While the National Automated Clearing House Association has created a new ruling on mobile payments, there are reasons why this may have limited impact in the MVT industry.
ACH Standards for Mobile Payments
As more companies develop mobile payment products and as consumers grow increasingly comfortable with the idea of using their mobile devices for financial transactions, governments are being forced to accept the need to develop regulation around this emerging industry. We have looked at government regulation and the development of standards on a number of occasions–most recently as relates to how the Chinese government has encouraged consensus around a single technology for contactless mobile technology based on the NFC standard–and while most of our discussion is concerned with the events taking place in developing countries in Africa, Asia and Latin America, we are also keen to see how developed country governments respond to this emerging technology.
While developed countries are generally more technologically advanced, with more mature financial markets, and so in certain ways are more prepared for mobile payments then developing countries, this advantage in technology and financial penetration has in many ways been a hindrance to the adoption of mobile payments technology, as consumers don’t see the utility in conducting financial transactions on their mobile devices when they have so many other options for conducting these transactions. Nonetheless, earlier this month in the US, NACHA, the National Automated Clearing House Association, approved a new rule on enabling Automated Clearing House (ACH) payments initiated from a mobile phone.
Adopted as part of the NACHA Operating Rules, which define the roles and responsibilities of financial institutions and other participants in the ACH Network, the new rule incorporates mobile ACH payments into the existing category of Internet-Initiated Entries (WEB) and requires that mobile payments use the WEB Standard Entry Class (SEC) Code.
The Mobile ACH Payments Rule is meant to establish a framework for accepting and processing mobile-initiated ACH debit payments from consumers, and NACHA hopes that it will provide clarity to users of the ACH Network regarding authorization, risk-management, and data-security requirements for mobile ACH payments. This clarity in turn, it is hoped will create a more stable environment for the development of mobile payment products and services while addressing its risks.
NACHA, which has been discussing how to classify mobile payments since last year, and took industry comments in the fall, chose to incorporate mobile ACH debits into the WEB Category since mobile payments have a similar technology profile to internet payments and they feel that the same authorization and risk-management provisions are appropriate.
The adoption of the rule demonstrates that NACHA recognizes mobile payments as an emerging financial service, but its narrow scope is somewhat of a missed opportunity. Perhaps most problematic in this failure to process mobile payments as a unique category of payments is the limit that poses to NACHA’s ability to track and report on mobile payments separately from other payment categories.
The new rule, which is a not a major change and does not require any coding changes, becomes effective January 1st 2011, and it seems that both avoiding a major changes to current procedures and being able to quickly implement a rule to recognize mobile payments were motivating factors in the recent decision.
The NACHA Rules Work Group on Mobile ACH Payments had to weigh the need for a unique transaction code with the need to let banks act quickly and cost effectively in introducing a new service. The last new transaction code NACHA introduced was IAT, a code for international payments that went into effect in September, and required an almost two year lead-time because of software and training requirements. The introduction of a new transaction code is expensive and laborious for both NACHA and its members and NACHA was likely interested to avoid this for mobile payments, especially at this early a phase.
Although mobile payments in the US are still an emerging financial product, the downside of the new rule is that once implemented there will be no way to tell which transactions were made via mobile devices. This means that it will be difficult to track how much ACH transaction volume mobile payments are generating. This will limit data on the adoption of mobile payments and will eliminate an important feedback loop whereby NACHA members can understand the extent of and patterns in mobile payments and develop and promote products accordingly.
As we have stressed before, the regulatory environment can go a long a way towards encouraging or discouraging investment and development in particular industries and so NACHA's decisions are likely to contribute towards defining the next phase in the development and adoption of mobile payments in the US. The ACH network and industry players such as NACHA could play a larger role in ushering in mobile payments by contributions to the infrastructure to support them, and by making available more information about opportunities for usage, both by individuals and businesses.
While NACHA took a step in the right direction with this rule in terms of working towards standards for the mobile payment industry, more will be needed. Overall, our expectations are low for the influence of this new rule on the industry.
Relevant links:
http://www.cellular-news.com/...
http://www.cuinsight.com/...
http://www.paymentssource.com...
http://www.digitaltransactions.net...
Migration and Remittance Shifts - An Update
At the beginning of the year we gave our best predictions of the major trends for 2010. Among those was the shift taking place in remittance patterns, as an increasing number of developing countries that had for long periods been destination countries for remittances were becoming send countries and were accounting for an increasing share of global remittances. At the time we referenced a Foreign Policy Article written by the World Bank's Remittance and Migration Team and wrote:
