynamic data authentication would be at the heart of a layered mobile payments security and fraud mitigation program.
5. Standards would be designed, adopted, and complied with through an industry certification program to ensure both domestic and global interoperability, including a standard to ensure that devices used to facilitate mobile payments do not create any electronic interference problems.
6. A better understanding of a regulatory oversight model should be developed in concert with bank and non-bank regulators early in the effort to clarify compliance responsibilities.
7. Trusted Service Managers should oversee the provision of interoperable and shared security elements used in the mobile phone.

During their discussions, the MPIW debated the need for a new entity in the ecosystem directed at assisting the various parties to resolve issues of mutual concern and codify solutions in such a way as to facilitate interoperability and ubiquity. While many members felt that such an entity may be useful in the future, the general sense was that it was too early in the evolution to fully understand how such an entity might be constituted and what its role might be. In the meantime, the MPIW indicated a desire to meet again, perhaps with some additional attendees, to continue to discuss issues resident in the foundational components discussed above.

Additionally, the group discussed the need for an industry "roadmap" that could focus short term investment and accelerate progress. Once again, the general sense was that the complexity of the environment and diversity of participants would make this a daunting task. Efforts to specifically prescribe such a roadmap could create results that are inconsistent with the outcome eventually produced from natural market forces. Therefore, the group decided that defining such a roadmap this early in evolution of mobile payments in the U.S. might stifle innovation.

The benefits of this document and the underlying participative work effort will be revealed by what happens next. This paper is intended to be a vehicle for socializing a concept or model for an efficient, secure, ubiquitous, and convenient mobile payments evolution in this country to a much broader group of industry players. They, in turn, must ultimately agree to support or modify the ideas contained herein as a means of moving forward, recognizing that the opportunity to achieve maximum benefits may be best realized by acting sooner, rather than later.

The ability of the two convening Reserve Banks to organize and facilitate the discussions that led to the publication of this document, in addition to the ongoing and highly engaged participation of a diverse group of mobile ecosystem players, speaks to the potential success of idea-sharing and demonstrates that collaborative efforts could work. The authors would like to thank all the participants for their engagement and contributions to this work. A note of special thanks goes to Steve Mott of BetterBuyDesign, who contributed heavily to this effort.

Full paper

Updated report (May 2013): U.S. Mobile Payments Landscape – Two Years Later