mobile payments: problem or solution? (report)

Mobile Payments: Problem or Solution?

Implications for financial inclusion

Mike George, Linda Lennard and Kate Scribbins

Foundation

Further information This report and a summary version are available as a pdf from www.friendsprovidentfoundation.org. The summary is also available in print from Friends Provident Foundation, Pixham End, Dorking, Surrey, RH4 1QA ([email protected] and www.friendsprovidentfoundation.org).

Published 2013 by

Friends Provident FoundationPixham EndDorkingSurreyRH4 1QA

© AnKa 2013

ISBN 978-1-908769-08-4 (pdf )

All rights reserved. Reproduction of this report by photocopying or electronic means for non-commercial purposes is permitted. Otherwise, no part of this report may be reproduced, adapted, stored in a retrieval system or transmitted by any means, electronic, mechanical, photocopying, or otherwise without the prior written permission of Friends Provident Foundation.

Friends Provident FoundationFriends Provident Foundation is a grant-making charity working to create the conditions throughout the UK for improved access to appropriate financial services for those who are currently excluded, particularly those on low incomes or otherwise vulnerable to market failure. It particularly wants to encourage thinking that deals with the causes of the problem. Established as part of the demutualisation of Friends Provident Life Office in 2001 and the flotation of Friends Provident plc, it is independent and has its own board of Trustees.www.friendsprovidentfoundation.org

Editorial and design by Magenta Publishing Ltd (www.magentapublishing.com)

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Contents

About the authors 4

Acknowledgements 4

Executive summary 5

1 Background, aims and methodology 12

2 Industry developments 15

3 Barriers and challenges 22

4 The regulatory landscape 35

5 Conclusions and recommendations 44

Appendix: Organisations consulted and roundtable participants 50

References 52

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About the authorsThis report was conceived, researched and written by Kate Scribbins of AnKa (http://anka.org.uk/), and Mike George and Linda Lennard of George & Lennard Associates (www.georgeandlennard.org.uk/). Kate Scribbins is an independent consultant on personal finance, with a particular focus on banking and payment services. She is an expert in analysing how policy and regulation affect consumers of financial services, both in the UK and internationally. She has led a wide range of research projects for consumer, industry and regulatory bodies, both in personal finance, and more widely in general consumer rights issues, such as redress in public services and data protection.

Mike George is an independent consultant and expert in policy matters affecting essential services. He has in-depth experience of analysis and research across a range of sectors, including the communications, energy, water and healthcare services. Having worked as a journalist in the national media for a number of years, he has written widely on the impact of public policy for people in vulnerable circumstances. Linda Lennard is an independent consultant on public policy and consumer affairs. She has extensive experience in consumer policy and UK and EU regulation, particularly in relation to essential services. She is also Visiting Research Fellow at the Centre for Consumers and Essential Services at the University of Leicester, and Chair of the Public Utilities Access Forum.

AcknowledgmentsThe authors are grateful for the support of the Friends Provident Foundation, who funded this research and the report. The project benefited greatly from the contribution of all who took part in interviews and discussions, and from the input and ideas of participants in the roundtable, many of whom provided comments and helped refine the recommendations. We would like to extend our thanks to all of them, and in particular to Consumer Focus who hosted the roundtable.

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Policy background The introduction of mobile payment services is bringing significant changes to the ways in which consumers can make financial transactions. Although online and phone banking have been available for some time, new mobile payment services are distinctive, as their provision involves companies across the financial services and communications sectors, and may also include intermediary bodies.

It is critical that these developments are explored from a consumer standpoint as they raise important questions about the implications for financial inclusion and the effectiveness of consumer protection and regulatory frameworks in this changing and potentially confusing landscape. This report focuses on the implications of these developments for consumers in vulnerable circumstances. Although almost anyone can be adversely affected when things go wrong in financial services, as in other sectors, the effects are likely to impact more heavily on people who are already in vulnerable situations. It is also vital that the potential benefits of mobile payment services are fully realised in order to minimise financial exclusion rather than add to it.

About the studyThis study explores the advantages and disadvantages of mobile payment services for people in vulnerable circumstances, including those who have difficulties in accessing or using traditional banking. It highlights current gaps and concerns regarding regulatory frameworks and consumer protection. The overall aim is to ensure that the needs of people in vulnerable circumstances are taken into proper account in policy-making and industry developments.

In reality, large numbers of people are in vulnerable circumstances: the population is not split between ‘vulnerable consumers’ and the rest. There is a wide and often multiple number of contributory factors, which may be long-standing or episodic, or linked to life events such as unemployment, the onset of illness or disability, or becoming a carer, among many others. The policies and practices of providers can also play a critical role in contributing to consumer vulnerability, for example if market complexity, product design, or company systems and processes create unnecessary barriers.

The research included an extensive literature review, and interviews and contacts with a range of stakeholders including regulators, consumer organisations, industry bodies, and voluntary

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Executive summary

organisations (see Appendix). These were followed by a roundtable, hosted by Consumer Focus, to discuss the draft findings and recommendations. AnKa and George & Lennard Associates carried out the research with the support of Friends Provident Foundation.

It is important to note that the subject matter of this research raises a number of wider issues, for example relating to payment systems and financial inclusion, and mobile phone services, that were outside the remit of this study but which merit further attention.

Industry developmentsIn this report we use the term ‘mobile payment services’ as shorthand to cover the wide range of services now on offer in the United Kingdom. New entrants are coming into the market, and there is increasing convergence between payments and communications companies in provision of these services. Services work in different ways. Mobile devices can be used:

to access an existing bank account;■■

to act as an electronic ‘wallet’ (e-wallet);■■

to act like a contactless card, debiting money from a bank account, credit card or ■■

e-wallet; to access an intermediary such as PayPal, which makes the transaction;■■

to download content or make other payments such as premium rate services or ■■

charitable giving, which are charged direct to the mobile phone bill.

Other developments in the UK and elsewhere illustrate the growing interest in this area from a range of commercial organisations. These changes create challenges for consumer protection, and potential confusion among consumers.

Developments in countries outside the UKMobile payment services have taken off in other countries in recent years, particularly in Africa and Latin America. These include M-Pesa in Kenya, which provides an SMS-based, person-to-person money transfer service. In South Africa, people can pay bills and transfer money using the WIZZIT service to other WIZZIT users or to any bank account using any mobile phone network. Mobile payment services are also spreading in a growing number of other countries. Several commentaries highlight how mobile payment services have helped to improve financial inclusion in these countries, for example by assisting people without bank accounts or lacking easy access to branches to make purchases, pay utility bills and receive remittances from abroad. It is important that lessons on the use of mobile payment services from other countries are explored further in terms of their possible application for people in vulnerable circumstances in the UK, whilst taking proper account of relevant differences in aspects such as banking infrastructure.

E x E C U T I V E S U M M A R y

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Barriers and benefitsThis research shows that mobile payments could offer convenient ways for some people in vulnerable circumstances to access financial services, carry out online transactions and manage their money, including those who face difficulties in accessing bank accounts. People who are put off traditional bank accounts because of fears of loss of control over budgeting and of incurring unexpected charges could also benefit.

Many consumers in vulnerable circumstances need secure alternatives to cash. And some need ways of safely delegating others to carry out financial transactions on their behalf. It is feasible that mobile payment services could offer some useful solutions to these and other needs.

But a number of significant barriers must be addressed if mobile payment services are to be easily accessible and of benefit to all. Although the Payments Council’s central database will create the potential for all bank accounts to be linked to a mobile phone number, bringing mobile payments within the reach of the majority, many people, and particularly those in vulnerable circumstances, remain unbanked. It is important that alternatives are developed that offer them the benefits of being able to carry out some transactions through their mobile phone. These alternatives should not involve higher charges and inferior consumer protection, which is why we call for electronic money to be brought within the guarantee of the Financial Services Compensation Scheme. In addition, it is critical that consumers wanting to register to access any form of mobile payment services are not faced with barriers such as inflexible identity requirements, which cause problems with accessing bank accounts for some people.

Another critical point is whether and how these services can help people, including those on low incomes, to keep track of transactions and everyday spending. Many consumers like to have easily accessible paper records and a clear paper trail, not least in case of a dispute.

The affordability of smartphones and associated deals is a potential barrier for people on low incomes, especially if a specific handset is required. The usability of mobile phone handsets and navigation tools is another significant issue for many people, including – but not only – people with dexterity difficulties or cognitive impairments. Similarly, many people with physical and/or sensory impairments among others can face barriers with the accessibility of apps. Also, finding a usable handset at an affordable price and setting up accessibility features may itself be a significant barrier.

Other concerns highlighted in this research include the potential for consumer confusion because of the complexity of this fast-moving market; and problems in making the correct decision because of difficulties in comparing deals and bundles of services. Making the wrong decision is likely to bear especially heavily on people on low incomes. Also, consumers may struggle to know who to contact if they have a query, and how to take complaints forward and seek redress.

More broadly, there were concerns that the spread of mobile payment services could encourage providers to reduce conventional banking facilities, namely branches and ATMs. Some interviewees also expressed concerns that the availability of other forms of payment method (such as cheques) could be affected. Some consumers in vulnerable circumstances are likely to

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be especially concerned about security and privacy considerations, for example if loss or theft of a phone or fraudulent practices could impact heavily on their finances.

Mobile payment services may well offer practical benefits to some consumers who are unbanked or who encounter problems with basic bank accounts (BBAs). But having a bank account is often critically important for economic participation. To ensure full choice for consumers, these should not be viewed as alternatives: BBAs and mobile payment services should be easily accessible to all in order to help tackle financial exclusion.

Adequacy of regulation and consumer protectionThe overarching regulatory framework for mobile payment services is broadly adequate, but there are some significant gaps. These include: coverage of the Financial Services Compensation Scheme for electronic money; the fact that new providers may fall outside the scope of the Financial Ombudsman Service; and some exemptions in regulations. Moreover, there is no limit to consumers’ liability for unauthorised transactions carried out through a mobile phone account before a loss or theft is reported. In contrast, liability is limited to £50 when a credit or debit card is used. In addition, consumer rights in the event of post-purchase problems, fraud, or disputed transactions, may vary depending on the payment method.

Key conclusionsA number of barriers urgently need to be addressed if mobile payments are to be accessible to all. These include:

affordability; ■■

difficulty in making an informed choice; ■■

barriers created by the design of mobile phones and apps; ■■

problems caused by the use of multiple security codes; ■■

lack of a paper trail; ■■

fears over fraud and privacy abuses; ■■

complaints and redress barriers.■■

There is also a broader risk that:

the spread of mobile payment services could lead to a narrowing of people’s choice ■■

of payment methods, and potentially lead to a reduction in the availability of bank branches and ATMs.

Consequently, it is vital that payment services are acknowledged as being essential for participation in society, and that access to a safe, convenient and affordable way to pay for all is safeguarded.

If the barriers can be overcome, mobile payment services could offer benefits to a number of consumers in vulnerable circumstances, including a convenient way to make payments without having to carry cash. The services could also enable people to budget, by using an e-wallet, for

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example. If services are designed correctly, they could be of practical benefit to consumers who need to be able to delegate to others safely and securely to make financial transactions on their behalf. In addition, mobile payment services could offer the opportunity to people who are not online to make electronic transactions.

At the same time, developments in mobile payment services present challenges for regulators and other relevant bodies in the UK and at EU level to ensure that regulatory and consumer protection frameworks are appropriate, comprehensive and coherent, and buttressed by effective monitoring and enforcement. Regulators and consumer protection bodies must monitor patterns of emerging problems, liaise with each other, and be prepared to act quickly once issues are identified.

Policy-makers need to grasp the opportunities offered by the numerous national and international reviews and changes taking place, which have implications for mobile payment services. These include: the creation of the Financial Conduct Authority; the review of UK payments strategy; the review of communications legislation; the review of the EU Payment Services Directive; and the development of OECD guidelines on mobile payments. It is crucial that these and other relevant developments take full account of the interests of consumers in vulnerable circumstances.

RECOMMENDATIONS

Mobile payment service-specific recommendationsLimitation on consumer liability Consumer liability for unauthorised or fraudulent use of cards before a loss or theft is reported is limited to £50; however, there is no limit to liability if your phone is lost or stolen and used to pay for things that are charged to your mobile bill (e.g. downloads or premium rate services), until you report the loss. This discrepancy should be resolved to ensure a consistent level of protection across all payment methods.

Extension of consumer protection The scope of the Financial Services Compensation Scheme should be extended to cover electronic money (funds that are stored electronically, such as pre-paid cards and pre-paid accounts for use online). In the meantime, consumers should be given clear information about the different levels of protection in the event of the issuer going bust.

Improved usability Barriers arising from poorly designed and inaccessible products and services urgently need to be removed. Network operators and service providers should coordinate to ensure that consumers can easily find and use accessibility features.

Safe, transparent systems The point at which a consumer confirms a transaction should be obvious and unambiguous. Consumers should be clearly informed about how they can amend or cancel a transaction.

Clear and accessible information Consumers should easily be able to check that transactions are correct and to identify the payee. Consumers should be encouraged to report any errors in transactions, whatever the size, and should be taken seriously when they raise a problem.

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No unreasonable barriers to switching Telecoms and payments services should not be bundled in such a way as to create a barrier to competition and switching. Consumers should not be locked in to particular mobile networks or operating systems as a result of using mobile payment services.

An alternative way of paying utility bills and sending remittances Mobile payment services could provide alternative methods of paying utility bills, and also offer safe and affordable ways of sending and receiving remittances between countries. The potential for such services should be explored further by mobile payment services providers, utility companies and regulators.

Learn lessons from other countries Further evidence is needed on the experience of mobile payment services in other countries and its relevance for the UK.

Clear and coordinated regulation Regulators need to liaise effectively to ensure clarity about the regulatory landscape and to ensure that intelligence about potential problems is shared and acted upon. The FSA (subsequently the FCA) and Ofcom should develop a Memorandum of Understanding to formalise this coordination. The FSA (and the FCA) and Ofcom, with PhonepayPlus, should consider setting up a joint working party on mobile payments, which should include consumer representatives.

Clear and coordinated complaint handling and redress Complaint handling and redress bodies need to liaise to identify emerging problems and share information. Formalisation of this through Memoranda of Understanding would be helpful on issues such as signposting, joint investigations and intelligence gathering.

Recommendations on payment services relevant to mobile payments

Clear consumer information Clear information about rights and responsibilities should be available regardless of how people contact providers, in a wide range of formats, with clear signposting to other sources of help. Information about what to do when things go wrong should be routinely provided in the relevant apps.

Rights to redress Consumers should be clearly informed of their right to go to the Financial Ombudsman Service (FOS), where appropriate, and about rights to redress where companies are licensed outside the UK. All payment service providers offering services to UK customers should voluntarily offer access to the UK FOS.

Consumer rights in disputed transactions When fraudulent or erroneous transactions occur, consumers have the statutory right to be re-credited quickly while investigation is underway, as well as other protections. The FSA and FCA should be alert to any infringements of these rights.

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Privacy and data protection Consumers should be fully informed of their rights regarding privacy and data collection and how personal data may be collected and shared with third parties. Opting in should be the norm rather than requiring consumers to opt out.

Review exemptions The limited network exemption within the Payment Services Regulations and Electronic Money Regulations should be reviewed at EU level so that virtual currencies, such as Facebook credits and some gift-card type schemes, are no longer exempt from their scope.

Recommendations on wider financial inclusion and consumer vulnerability issues

Safeguard access to payment services for all Access to safe, secure and reliable ways to receive and manage money, budget and pay is essential for full participation in society. In its review of the UK payments strategy and the role of the Payments Council, HM Treasury should make inclusive access to payment services an explicit objective of whichever body it decides should set the strategy for this area, and ensure that there is a coordinating body with the specific remit to track and promote financial inclusion.

Safe arrangements for delegated payments There is an urgent need for many consumers to have access to ways of arranging safe delegated payments. Payment service providers should ensure that products are developed that meet this need.

Consumer vulnerability – regulatory understanding and strategy Regulators need to have an informed understanding and strategic response to the needs and interests of people in vulnerable circumstances. The FCA in particular will need to ensure that it has an organisational culture that takes proper account of vulnerability issues. One way to do this would be to develop a consumer vulnerability strategy; Ofgem is currently developing such a strategy.

BSI Standard on inclusive service Businesses should consider adopting British Standard 18477: 2010, which sets out requirements for identifying and responding to consumer vulnerability.

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Policy backgroundMoves to bring mobile payment services to the mass market are gathering pace in the United Kingdom. Mobile phones are being promoted as devices for people to conduct an increasing range of activities, including financial transactions and banking. Consequently, using a mobile phone to make and receive payments to retailers and to other mobile users is on the increase, with banks and mobile operators introducing new schemes. For example, Barclays recently introduced their Pingit app, which allows smartphone users to send money using a mobile phone number. Meanwhile, the Payments Council is developing a common infrastructure to enable payments from bank accounts based on mobile phone numbers, from Spring 2014. Many people now use their smartphones to access their bank accounts, to make online purchases, and to download apps and games that are charged to their telecoms bills. The growth of ‘electronic’ money (funds that are stored electronically, such as pre-paid cards and pre-paid accounts for use online) is another aspect of this trend, bringing new providers into the payments market – for example O2 has launched an electronic wallet. Wave-and-pay using a mobile is now a reality in some retail outlets. So, in short, the use of mobile phones for financial transactions and banking is in the process of becoming ‘normalised’. Although online and phone banking have been options for consumers for some time, the new mobile payment services are distinctive and merit specific attention for a number of reasons. First, these are new types of products/services that have as yet received little attention from a consumer protection standpoint, particularly from the perspective of consumers in vulnerable circumstances. Second, a key feature of these developments is the convergence of payment service providers and communications service providers, as well as a proliferation of intermediary bodies involved in the payment chain. This could lead to potential confusion for consumers, and challenges for cohesive consumer protection. Although some of the issues that can arise apply also to other payment and banking methods, some specific issues relate solely or particularly to mobile payment services. Consequently significant and urgent questions need to be addressed about the implications for financial inclusion, and the effectiveness of consumer protection and regulatory frameworks in this changing landscape.

Chapter 1Background, aims and methodology

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B A C K G R O U N D , A I M S A N D M E T H O D O L O G y

AimsThis project focuses specifically on the potential implications of developments in mobile payment services for people on low incomes and in other vulnerable circumstances. The aims of the project were:

to identify the ■■ pros and cons for consumers in using mobile phones for financial transactions, with a particular focus on people in vulnerable circumstances (including those who have difficulties in accessing traditional banking and/or in using mobile phones); to highlight ■■ potential risks arising from current developments in mobile payments and banking, including risks of financial exclusion and consumer detriment; to highlight any ■■ gaps in the coverage and adequacy of regulatory frameworks and consumer protection; to ensure that the ■■ needs and interests of people on low incomes and others in vulnerable circumstances are properly taken into account in policy-making and in the development of industry policies and practices.

Why the project is neededVery little attention has so far been paid to the potential benefits and risks for consumers in the UK, and especially for people in vulnerable circumstances, of the use of mobile phones for banking and other financial transactions. The spread of mobile transactions could increase access to a secure way of managing money, but only if systems are designed in an inclusive way. However, there are serious potential risks that people who are already sidelined by the growth in internet banking and bank branch closures could well face further marginalisation as a result. Moreover, whilst almost anyone can suffer detriment when things go wrong with services and markets, the effects are likely to be far more serious if people are already in vulnerable circumstances. Most existing research evidence relates to the use of mobile phones for financial transactions in Africa and Latin America, with some limited research on developments in the US. In countries such as Kenya, it appears that mobile transactions have brought the benefits of secure money transmission to many who were unbanked. However, little or no comprehensive examination has been carried out regarding the potential advantages and disadvantages of mobile banking and transactions for people on low incomes in Europe, including the UK, taking into account differences in demographics and existing banking infrastructure. For example, although the European Commission recently finished consulting on a Green Paper relating to mobile, card and internet payments, there was no focus on issues relating to the social and financial implications for people in vulnerable circumstances (European Commission 2012). The increasing use of mobile phones for making payments and other financial transactions could bring benefits for many but disadvantages for others. The ability to transfer money instantly could offer potential benefits to people who find it difficult to access traditional banking, and it could replace the need for some cash payments – for instance, for older people who regularly pay tradespeople. However, the roll-out of mobile payment services could lead

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B A C K G R O U N D , A I M S A N D M E T H O D O L O G y

to an increase in local bank branch closures, which would reduce face-to-face interactions, an extremely important point of contact for some people in vulnerable circumstances. It could also reduce access to free ATMs, if banks reduce the number of free-to-use ATMs, or limit the range from other banks that the consumer can use for free. This may increase the spread of ATMs that charge for use. This would have repercussions for people who depend on these services, especially those on low incomes. This study explores a number of key barriers and challenges that need to be addressed by policy-makers and industry so that mobile payment services help to reduce rather than add to financial exclusion.

MethodologyA review of background material across regulators, consumer groups, industry, policy and news organisations was conducted, which covered developments in mobile payments both in the UK and worldwide, consumer vulnerability and how this impacts on the way people manage their money, financial exclusion and payments regulation. Key stakeholders were identified and contacted (face-to-face, by phone and email) to determine their level of interest and expertise, and invited to provide information and comments. These stakeholders comprised regulators, industry trade bodies, commercial companies, policy-making bodies and organisations that work with people in vulnerable circumstances.

A list of organisations consulted is included in the Appendix.

A preliminary analysis of the findings was produced and a roundtable seminar was organised in early December 2012 to discuss draft recommendations arising from those findings. This was hosted by Consumer Focus and attended by key players representing a cross-section of the organisations involved (see list of participants in the Appendix). Following the roundtable session, draft recommendations were circulated to provide an opportunity for further comment. It became clear that the research raised a number of wider financial inclusion and consumer rights issues that were not specific to payments by mobile, and which were, strictly speaking, outside the remit of this study but which do merit further attention. These are included for the sake of completeness.

Structure of reportIn Chapter 2 we set out an overview of industry developments, and some of the new products and services that have been brought to the market in the UK and elsewhere. Chapter 3 explores the implications of these developments for people in a range of vulnerable circumstances, and highlights a number of key barriers. An overview of regulatory and consumer protection frameworks is provided in Chapter 4, together with a discussion of their adequacy and effectiveness in practice. Based on these analyses, Chapter 5 brings together the conclusions and sets out a series of recommendations.

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What’s available and what’s involvedIn order to begin to consider the implications of mobile payment services for people in vulnerable circumstances, it is necessary to look at how the services currently work and what is involved for consumers. We outline below some of the key mobile-based payment services now on offer in the UK, based on information available at the time of writing (February 2013). Note that the products and services in this area are subject to rapid change. The terms ‘mobile banking’ and ‘mobile payments’ cover a wide range of services, and can be accessed on mobile phones and other mobile devices (such as iPads). For example, a mobile phone or other device can be used:

as a way of accessing an existing bank account, a further extension to online banking; ■■

to access an intermediary, such as PayPal, which then makes the transaction, debiting ■■

the bank account or credit card that the individual has ‘linked’ to their PayPal account, or value held in their PayPal account;

SUMMARy

Mobile payment for goods and services is undergoing rapid change. A wide range of new payment services is available, and new entrants to the market are joining traditional providers (banks, building societies). Current providers are also expanding their services, including Barclays Pingit and a joint venture between Barclaycard and Orange.

The Payments Council is developing a database that links mobile phone numbers to bank account details, enabling people to pay others using their mobile number and potentially linking up all bank accounts. Contactless payments, such as ‘wave and pay’, are being rapidly developed by many commercial organisations.

The advantages of mobile payment services to UK customers relate mainly to convenience and increased security (compared to cash). However, the majority of these new mobile banking and payment services require users to have a smartphone so there are obvious cost implications too.

Outside the UK, there is growing evidence of high usage of mobile payment services in some countries, in particular Africa and South America. However, it is difficult to draw parallels between experiences in other countries and the UK due to differences in demographics, banking infrastructure and many other factors.

Chapter 2Industry developments

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I N D U S T R y D E V E L O P M E N T S

as an ‘electronic wallet’ (e-wallet), storing pre-loaded electronic money; ■■

like a contactless card, debiting money from a bank account, credit card or e-wallet. ■■

for charging purchases direct to a mobile phone bill (e.g. payment for digital content ■■

such as ringtones, parking or charity giving).

Figure 1 illustrates the main types of service.

These developments have resulted in new entrants to the market for payment services, which has traditionally been dominated by banks and credit card companies. Also, there is an increasing convergence between payments and communications providers. In addition, there can be a number of intermediaries involved when an individual makes a purchase using mobile payment technology. These new aspects create challenges for consumer protection, including potential confusion for consumers about who is responsible for which aspects of transactions.

Figure 1

Phone acts as ‘vault’. Stores details of bank account, credit card or pre-paid card. Phone facilitates transfer but no funds sit on the phone.

Direct charge to phone bill – for example, PRS such as charity giving, SMS, paying parking charges.

Wallet that stores value, therefore has to be pre-loaded by bank account, credit card, pre-paid card or cash. Money in ‘wallet’ can then be spent.

Mobile phone number acts as a proxy for bank account details facilitating transfer between bank accounts.

Near-field communications takes money direct from debit, credit or pre-paid card.

Intermediaries, such as PayPal, iTunes, which store value and/or debit from bank account, credit card, gift card.

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Mobile bankingTo take advantage of mobile banking, consumers commonly need to go through some form of registration process and then download specific apps on their mobile phone or other device. Many banks now offer an app that enables customers to conduct transactions via a mobile phone.

Some banks have developed new services that use the mobile to go beyond traditional transactions. For example, Barclays Pingit enables people to send or receive money using an app on their phone. Users can also request payments from others (e.g. for money owed by friends). There is also a Pingit wallet that can be linked to any UK bank current account, so it is not limited to Barclays current account holders. Person-to-person payments can be made using a mobile phone number as a proxy for bank account details, as long as both sender and recipient are registered with the service. Money can be sent to people in Botswana, Kenya and Zambia in addition to the UK. Barclays says more countries will be added soon (Barclays 2012).

The Payments Council is currently developing a database that will enable secure payments to be made directly to or from a bank account without the need to disclose the sort code and account number, by using a mobile phone number as a proxy. Due to be launched in spring 2014, this will facilitate payments between people or traders without each needing to know or share bank details, and will potentially link up all bank accounts. It will be up to the banks to develop the front end of this service for their customers, building on the central database. Institutions covering over 90 per cent of current accounts have already signed up to the service. It is likely that these sorts of payments will spread. Another interesting use of mobile phones is the Get Cash app, which enables RBS/NatWest account and app holders to obtain cash from an ATM using a temporary code, texted to their phone. The service is especially helpful for people who need to obtain cash urgently without a debit or credit card. The Get Cash app offers benefits for some people who may need to delegate to others to withdraw cash on their behalf, as the code can be texted to another person who can then use the code to withdraw only the amount authorised by the code. These types of features are likely to be particularly helpful for some people in vulnerable circumstances. The Get Cash service was suspended in autumn 2012 following fraudulent withdrawals from customers’ accounts (BBC News 2012b), but has since been reinstated.

Electronic moneyThe spread of electronic money has facilitated services that offer a new form of electronic wallet to consumers. The O2 Wallet allows consumers to ‘store’ money and carry out a range of transactions from their smartphone, including receiving funds, transferring money, and paying for purchases. you do not have to be a current O2 customer to use the service. Funds can be loaded onto the wallet with a debit or credit card but a bank account is not essential as cash can also be loaded into the wallet using an O2 Money Account card at O2 shops, or at shops with Paypoint and ePay.

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Contactless paymentsOther services have been developed and marketed that allow consumers to make contactless payments by using their mobile phone at ‘wave and pay’ terminals in retail outlets. The money is debited to a credit card or to a ‘wallet’ within the phone, which can be loaded from a bank account or credit card. Transactions are usually below £20 and in general it is not necessary to enter a PIN number into the terminal.

These services are based on near field communication (NFC) technology. Quick Tap is one primary example, and is based on a partnership between Barclaycard and Orange (Orange 2013). It is only available on certain smartphones, as it is built into the phone itself. Barclays Pay Tag offers a sticker or ‘tag’ to stick on any mobile phone, which enables contactless payment at shops that have the appropriate NFC readers. At present the service is offered only to ‘selected’ Barclaycard Visa accounts (Barclaycard 2013). Consumers with PayPal accounts (which can be linked to a bank account or credit card, and can also store funds) can transfer money to other individuals with a PayPal account in the UK and abroad via their mobile using an email address or mobile number – the recipient’s bank details are not required. They can also use their mobile phone to pay for purchases in certain stores (so far this service is available at shops run by five national retailers). The PayPal app displays a unique barcode that is then scanned and debited from a consumer’s PayPal account (PayPal 2013). Other developments in the UK and elsewhere signify the growing interest in this area from a range of commercial organisations. Some of these newer services are not directly linked to the use of mobile phones for financial transactions as yet. But this could well change in future, given the rapidity of technological change, and the growing emphasis on online methods of financial interaction for consumers and service users in both the private and public sectors. One of these new initiatives involves mobile phones as a direct means of money transfer. Swedish company iZettle has teamed up with the mobile network operator EE, and with MasterCard and American Express, to offer a card-reader that plugs into iPhones, iPads and a number of Android smartphones (or tablets). It is designed to be used by small traders in particular so that they can accept card payments through their phones without having to invest in card infrastructure. The service had just been launched in the UK at the time of writing. If this or a similar service takes off it may well affect a number of consumers, including some who currently pay traders such as window cleaners and decorators using cash. (Square and PayPal Here in the United States offer similar credit card readers that plug into smartphones.)

Smartphone costs and ownershipThe mobile banking and payment services outlined above require the user to have a smartphone. A handset may have to be purchased, and there will be on-going payments for rental and/or calls depending on the type of deal. Mobile banking apps work on all networks and most smartphones; however, the Barclaycard/Orange Quick Tap facility is limited to certain handsets. The consumer is free to switch network provider; however, most smartphones are purchased on contract (84 per cent of smartphone owners are on a contract according to Ofcom’s latest research, 2013a), so there is a degree of tie-in for the consumer.

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Latest research from Ofcom on the take-up of mobile phones shows that smartphone ownership is on the rise. Over 90 per cent of UK adults stated that they personally owned a mobile phone, of which just under half (45 per cent) said their mobile phone was a smartphone (compared to 34 per cent the previous year). However, the increase in smartphone ownership is restricted to younger consumers, particularly the 16–24 age group. Less than one in ten people aged over 65 have a smartphone. (Ownership of any sort of mobile phone is lower among older age groups, with just over four in five (83 per cent) 65–74s and three in five (59 per cent) adults aged 75 or over owning a mobile device: Ofcom 2013a.)

A move away from paperSome banks have recently been trying to reduce the amount of paper statements they send out. In November 2012 NatWest became the first major bank to stop sending out monthly paper statements to all account holders, unless they have taken specific action to opt back in; statements will be quarterly instead. For some people, using a mobile phone app to get a balance update whenever and wherever they want it, and viewing their most recent transactions, is a very useful budgeting tool and an improvement on monthly paper statements. On the other hand, there remain people for whom a paper trail is extremely important (see Chapter 3), and who cannot or choose not to conduct their banking online, and it is important their needs are not overlooked.

What’s happening in other countries Commentaries about mobile phone banking and payments frequently highlight how these services have taken off in other countries, particularly in Africa and Latin America. Many of the commentaries talk about mobile payments as a force for greater financial inclusion.

PRE-PAID CARDS

Although pre-paid cards in general are somewhat outside the scope of this study, they need to be considered as part of the changing payment services landscape. Pre-paid cards are growing in popularity (Financial Services Authority 2012: 67) and they are relevant to mobile payments as some offer the facility for consumers to load money onto their mobiles.

Consumers load money onto these cards via cash, credit or debit cards/bank account transfers, which can then be used to pay for purchases in the UK and abroad or to transfer funds. Pre-paid cards do not normally offer any credit facility, so they may be particularly useful for people who don’t want to get into debt or who do not have a sufficient credit history to obtain a credit card. Young people often use pre-paid cards (they are often available to those aged 13+) to help money management, to take advantage of online shopping, and for use abroad.

However, the cards frequently involve a range of fees. In addition, any money on pre-paid cards is not protected by the Financial Services Compensation Scheme should the underlying institution go bust.

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Three-quarters of the countries that use mobile money most frequently are in Africa (Economist 2012). The benefits, particularly for poorer people, include reductions in travel time and in personal risk involved in transporting money across large distances, and greater ease of payment of utility bills. Mobile phones may also be used to bank remittances from relatives abroad (Consumers International 2010).

It is clear that mobile telephone network operators, banks and other financial institutions are seeking opportunities to develop and promote these services in a number of developing countries, particularly for people who are unbanked (see, for example, Beshouri and Gravråk 2010). There are many examples of mobile payments in other countries. Two of the most commonly discussed are M-Pesa in Kenya and WIZZIT in South Africa. M-Pesa in Kenya provides an SMS-based, person-to-person money transfer service. The accounts are held by a mobile operator, and conversion of cash into electronic value (and vice versa) is carried out through a network of retail stores, or agents. Research cited in a report by CGAP , an independent US-based policy and research centre that focuses on financial access for people in poverty, shows that among the population outside Nairobi the share of people with very low incomes using M-Pesa increased from less than 20 per cent in 2008 to 72 per cent by 2011 (McKay 2012). The research report acknowledges that more evidence is needed but also asserts that early data gives a good indication that low-income, unbanked customers will actively use and find value in these services. On the other hand, other recent research cited by CGAP states that, despite Kenya’s reputation for being a leader in mobile money, cash is still the preferred means of exchange for purchases (CGAP 2012). The WIZZIT service in South Africa was developed as a joint venture with the South African Bank of Athens. Using any mobile phone network, people can pay bills and transfer money to other WIZZIT users or any bank account. Deposits can be made at postal outlets and various bank branches, and a Maestro debit card is available for purchases at retail outlets and money withdrawal at ATMs (ICT Regulation Toolkit 2012). Other countries where mobile-based banking services have been launched include Egypt, the Philippines, Sri Lanka, Botswana, Rwanda and many others. In trying to draw lessons for the UK from experiences in other countries, attention needs to be paid to the external factors that influence people’s choices. One major determinant is the availability of bank branches and their accessibility. ‘Branchless’ mobile banking has particular resonance in a number of countries that currently lack a physical banking infrastructure but where mobile telephony is widely available. Most Zambians do not have a bank account but over one-third of the population has a mobile phone, for example (Schwartx 2012). In Kenya, Sudan and Gabon at least half of adults reportedly used mobile money but the proportion is very small in countries with more developed financial systems, for example only 1 per cent in Brazil and Argentina (Economist 2012). Demographics, banking infrastructure, regulatory regime, telephone network quality and coverage and many other factors make parallels between take-up of mobile payments in other countries and the UK difficult to assess.

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ConclusionBanking and mobile phone companies, and an increasing number of retailers, have invested significant effort and resources to develop new products and services that are aimed at encouraging consumers to take up new methods of carrying out financial transactions. These new methods and systems may offer cost and other benefits for the companies, and for some consumers in some situations there are certainly advantages – relating mainly to convenience and increased security. However, a number of significant barriers need to be addressed if mobile payment services are to be of benefit for all consumers, including many people in vulnerable circumstances: we explore the nature of these barriers and challenges in Chapter 3.

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IntroductionDevelopments in mobile payment services present both potential benefits for consumers and also risks and challenges. Whilst any consumer can suffer detriment when things go wrong, for example through market failure, the effects are likely to be more serious for people in vulnerable circumstances, as we explore further in this chapter. It is crucial to note that the UK population is not divided into ‘vulnerable consumers’ and the rest. The reality is that large numbers of people across the population are in vulnerable circumstances at any one time, and people can move in and out of ‘vulnerability’. There is a wide and often multiple range of contributory factors, which may be long-standing or linked to events such as unemployment, the onset of illness or disability, becoming a carer, or bereavement or relationship breakdown. The other major factors that contribute to consumer vulnerability arise from how markets operate and the policies and practices of providers, particularly if market complexity or products, systems and processes create unnecessary barriers to access or use. This research shows that a

SUMMARy

Mobile payment services offer potential benefits for large numbers of consumers in vulnerable circumstances, especially for those who are unbanked. For example, mobile payment services can enable those who are not on the internet in other ways to carry out online transactions.

But for benefits to accrue, the industry has to address the needs of all consumers and design products and services in an inclusive way. The challenges to be addressed include:

identity and other access requirements; ■■

affordability; ■■

usability of mobile phones and apps; ■■

clarity of consumer information; ■■

quality of complaint handling and redress systems; ■■

concerns about fraud and privacy. ■■

Moreover, the spread of mobile payment services could result in reduced availability of alternatives such as bank branches and cheques that are critical to some consumers.

Chapter 3Barriers and challenges

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B A R R I E R S A N D C H A L L E N G E S

number of significant barriers need to be addressed if detriment is to be avoided and mobile payment services are to be accessible and beneficial for people in vulnerable circumstances. In this chapter we explore the nature of these barriers and how they are likely to affect consumers. We then set out a number of key requirements that need to be met if mobile payment services are to offer meaningful benefits to the large numbers of people in vulnerable circumstances. The findings are informed by discussions with a range of organisations that work with people in a variety of vulnerable circumstances.

Financial exclusion

Everyone should have access to, use and retain:

an appropriate account, or equivalent product, into which income is paid, can be held ■■

securely and accessed easily;an appropriate method of paying, and spreading the cost of, household bills and other ■■

regular commitments;an appropriate method of paying for goods and services, including making remote ■■

purchases by telephone and on the internet;an appropriate means to smooth income and expenditure.■■

(Kempson and Collard 2012: 1) Financial services are essential for people to be able to function in society. Consumers need the ability to pay for bills and purchases, to receive wages and benefit payments, to store and transfer money safely, and to budget and keep track of their finances, among other everyday financial needs. The detriment that results from difficulties in accessing and using financial services include not only monetary costs but also social and psychological costs (Kempson and Collard 2012). A key question is whether mobile payment services have the potential to help reduce financial inclusion, or instead present barriers to people in vulnerable circumstances, or a combination of both. There is extensive research underlining the importance of access to bank accounts, particularly transactional accounts that allow people to make and receive payments from a range of sources (see, for example, research on financial inclusion for Friends Provident Foundation and reports by the former Financial Inclusion Taskforce). Around 0.9 million people still do not have access to a bank account of any kind, and 1.75 million do not have access to a transactional bank account (Kempson and Collard 2012). Lack of a bank account is particularly associated with being on a low income. Lone parent and single person households, social housing tenants, and people who are retired or are not in work due to ill health are among those who are especially likely to be unbanked (Financial Inclusion Taskforce 2010; Burton 2011). People who are unbanked usually manage their finances with cash or have use of an account via a friend or relative. Consumer Focus research among people without bank accounts found that while many were relatively happy operating a cash budget they still experienced a number of problems. There is a risk in carrying and holding cash, which leaves people who may already

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be in a vulnerable situation open to risk of crime (Consumer Focus 2010a). Paying bills in cash can add to the costs, because discounts are often given to those who pay by direct debit. On the other hand, this research also found that people without accounts had largely negative attitudes toward banks and banking, and had concerns about possible loss of control over finances, for example because of fears of irresponsible granting of overdraft facilities. Some mobile payment services may offer an alternative to banks, for some consumers in vulnerable circumstances who face problems in accessing and using traditional bank accounts. These services may be especially useful for people on low incomes who feel that bank accounts risk incurring charges for going overdrawn, sometimes leading to a spiral of debt. Difficulties with traditional bank accounts also often arise from inflexible requirements to provide proof of identity, address and credit history in order to open a bank account. Those especially likely to be affected include young people leaving care, refugees, some older people who may not have bills in their own name or credit cards, and ex-offenders. An important issue is whether mobile payment services that are linked to having an existing bank account replicate the barriers faced by consumers in accessing a bank account. Therefore, types of mobile payment services that do not present unnecessary barriers to access, while at the same time guarding against fraud and ensuring protection of personal data, could help people who face difficulties with proof of identity and who lack a credit history. In looking at what benefits mobile phone services could offer in terms of banking features, we also need to take account of developments with basic bank accounts (BBAs), which have been developed to meet the needs of consumers who face difficulties in opening a traditional account. Currently around 20 per cent of the population state that their main or only account is a BBA, according to research for Consumer Focus (Accent 2012). These findings confirm the increasing pressures in society for people to have bank accounts in order for wages and benefits to be paid into and to pay housing costs. Whilst the Accent research shows a high level of satisfaction with BBAs, it also points to the need for improvements to achieve a standard product that meets the majority of consumer needs. Moreover, Consumer Focus drew attention to concerns about a reduction in the utility of BBAs, as some banking groups have withdrawn access to the LINK network for cash withdrawals and to check balances (Accent 2012: Foreword). A number of interviewees for this research also highlighted problems with BBAs, arising from their experiences in advising a range of consumers in vulnerable circumstances. These include difficulties in finding out about BBAs, variations in the willingness of frontline bank branch staff to offer these accounts, and some consumers being denied a BBA due to poor credit history. It is clear that difficulties with BBAs persist and improvements need to be made in order to increase financial inclusion. The question then arises, would unbanked consumers benefit more from having easier access to BBAs, rather than using mobile payment services? However, rather than seeing these as alternatives, the most useful outcome would be to ensure that both BBAs and mobile payment services are easily accessible and geared to meet people’s needs, thereby offering real choice to consumers in vulnerable circumstances.

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This is especially important as a number of interviewees for this research expressed serious concerns that, if people start using mobile payment services as an alternative to having a bank account, they could be further marginalised as bank accounts are seen as critical to people’s social and economic identity. Some interviewees also raised concerns that banks could use the availability of mobile payment services to close down more branches. As a recent Capgemini report states, ‘If banks can effectively transition their customers from higher-cost to low-cost channels such as the mobile and online channels, they can reduce their overall cost-to-serve while also improving their return on investment’ (Capgemini 2012: 5). Many people in vulnerable circumstances prefer face-to-face contact regarding their finances, and phone or other online contact does not necessarily offer an adequate replacement.

AffordabilityAnother challenge for mobile payment services is that of affordability. In particular, access usually requires use of a smartphone. Although smartphone ownership has risen, there are still significant differences according to income levels: 32 per cent of those in the DE socio-economic group own a smartphone, compared to 56 per cent of those in the AB group (Ofcom 2013a). For some consumers, the upfront cost of purchasing a smartphone for use with pay-as-you go (PAyG) or SIM-only schemes may well be unaffordable. Prices of around £70 to £100 for a handset may well be beyond the reach of people who are struggling on low incomes to pay for essential food, housing costs and utility bills. For those who commit to a long-term contract with a phone supplied, they may be reluctant to incur the potential risks of the contract becoming unaffordable in future, for example because of concerns about future income levels or other changes in circumstances. The number of people and households who are likely to encounter difficulties with affordability is significant. According to the latest official figures for 2010/11 on households below average income:

13 million adults were in low-income households;■■

63 per cent of households living on below average incomes had no savings;■■

76 per cent of low-income households had no savings or only very modest savings of ■■

up to £1,500. (Department for Work and Pensions 2012a)1

Many refugees and asylum seekers are among those likely to be affected by affordability difficulties, and some use PAyG phones because of a lack of credit history, which is needed to obtain a contract deal. Similarly, people who are homeless or at risk of homelessness are likely to be facing numerous difficulties, including financial problems. Many people in this situation cannot afford a smartphone or fixed term contracts, and use of PAyG phones is common.

1 These figures refer to adults in households with incomes below 60 per cent of contemporary median net disposable household income after housing costs (AHC).

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Around 10,000 young people (aged 16+) leave care settings in England each year. Care leavers are likely to face affordability barriers, as they are often in poor financial circumstances and may not be able to afford to buy smartphones (most have PAyG or SIM-only phones, rather than long-term contracts, and therefore they pay the full price for the handset). Many care leavers have experienced significant emotional and psychological stresses, and are less likely than their peers to have educational qualifications. Most are expected to live independently once they reach 16 to18, compared to the average age of 24 for young people who leave the family home. Some care leavers struggle to get to grips with financial services in general and these new services might be risky, for instance if it is difficult to keep track of spending. These are just some of the situations facing numerous people in vulnerable circumstances that impact on the affordability of mobile phones and other products and services.

Usability and accessibilityThe design of hardware and software associated with mobile phones can also create barriers to their use for many people. Button size, the physical ‘feel’, the size and clarity of onscreen graphics, design of menus and ease of navigation are all important features in achieving ease of use and basic accessibility, particularly for people with dexterity or sight problems.2

Recent research for the Payments Council among people aged 80+ and those living with cognitive, physical or sensory impairment shows how design issues create barriers to use of payment services: ‘Technology is both a key enabler for those able to make effective use of it and a barrier for those who are not technologically engaged’ (Toynbee Hall and Policis 2012: 4).

ECONOMIC vULNERABILITy

Many people on low incomes and with few savings face other factors that could heighten their vulnerability in terms of financial and communications services. For example, there is a strong relationship between low income and disability, and many people experience additional costs relating to their disability. Official figures show that there are over 11 million disabled people in Britain* (Office for Disability Issues 2012).

A similar relationship affects people with significant caring responsibilities (6.4 million people in the UK are carers). Many carers have to give up paid work or make adjustments to their employment and, for example, a Carers UK survey (undated) found that over 40 per cent said they had been in debt as a result of caring.

Similarly, a high proportion of people with mental health issues are likely to be on a low income. A Mind survey (2011a) found that 45 per cent of respondents were living on below £200 a week, rising to 54 per cent among those in problem debt. Over 80 per cent felt they were often struggling to manage their finances. One in four people experience mental health problems in the short or longer term (see Royal College of Psychiatrists 2013; Mind 2011b).

* According to the Office for Disability Issues, this estimate covers the number of people with a long-standing illness, disability or infirmity, and who have significant difficulty with day-to-day activities. Depending on the definitions used, there are between 11 million to 13 million people with physical or sensory impairments in the UK.

2 Although there are technical standards for mobile phone handsets, currently there are no standards relating to their accessibility.

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Research by Ricability has identified a number of critical improvements that could be made to mobile handsets that could make them significantly easier for all users (Ricability 2011). As their research also shows, many people also feel alienated by the retail environment of mobile phones, and retailers are perceived as geared towards those who are young and technically proficient. Numerous physical conditions can impact on consumers’ ability to access and use mobile payment services. These include arthritis, which is experienced by about 10 million people, dyspraxia (about 1.3 million), Parkinson’s (about 127,000) and multiple sclerosis (about 100,000). These and other conditions may cause people to lose the fine motor control necessary to use mobile phones. Around 2 million people experience sight loss, and almost half feel ‘moderately’ or ‘completely’ cut off from people and things around them (RNIB 2013a).

Ensuring full accessibility and usability continue to be major issues. From the research and interviews for this report, it is apparent that the availability and nature of accessibility features vary quite widely across current mobile phone operating systems (see for instance RNIB 2013b). The barriers include:

lack of full accessibility features in mobile hardware and software;■■

lack of integration of accessibility features between companies involved in offering ■■

mobile phone payment services.

Alongside usability of handsets, the accessibility of phone apps is also critical for many people. Although the accessibility of websites still varies significantly, at least there are standards in existence for accessible websites (BSI 2010; WC3 2012) but at present there are no equivalent guidelines for mobile phone apps. The One Voice ICT Coalition describes app accessibility as ‘currently very mixed, ranging from extremely inclusive to disastrously unusable’ (Jellinek and Abrahams 2012).

Consequently, accessibility needs to feature in all the tasks that consumers need to do in order to find, download, run and use apps. The ease with which these tasks can be carried out depends both on the operating system of a mobile device, and on how well the app is designed to make best use of the accessibility features of the operating system (Jellinek and Abrahams 2012).

OTHER FACTORS AFFECTING USABILITy

A variety of other conditions can impact on people’s ability to use IT products and services such as mobile phones.

Across all age ranges a substantial number of people experience some form of cognitive impairment arising from strokes, accidents, dementias, aneurysms, Parkinson’s, etc. This can impact on speed of thought, memory, understanding, concentration, ability to solve problems, use of language, and numeracy.

A substantial number of adults with learning disabilities (about 800,000 aged 20+ according to Mencap 2013) have a very wide range of capabilities and difficulties, and the overall number continues to rise.

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Other important points raised during the course of this research include:

Alongside mobile phones’ appearance and ease of use, do people know whether the ■■

app is active/operative or not – is there an audible ‘ping’ or similar to let the user know when it is in use or switched off? Do the banks/network operators have subtitled videos on their websites explaining how ■■

to use these products? Is there likely to be a problem of interference caused by NFC (near field ■■

communications) readers with smartphones and hearing aids when used together? How easy is it to lock and unlock the phone? Is there a choice of ways to do this, to suit ■■

people’s needs? For consumers to have full and meaningful choice of mobile payment services, they need to be able to access and use them as easily as possible without facing unnecessary usability barriers. Therefore, mobile phone hardware and software, including apps, should be based on ‘inclusive design’ – the principle that products and services should be designed to be easily usable by as many people as possible, without obliging them to make any special effort or add on adaptations. In particular, inclusive design aims to meet the needs of people who have been unable to use mainstream products because of age or disability (see Ricability 2012). Inclusive design should underpin all the steps consumers need to take to access and use mobile phone payment services. These include not only the design of hardware, software and other features but also information on set-up and on-going use. Structured user testing is critical to achieving inclusive design, and needs to be incorporated from the outset.

Communication systemsIt is not only the products themselves that need to be fully accessible and usable. Consumers also need to be able to communicate easily with banks, mobile phone companies and any other providers involved in mobile payment services about any problems, as in other sectors. But organisations’ communications systems and processes, such as call centres, can effectively present barriers to many people, or arguably discriminate against those with particular needs. Many people experience communications difficulties. For example, there are at least 1.5 million people with speech-related communication difficulties who may already face barriers in relation to telephone banking (Scope 2009). More than a quarter of a million people in the UK have difficulties with speaking, reading, writing or understanding language as a result of strokes, head injuries or neurological illnesses (Speakability 2013).

The One Voice for Accessible ICT Coalition has published ‘seven steps to accessible mobile apps’ (see One Voice for Accessible ICT Coalition 2013).

Running apps with accessible features does not absolve manufacturers of mobile devices of the need to make their handsets and operating systems as flexible and accessible as possible (Jellinek and Abrahams 2012).

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Moreover, around 10 million people – or 1 in 6 of the population – have some form of hearing loss (Action on Hearing Loss 2013) and may face barriers in using these services if they need to contact call centres to sort out problems or find information. Such barriers might include: if call centres are noisy; if frontline staff do not communicate properly; and if the systems or staff do not meet people’s hearing needs. According to Ofcom research, deaf people reported that call centres regularly hang up when they call via the text relay service, and hard of hearing people reported that requests to speak more slowly are often ignored. In addition, blind people found that call centre workers assume that callers can see and are unable to divert from their script even when they know that the customer cannot do what they are asking (for instance, read a serial number). People who have learning disabilities or have suffered a head injury said that they find using call centre telephone menus and entering numbers difficult (Ofcom 2010). The use of rigid scripts and procedures in call centres is likely to compound problems for consumers in a wide range of vulnerable circumstances. For example, Consumer Focus research on low-income consumers and financial services found that many participants commented that call centre staff were unable to help with non-standard enquiries, negotiate over situations or offer advice (Burton 2011: 17). The need to ensure that communication systems and call centres are fully accessible and meet people’s needs applies equally to companies’ complaints and redress processes in relation to these products.

Market barriersSome current mobile-based services require the consumer to have a specific type of smartphone with an up-to-date operating system. Others require the consumer to have a bank account. Such requirements are clearly likely to present problems for some people, especially those on low incomes. Clearly people can decide not to use mobile payment services, but these services may be of benefit to people who are unbanked or who have difficulties with mainstream banking services and they may have the potential to help tackle financial exclusion. Consequently, it is important that any unnecessary barriers are removed. In addition, if mobile payment services become a major part of financial services it is even more crucial that they are designed in ways that address the range of consumers’ needs. Some mobile payment services also require the use of multiple security codes and this is likely to be a barrier for many consumers, particularly people who have short-term memory difficulties, cognitive impairments or dexterity problems. Many people with sight loss may also find it difficult to read or key in numbers. In addition, many – but by no means all – older people encounter difficulties with having to use and remember PIN numbers. Recent research among people aged 80+ (Vine and Monk 2012) showed that many found bank cards, PINs and passwords difficult to adapt to.

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Whilst security processes are necessary to guard against fraud, almost any consumer can encounter barriers if security systems and codes are cumbersome. This is a particular concern where consumers need to access financial services through their mobile phone and may be expected to enter codes that they are not meant to write down.

Making informed decisionsConsumers who consider signing up for mobile payment services have a number of issues to address. If they buy a smartphone, does it and associated software have the right accessibility and usability features? How should they pay for the phone? For many on low or uncertain incomes, PAyG or SIM-only deals offer the ability to budget and avoid the possible problems of committing to a long-term contract. However, there is the concomitant cost of paying the full price for a smartphone handset. Then there is the issue of deciding which deal is most suitable in terms of calls, texts, and data download/upload allowances and costs. This decision can be even trickier if smartphone deals are bundled with other services and difficult to compare. Anyone can make the wrong choice, but the impact is likely to be more severe for consumers who are on low incomes or in other vulnerable circumstances. Similarly, poorly designed and unclear information on prices and deals, terms and conditions can present barriers for almost anyone, but the difficulties are likely to be especially acute for the large numbers of people who have sensory impairments, such as sight and/or hearing loss, particularly if information is not presented in ways that meet their needs. Moreover, many people have literacy and/or numeracy difficulties: over 5 million adults lack adequate literacy skills (NIACE 2011), and an estimated 7 million lack ‘functional numeracy’ (Leitch 2006; also see Carpentieri et al. 2010). These findings underline the need for prices, terms and conditions, and mobile phone features to be set out clearly and understandably so that all consumers are able to make properly informed decisions about these new types of services.

Budgeting and security

Keeping trackIf they are to use mobile payment services safely, many people need a paper trail to monitor expenditure, and to provide proof if there are disputes about wrong or fraudulent transactions. This is especially important for consumers on low incomes among others. Research for the Payments Council among people 80+ and those living with cognitive, physical or sensory impairment (Toynbee Hall and Policis 2012) underlines the need for many consumers to have a paper trail to help with budgeting and keeping track of their finances. However, if provided in ways that meet people’s needs, mobile payment services have the potential to provide useful new ways for consumers to manage their money and budget. For

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example, research shows that a significant proportion of people on low incomes would benefit from ‘jam jar accounts’, which allow them to allocate the money in their account to different bills and other payments, and provide real-time information about balances and transactions, and routine alerts about low balances (Social Finance 2011). It appears that mobile payment services have the potential to offer this facility, depending on how the app is designed.

Delegation of powersThe research for the Payments Council also highlighted another important unmet need, which relates to consumers needing to delegate powers to others to make payments and purchases (Toynbee Hall and Policis 2012). People who have problems in shopping and withdrawing cash, for example because of mobility difficulties, may resort to giving their PIN numbers and cards to others to do so on their behalf. However, this can create the potential for financial abuse, as well as difficulties about disputed payments with card companies and banks, which are likely to claim that the consumer has breached security requirements. In some situations formal arrangements are made whereby a nominated individual or organisation is given authority to act on behalf of the individual to manage their finances; however, this can leave people feeling disempowered. There is clearly a need for a means of providing people with limited delegation of powers to access cash and do shopping on others’ behalf, whilst safeguarding people’s privacy, security and control over their own finances (Toynbee Hall and Policis 2012). Mobile payment services, if developed in the right way, could go some way to fulfilling this need for some users.

Making money transfersMany people in the UK need a secure and affordable way of sending remittances of money to relatives or friends in other countries, including migrants and refugees. Research by Consumers International (CI) has highlighted that many consumers who send money home are paying high, and sometimes extortionate, rates. The reasons for these problems include opaque pricing and uncompetitive markets. CI’s recommendations include enabling alternative financial services providers to become involved in remittance payments, including by partnering with migrant and consumer advocacy organisations (Consumers International 2011, 2012). The provision of safe, transparent and affordable means of sending money remittances is another unmet need that mobile payment services could help to fill (Barclays Pingit already facilitates transfers by mobile to users in a small number of other countries, see Chapter 2).

Paying utility billsIn countries outside the UK, mobile phone payment services offer benefits in providing greater ease of payment for utility bills (Consumers International 2011). This is not the case as yet in the UK, but it is conceivable that similar services could enable some low-income consumers to make small frequent payments through their mobile phone for bills such as energy and water. Further research is needed to ascertain what lessons can be learned from the use of mobile payment services in other countries.

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Security and privacySignificant concerns about the security of mobile phone payment services need to be addressed by providers. Some interviewees for this research commented that many people in vulnerable circumstances would be very worried about using these services due to fears of loss or theft of the phone, or fraud. There are also concerns about pressures on consumers because of the potential for these services to send marketing messages using data on purchases and geographical location. It is essential that consumers are able to opt in to receive such messages rather than opt out, and are able to do this easily.

Digital exclusionIf mobile payment services become an increasingly important part of financial services, there is a risk that this could further marginalise people who are digitally excluded (i.e. they lack access to the internet and digital technology). Whilst the use of online services has grown, it is by no means the case that everyone uses the internet or a mobile phone. Over 7.6 million people in the UK have never used the internet, according to recent figures (Office for National Statistics 2012). It is also noteworthy that levels of ownership of communications services, such as mobile phones and the internet, are low among disabled people. Ofcom research among people with a single disability (such as hearing or visual impairment) shows that mobile phone ownership is lower for consumers with a disability than those without, and is especially low among those in the C2DE groups (Ofcom 2013a: 71). Those who are digitally excluded are more likely than others to face barriers in finding out about these new services and in making informed decisions as to their suitability, for example if they cannot access comparison websites or comment and discussion boards. Nevertheless, there are increasing pressures for people to be online and/or to have a mobile phone, and this forms an important part of the wider context within which mobile payment services are being offered. One particularly relevant development for many people in vulnerable circumstances relates to the impending introduction of Universal Credit. Due to be rolled out from October 2013, Universal Credit (UC) will replace a range of existing income-related benefits and tax credits. The Government’s intention is that claimants will manage their claim through an online account. UC will also be paid monthly, which risks creating budgeting difficulties for people who are used to receiving benefit payments more frequently. The Department for Work and Pensions (DWP) is therefore planning to subsidise access to bank accounts or alternative financial products with specific budgeting functionalities for an interim period of one year during transition onto the new benefit. Mobile phone operators are among the organisations that the DWP expects to show interest in providing such accounts or products. (At the time of writing, the DWP had issued a prior information notice for potential providers: Department for Work and Pensions 2012b.) Consequently, these developments relating to Universal Credit reinforce the need for mobile payment services to be provided in ways that meet the needs of all consumers, including those on low incomes and in other vulnerable circumstances.

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Complaints and redressMobile payment services potentially give rise to additional layers of confusion for consumers if problems arise. Provision of these services is very likely to include a number of companies across the financial services and communications sectors, and possibly involve third party intermediaries as well. Consequently it may not be readily apparent to consumers what they should do if things go wrong, for example if their phone is lost or stolen, if they need to correct wrongful transactions or if they suspect any fraud. They may not know which provider/s to contact and which should take responsibility when trying to sort out a problem. They may not be clear about their rights and responsibilities. And it may not be obvious how to pursue redress for unresolved complaints. Moreover, if a phone is lost or stolen, consumers are meant to report it quickly to stop calls or any other charges being made on their account and this necessitates making a phone call, which may be difficult or impossible for people without easy access to another phone. In addition, if consumers need to speak to companies to sort out problems or pursue a complaint, potential barriers could arise in dealing with long waits on the phone, complex navigation options and staff who may not understand their communication and other requirements. It is vital that all providers involved in the provision of mobile payment services have clear, accessible, streamlined complaint handling and redress systems and processes. These should ensure that consumers have easy access to information about what to do when things go wrong and are clearly signposted to complaint handling and redress processes. This should be easily accessible within the phone apps that provide the gateways to these services, as well as being prominently set out in all forms of consumer information both in paper form and online.

ConclusionThis research shows that consumers in general, and especially those in vulnerable circumstances, can face a significant array of challenges in relation to mobile payment services, including:

accessing information about what the services offer;■■

whether services are affordable;■■

whether the mobile phones, apps and services are accessible;■■

whether services are linked to particular bank accounts;■■

whether services are restricted to specific mobile handsets or networks;■■

how to make informed choices, especially if the services are bundled with other ■■

services;whether their funds are secure and safe from fraud;■■

whether their personal data is secure;■■

their rights and responsibilities, and what to do if things go wrong.■■

The research for this report shows that mobile payment services must offer the following in order to be accessible, inclusive and secure for all consumers, including the large numbers in

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vulnerable circumstances. A number of these apply to other payment and banking services also, but some are specific to mobile payments:

safe and secure ways of making payments and receiving money;■■

convenience: easy access, flexible and relevant product features, well-designed and ■■

flexible security systems that do not require unnecessary PINs and passwords;accessibility and usability of products, system and services, and accessible company ■■

communications systems; comprehensive geographical access;■■

flexibility in what is required for registration and proof of identity, and credit history;■■

clear and unambiguous confirmation of transaction;■■

ability to identify and check transactions easily and keep records, including on paper;■■

safe, secure and easily accessible means of enabling and delegating third parties to act ■■

on consumers’ behalf;effective systems to prevent fraud and identify possible financial abuse, especially of ■■

consumers in vulnerable circumstances;inclusive systems and processes that enable people with communications difficulties ■■

and sensory impairments to conduct transactions and communicate with companies easily;safe and affordable ways of making money transfers, including between countries;■■

accessible and responsive customer support services that act swiftly to rectify ■■

unauthorised or incorrect transactions and do not assume negligence on the part of the customer; and clear signposting to other support.

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IntroductionAs new mobile payment products and services are developed and marketed, questions arise over whether consumer safeguards are adequate. In particular, a consumer making a payment using a mobile phone may unwittingly be subject to a number of different regulatory regimes covering payment and credit, communications and data protection.

SUMMARy

The rules governing payments apply to all consumer transactions, therefore this chapter is not specific to people in vulnerable circumstances. However, when things do go wrong the impact may be greater for people on a very low income, in a stressful situation or who find seeking help difficult. As payments and telecoms converge, people may be unsure who to go to for help and advice. It is critical that people are given clear information about their rights and responsibilities.

The overarching regulatory framework is broadly adequate; however, there are some significant gaps in coverage of the Financial Services Compensation Scheme for electronic money; the fact that new providers may fall outside the Financial Ombudsman Service; and some exemptions to the regulations.

Consumer rights in the event of post-purchase problems, fraud and disputed transactions may vary depending on how they paid for the goods or service. Consumers need to be aware of these differences.

In order to keep control of their money, especially when making lots of low-value payments, consumers need easily identifiable information about transactions and they should be encouraged by companies to report errors, however small, as these could be indicators of larger problems.

Although fast, seamless payments are valued by many, payment systems should be designed in a way that gives consumers protection from erroneous payments or accidental purchases. The commitment to pay should be unambiguous, and the right to cancel should be clear.

Consumer liability for unauthorised use of cards before a loss or theft is reported is limited to £50; however, there is no limit to liability if your phone is lost or stolen and used to pay for things that are charged to your mobile bill (e.g. downloads or premium rate services), until you report the loss. This discrepancy should be resolved to ensure a consistent level of protection across all payment methods.

Chapter 4The regulatory landscape

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T H E R E G U L A T O R y L A N D S C A P E

Theory and practiceWhen assessing whether the consumer protection framework is adequate, it is important to look not only at the regulatory rules, but also at how these are implemented and enforced in practice. In addition to a fair and competitive marketplace, consumers need to be aware of their rights, know where to turn for help, and feel confident that they have adequate protection if something goes wrong. The rules governing payments apply to all consumer transactions, therefore this chapter is not specific to people in vulnerable circumstances. If they are enforced effectively, clear information and help are available to consumers when needed, and access to redress is well publicised, then all consumers, including those who are in vulnerable circumstances, will be better protected and therefore more confident in the financial system. However, when things do go wrong, the impact may well have greater ramifications for people who may be managing on a very low income, who may be in a stressful situation or may find seeking help difficult.

Is the overarching regulatory framework adequate?Broadly, yes. Banking conduct and consumer credit rules cover payments made from bank accounts and on credit cards, whatever the medium used to make the payment. The UK Payment Services Regulations (which implement the European Payment Services directive and Electronic Money Regulations) cover new players (e.g. mobile operators) and, on paper at least, seem to offer adequate protection. Access to the Financial Ombudsman Service is available to all customers of firms authorised or registered by the Financial Services Authority (FSA), and all payment service providers with UK establishments. Finally, Data Protection laws apply however payments are made. But there are important gaps. During the course of our interviews for this research, some gaps in regulatory coverage and consumer protection emerged:

Our research found that electronic money (including e-wallets and pre-paid cards), ■■

is not covered by the protection offered by the Financial Services Compensation Scheme (FSCS) should the issuer go bust. This is because the money is not defined as a deposit. This applies to pre-paid cards offered by banks and building societies as well as electronic money institutions.

ONGOING REvIEWS

During the course of this project we have become aware of a number of reviews being undertaken, both at European and national level, which impact on payments. For example, the review of the EU Payment Services Directive, the EU Green Paper on card and internet payments, the Treasury review of UK payments strategy and role of the Payments Council, plus the review of the Communications Act all potentially impact on this area. The OECD Committee on Consumer Policy is conducting a review of its guidance on consumer protection in online and mobile payments. It is vital that as these rules are reviewed, policy-makers and regulators at EU and UK levels ensure that regulatory arrangements are clear, comprehensive, coherent and as future-proof as possible.

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Although the sums held on pre-paid cards or e-wallets may not be large, for people on very low incomes a loss if the company went bust could be devastating, as the collapse of the Farepak Christmas saving scheme in 2006 demonstrated. Pre-paid cards can be a useful way to shop online for people who do not have a debit or credit card, and may well become more widespread as mobile payments proliferate. It is worth noting that some Basic Bank Accounts are actually e-money accounts and, likewise, don’t offer the FSCS safety net. These schemes should be brought within this safety net so that consumers have consistent protection regardless of how money is stored.

This research also found that payment service providers based outside the UK ■■

don’t automatically fall within the remit of the UK Financial Ombudsman Scheme (theoretically consumers may have access to a similar redress scheme in another country if the provider is EU-authorised). For example, O2 is authorised in Gibraltar (although it is applying for UK authorisation) so consumers would have to go to the Gibraltar ombudsman scheme for redress. Consumer protection would be better served if new entrants to the payments market gave customers access to the UK Financial Ombudsman Scheme, perhaps voluntarily if not authorised in the UK. Some payments charged to a mobile phone bill, such as premium rate services, also fall outside the Financial Ombudsman’s remit.

The Payment Services Regulations and the Electronic Money Regulations have some ■■

exemptions that potentially affect mobile payments, among other methods. The limited network exemption within these regulations exempts payment schemes with a restricted scope, where payment can only be used in that limited environment (e.g. staff catering cards, transport cards such as Oyster, or gift cards that can only be spent with one retailer or group). Services purchased on a device that can only be used through that device (e.g. music, apps, online video or newspaper content) are also exempted from the scope of these regulations. Schemes such as Facebook credits fall within these exemptions and therefore outside the scope of regulation despite the fact that large amounts of money can be spent in this way, often by younger people. In contrast to regulated payment services, where liability for fraudulent payments is limited to £50, liability for fraudulent payments using these unregulated services is unlimited. So if a phone is stolen and used to buy apps, online content, or Facebook credits consumer liability would be unlimited up to the point that they reported the loss. Protection should be brought into line with other forms of e-money.

What could go wrong, and what protections are in place?Payments made using a mobile phone either use the phone as a way of accessing an existing bank account, credit card or pre-paid card, or they access funds stored as electronic money in a new form of e-wallet, or they may be charged direct to a phone bill. In this section we summarise consumers’ rights when using these differing payment methods. As financial institutions and communications providers converge, and new payment intermediaries enter the picture, there is a danger that consumers may not know who is their primary provider and

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who to contact to report a loss/theft, or to seek help with a problem. As the regulatory bodies governing the different elements of the picture are also different, consumers may be confused about their rights, and may not know who to turn to if things go wrong.

Rights in the event of post-purchase problemsConsumers paying by credit card for goods and services that cost over £100 have the strongest protection in the event of something going wrong; under section 75 of the Consumer Credit Act credit card issuers share liability for problems with purchases. This has proved a very valuable form of protection for consumers. However, it applies only to the purchase of individual items over £100.

THE OvERARCHING REGULATORy FRAMEWORK

All payment service providers have to comply with conduct of business requirements under the Payment Services Regulations 2009. These sit alongside rules governing how banks and building societies do business, which are governed by FSA banking conduct of business rules, and rules for e-money issuers set out in the Electronic Money Regulations 2011.

The Payment Services Regulations cover authorisation and prudential standards, requirements on information, rights and responsibilities of payment service providers and users, complaint handling and access to the Financial Ombudsman Service. The FSA lists mobile network operators offering payment services as examples of the new entrants that these rules may cover.

From April 2013 responsibility for the conduct of all payment service providers and the prudential regulation of payment institutions and electronic money institutions transfers to the new Financial Conduct Authority (FCA). The Office of Fair Trading currently oversees credit providers under the Consumer Credit Act 1974, as well as other rules designed to protect consumers more generally from unfair treatment (e.g. the Unfair Terms in Consumer Contracts Regulations 1999, the Consumer Protection from Unfair Trading Regulations 2008, the Distance Marketing Directive and the E-Commerce Directive, which provides protection for consumers whenever they enter into a financial services contract at a distance).

Ofcom regulates telecoms companies and network providers. Its objectives are to further the interests of citizens and consumers in relation to communications matters where appropriate by promoting competition. Ofcom also has specific duties to have regard to ‘the vulnerability of children; the needs of people with disabilities, of older people and of those on low incomes’ (and other groups), and to protect consumers from ‘unfairness or the infringement of privacy’ (Ofcom 2013b).

Additionally, PhonepayPlus regulates phone-paid premium rate services (payments that are debited to consumers’ phone bills, for example for games, competitions, parking or charity giving by text). Companies must register and comply with a Code of Practice designed to ensure fair treatment for consumers.

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Purchases made by debit card, MasterCard and Visa branded pre-paid cards and credit cards have some degree of protection under industry chargeback rules, which could mean that the bank reverses the charge, but only in specific circumstances involving breach of contract. In practice this scheme seems to be little known about. However, if something did go wrong, it could be one way to seek help. Users of a payment intermediary or an e-wallet may have some protection from the intermediary’s own schemes, but these are voluntary – for example, consumers using PayPal to buy physical goods may have some additional assistance via PayPal’s buyer protection scheme. If funds are loaded into PayPal or other e-payment accounts, and then used to pay for goods or services, the chargeback scheme or Section 75 of Consumer Credit Act rules do not apply.

Rights in the event of loss or theft of cards/phoneIn the event of loss or theft of credit cards, debit cards and e-money, the maximum liability that consumers could face for fraudulent purchases is £50 (unless the card issuer can prove that the cardholder has been fraudulent or grossly negligent in terms of failing to keep the card and PIN secure). However, if someone’s phone is stolen and used to make calls or download content, their liability is unlimited until the point that it is reported lost or stolen. Therefore if their phone is used to make payments during this time (with money being debited to their phone bill), their liability is unlimited (unless the payment is a regulated payment service). Ofcom has highlighted this unlimited liability as an issue that should be addressed and has called for a cap on liability of £50 to match the regime for credit cards (Ofcom 2012). Some EU countries (Denmark, Norway and Finland) have taken steps to address this issue by limiting liability. This is of particular concern given that if a phone is stolen or lost, it may be some time before the consumer is able to find an alternative phone in order to report the loss. Whatever consumers’ rights on paper, what matters in practice is whether consumers are made aware of their rights at the time they need to act on them, and whether they are able to enforce these rights when the time comes that they need to take action. A Consumer Focus study of mobile commerce found that very few mobile operators gave advice at the point of purchase on what to do in the case of loss or theft of a phone (Consumer Focus 2009). Consumers need to be sure that however they make contact (which could be going into a phone shop, phoning the phone company or bank, or going into a bank branch) they will receive the correct advice and guidance.

Rights in the event of a disputed transactionUnder the Payment Services Regulations consumers are entitled to prompt refund of an unauthorised transaction while the payment institution investigates. Credit cards have slightly different rules under the Consumer Credit Act. The onus is on the payment service provider to prove that the transaction was genuine, otherwise the consumer must be believed. Payment service providers cannot claim that the customer must have made the transaction just because their card and PIN was used, or point to the existence of security features as proof of authorisation.

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In practice, consumers need to have an accessible way of checking their statements so that they are quickly alerted to fraud or error; to know who to contact; to be believed and for there not to be an automatic assumption on the part of the payment service provider that the customer must have divulged security details; and for funds to be re-instated while investigations are on-going. This last point is particularly important for those on low incomes who may not have a financial buffer. As the momentum increases for people to conduct mobile financial transactions, and reduce the amount of paper-based documentary evidence of those transactions, it becomes more difficult for some consumers to check and challenge transactions. The Payment Services Regulations state that payment service providers must make available, in a durable medium, information about each transaction. However, banks are actively reducing the amount of paper statements they send out. Mobile transactions can often mean no paper receipt. Some consumers may feel regular texts of balance and recent payments are a good substitute for paper. However, as anyone who uses PayPal will know, it is not always easy to identify a payee and link it to a transaction; therefore, as mobile payments spread and the paper-based audit trail diminishes, it is important to ensure that consumers have easy access to the clear information they need to keep track of expenditure and spot fraud. Interviewees reported concerns that if people use mobile payments to make a large number of low-value transactions, and may not get receipts for these transactions, it may be very difficult for people to keep track and become aware of errors or fraud. Other research demonstrates how important a paper audit trail is to some people in vulnerable circumstances, particularly those who might be at risk of financial abuse (Age UK 2011). There may be a disincentive for consumers to pursue a complaint either with their issuer, or to escalate it if they don’t get a satisfactory response, if the payment is low value. yet a pattern of low-value errors or fraud could be very important to institutions and regulators as well as consumers and it is vital that complaints are listened to and this feedback is captured and acted upon. It was suggested by some interviewees that the PhonepayPlus model of regulation is particularly well suited to dealing with complaints over low-value transactions. It is extremely important that consumers are believed when they report a problem, particularly to ensure that those in vulnerable circumstances who may not have the support, the knowledge, the levels of literacy, the time and resources to pursue their case don’t end up poorly served. Recent problems with fraud on RBS/NatWest’s Get Cash scheme demonstrate how in practice consumers can experience problems in getting the bank to believe them when fraud occurs. Some customers were accused of divulging security details even when in some cases they did not have the app in question (BBC News 2012b). One can only assume as mobile payments spread and fraudsters focus on this area that further fraud will occur. One view expressed during the course of research for this project was that in particular the Android operating system is vulnerable to fraud, and customers of banking apps used on Android phones should install extra anti-virus software. The industry drive in mobile payments seems to be to make transactions as quick and easy as possible, without multiple stages of checks and verification. Some interviewees questioned

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whether this is necessarily in the best interests of all consumers and raised concerns that it may increase risks for people in vulnerable circumstances. For some, the ability to consider and reflect before payment is confirmed may be a valuable part of the process. Payment systems should be designed in a way that gives consumers protection against erroneous payments or accidental purchases (by them, their family or children), although this clearly has to be balanced against the convenience of being able to store payment details. The point at which a consumer confirms a transaction should be clear and unambiguous. Consumers should be clearly informed of the way in which they can amend or cancel a transaction.

Rights if there is a delay or error in money transfersUnder the Payment Services Regulations, the onus on the payment service provider to make error-free transmissions is consistent across all types of providers. However, as it becomes possible to transfer funds using a mobile phone number alone, questions must be raised about whether consumers are sufficiently informed about their responsibility to get it right first time, and how it may not be possible to retrieve funds if the customer gets the number wrong. It remains to be seen whether payment systems being developed that allow consumers to transfer money using one number alone (such as a mobile number, as the Payments Council database will facilitate) will reduce or increase the potential for error. The crucial point is that consumers need straightforward access to clear information about their responsibilities and the limitations on reversing an incorrect payment.

Rights if the financial institution goes bustConsumers who deposit their money with banks and building societies have recourse to the Financial Services Compensation Scheme should the institution go bust. Customers who load money onto e-wallets or pre-paid cards have no such guaranteed protection, although electronic money issuers are required to safeguard these funds so that they are protected in case of insolvency. Although the sums involved might not be large, if people are on low incomes such a loss could be devastating.

Are information and advice accessible and adequate for consumers?Possibly not. There is significant risk of consumer confusion arising from the convergence of financial services and mobile communications and the increasing complexity of this marketplace. In a review that sets out what the FSA sees as the most significant risks to consumers, the regulator itself pinpoints concern that consumers may not be adequately informed of their rights and responsibilities regarding new payment technologies (Financial Services Authority 2012). During the course of this project, our interviews highlighted a number of areas of significant concern:

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Given that the onus is on the consumer to identify erroneous or fraudulent ■■

transactions, will consumers be able to keep track of large numbers of low-value transactions, many of which may have no paper receipts, in order that they can quickly and easily check that everything is correct? When checking statements, will consumers easily be able to identify the payee? Will they have the evidence they need to challenge a transaction? Given that mobile payments are likely to involve large numbers of low-value ■■

transactions, consumers should be encouraged to report any errors regardless of the small size of the transaction, and should be taken seriously when they raise a problem. Interviewees raised the concern that redress mechanisms may be perceived as only suitable, or worth the bother, for large problems. This is not the case and in fact large-scale fraud may start as a series of small frauds. Consumers should be aware of their rights and encouraged to complain to the payment institution and to the Financial Services Ombudsman, regardless of the size of the transaction. Will consumers reporting erroneous or fraudulent transactions be listened to and ■■

believed when they complain? Will payment institutions follow the rules about not automatically assuming that consumers must have been careless with security details, and will payment institutions follow the rules about prompt re-credit while investigations are on-going? Will consumers who feel that the payment institution has not dealt with their ■■

complaint satisfactorily be informed that they may have the right to go to the Financial Services Ombudsman? If a company offering services in the UK is using a company outside the UK to process the transaction, will consumers feel sufficiently informed and confident to seek redress from an Ombudsman scheme in another country? Will systems that are designed to make payments as fast and seamless as possible, by ■■

storing payment details and eliminating the need for multiple steps, potentially make it too easy for children, or others who may need some protection from impulsive purchase, to make purchases without adequate authorisation? Will consumers receive satisfactory advice about how to keep the information on ■■

their handset secure? Is there potential for lack of clarity over definitions of negligence if consumers for example do not lock their handset, or if they lend their handset to friends or children, for instance to view photos or play games? Banks were clear in interviews for this research that it is their job to make their own apps secure, but that advice over the security of the handset is a matter for the phone companies. Is there potential confusion here about who is responsible if things go wrong? Who should be the first point of contact in the event of loss or theft – the bank or the ■■

mobile telecoms network provider? Will consumers be properly directed to the correct organisation? If they have details of a number of cards from different banks stored in a vault linked to their e-wallet, do consumers have to phone each one separately? How will they know that their problem has been properly recorded? Who will be responsible for ensuring that consumers with communications and other ■■

needs have equal access to clear and understandable information? Will there be secure and reasonable arrangements available to enable people to delegate ■■

others to act financially on their behalf using mobile-based transactions? Will the opportunity be grasped to develop mobile payments in a way that maximises their

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potential to offer a solution to some delegated payment needs? Who is responsible for ensuring that consumers are adequately and clearly informed of ■■

their rights and responsibilities, including how to make complaints and seek redress?

Payments systems: an essential service Financial services have become essential for everyday life, and mobile payment services themselves are becoming an increasingly important part of financial services. But unlike regulators in sectors that provide essential services such as energy, communications and water, the financial services regulator historically has not had a mandate to have regard to the interests of consumers on low incomes or in other vulnerable circumstances. Since the closure of the Financial Inclusion Taskforce, nobody has been tasked with monitoring financial inclusion in the UK. However, recent amendments to the Financial Services Bill, if adopted, mean that the new FCA will have to take account of access to financial services, including access for consumers in areas of social or economic deprivation, in fulfilling its objective on competition. It remains to be seen how this will be interpreted, how it meshes with HM Treasury’s review of UK payments strategy and the future direction of the Payments Council (HM Treasury 2012), and how the impact of payment developments on people in vulnerable circumstances is assessed and taken into account. It is vital that policy-makers and regulators fully recognise the increasingly important role of mobile payments services within the sector as a whole, and address the implications of these developments for financial inclusion, including the ramifications for the large number of consumers in vulnerable circumstances.

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Key conclusionsNew mobile payment services bring together financial services and mobile telecoms, two sectors that have traditionally been separate. Their provision involves a range of companies across these sectors and may also include intermediary organisations. Whilst online and phone banking have been available for some time, a number of important features associated with mobile payment services are distinctive and present new challenges for consumers. It is possible that these new services could offer a convenient way for some people to access much-needed financial services, carry out online transactions, manage their money, and access a safer alternative to carrying cash. In examining the implications of these developments for consumers in vulnerable circumstances, this research indicates that mobile payment services could be a useful alternative to current banking and payment services. For example, many people in vulnerable circumstances experience difficulties with traditional banking, such as inflexible ID requirements to open a bank account, or not being able to access a fully transactional account. Additionally, a fear of loss of control over budgeting and of incurring unexpected charges prevents some people from taking out or using bank accounts. Some consumers need secure alternatives to cash for making small payments, such as paying a window cleaner. In some situations, consumers need ways of reimbursing people who have bought things on their behalf, or safely delegating others to carry out financial transactions for them. In the future it is possible that mobile payment service could offer some useful solutions to these types of issues. However, the research also shows that there are a number of significant barriers that must be addressed if mobile payment services are to be accessible and of benefit to all. The Payments Council’s central database will create the potential for all bank accounts to be linked to a mobile phone number, bringing mobile payments within reach of the majority. However, many people, and particularly those in vulnerable circumstances, remain unbanked, and it is important that alternatives are developed that offer unbanked people the benefits of mobile payments. These alternatives should not involve higher charges and inferior consumer protection, which is why we call for electronic money to be brought within the guarantee of the Financial Services Compensation Scheme. It is critical that consumers wanting to register to access any form of mobile payment services are not faced with barriers such as inflexible identity requirements that can cause problems with opening bank accounts.

Chapter 5Conclusions and recommendations

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C O N C L U S I O N S A N D R E C O M M E N D A T I O N S

Other potential barriers include the affordability of smartphones and associated deals, especially if consumers are required to have a specific handset model. The usability of mobile phones and apps is a substantial issue for many people and this underlines the need for a fully inclusive approach to design. Finding a usable handset at an affordable price is not necessarily an easy task, nor is it necessarily easy to set up accessibility features: it should be noted that no standards are in place governing the accessibility of mobile phone apps. The need for consumers, especially those on low incomes, to keep track of everyday spending is a critical consideration. Mobile payments could assist with budgetary control but only if transactions are recorded in an easily identifiable way. Many consumers also prefer the option of some form of easily accessible paper trail of transactions, not least in case there is a dispute. There are also overarching concerns about the potential for consumer confusion because of the complexity of this fast-moving market, the plethora of deals and bundles of services, and the resulting difficulties in making an informed decision. Provision of these services involves a number of players, and consumers may well struggle to know who to contact if things go wrong, and their rights and responsibilities, including how to raise and take forward complaints and seek redress. It is vital that consumers know where to go for redress, and are listened to and believed when fraudulent or erroneous transactions occur, even if the sums involved appear small. Other concerns raised during the course of this research include the risk that, as mobile payment services spread, the availability of conventional banking facilities, namely branches and ATMs, may be further reduced, which would be to the detriment of many consumers in vulnerable circumstances. Some interviewees were also concerned that, if mobile payment services become widespread, this will affect the availability of other forms of payment method (such as cheques), thereby reducing people’s payment options. In addition, questions arise about the levels of security and privacy currently afforded by these new services, including the ease or otherwise of turning off pre-set geographical and other tracking features. Similarly, there are questions about the ease with which unwanted marketing messages can be blocked. These developments present challenges for regulators and other relevant bodies in the UK and at EU level to ensure that regulatory and consumer protection frameworks are appropriate, comprehensive and coherent, and that monitoring and enforcement are effective. Regulators and redress bodies need to co-ordinate and monitor patterns of emerging problems, and be prepared to act quickly once issues are identified. Policy-makers need to grasp the opportunities offered by the numerous national and international reviews and changes taking place, which have implications for mobile payment services to ensure that the interests of consumers in vulnerable circumstances are properly taken into account.

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RecommendationsA number of the recommendations that emerged from this research are specific to mobile payment services, and we list those first. These are followed by recommendations regarding consumer protection, which apply to other payment methods as well as being particularly pertinent to mobile payment services and the interests of consumers in vulnerable circumstances who are likely to be especially at risk when things go wrong. Finally, we set out recommendations on broader issues relating to consumer vulnerability and financial inclusion.

Mobile payment service-specific recommendationsLimitation on consumer liability Consumer liability for unauthorised or fraudulent use of cards before a loss or theft is reported is limited to £50; however, there is no limit to liability if your phone is lost or stolen and used to pay for things that are charged to your mobile bill (e.g. downloads or premium rate services), until you report the loss. This discrepancy should be resolved to ensure a consistent level of protection across all payment methods.

Extension of consumer protection As the use of electronic money spreads beyond gift cards to products that function and are marketed as an alternative to bank accounts, the scope of the Financial Services Compensation Scheme should be reviewed at UK and EU level to see whether it could be extended to cover electronic money. Meanwhile it is vital that the difference in levels of protection in the event of the issuer going bust is clear to consumers. As pre-paid cards and e-money accounts may be particularly marketed to younger people, those with a poor credit history, or those who need help with budgeting, it’s particularly important that their money is fully protected.

Improved usability Urgent attention needs to be paid by all parties involved in mobile payment services to eliminating barriers arising from poorly designed and inaccessible products and services. This should cover handset design of smartphones, accessibility of apps, and ease of use of navigation tools. Usability testing should be carried out in a properly structured way from the outset, involving a wide range of users and potential users, and should cover the full span of people’s needs. Network operators and service providers need to coordinate to ensure full and easy access to accessibility features.

Safe, transparent systems Although there is a tension between ease of use and security, the drive to make mobile payments quick and easy should be balanced by the need to protect consumers from erroneous payments or accidental purchases by themselves or their children. The industry should ensure that the point at which a consumer confirms a transaction should be clear and unambiguous. Consumers should be clearly informed about how they can amend or cancel a transaction. Consumers must be given crystal clear information about their responsibilities and any limitations about changing or reversing an incorrect payment. The potential for an industry standard to cover these issues should be explored. The Payments Council is working on a trustmark scheme for the industry, and it will be interesting to see how these issues are incorporated.

Clear and accessible information Consumers need easily accessible statements that enable them to check that transactions are correct. It should be easy to identify the payee. Consumers

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should be encouraged to report all errors, regardless of the size of the transaction, and should be taken seriously when they raise a problem.

No unreasonable barriers to switching Telecoms and payments services should not be bundled in such a way as to create a barrier to competition and switching. Communications and financial services regulators should monitor developments and must be ready to take action on this, if necessary. Consumers should not be locked in to particular mobile networks or operating systems as a result of using mobile payment services.

An alternative way of paying utility bills and sending remittances Mobile payment services could provide alternative methods of paying utility bills, particularly for consumers who need to make frequent payments. They could also offer safe and affordable ways of sending remittances between countries. Such services are critically important for financial inclusion. The potential for such services should be explored further by mobile payment services providers, utility companies and regulators.

Learn lessons from other countries From a consumer standpoint, further evidence is needed on the experience of mobile payment services in countries outside the UK. In some it appears that these services are providing those who are unbanked with a secure means to make and receive payments, to pay utility bills and manage their money. But further evidence is needed to determine what can be learned from experiences with these services in other countries, including the implications of differences in banking infrastructure, the extent to which poorer people are benefitting, and on issues relating to consumer protection and regulation.

Clear and coordinated regulation As financial services and mobile communications products converge, regulation needs to keep pace to ensure that it is comprehensive and cohesive in its coverage. Regulators need to liaise and communicate effectively to ensure clarity about the regulatory landscape and that intelligence about potential problems is shared and acted upon. The FSA (and subsequently the FCA) and Ofcom should develop a Memorandum of Understanding in this area to formalise this coordination. One practical step would be for the FSA and Ofcom, with PhonepayPlus, to consider setting up a joint working party on mobile payments, which should include consumer representatives.

Clear and coordinated complaint handling and redress It is vital that bodies responsible for dealing with complaints and alerting regulators to emerging problems communicate effectively and share information. Some of the ombudsman schemes have formal Memoranda of Understanding (covering issues such as signposting, joint investigations and intelligence-gathering). These should be extended to cover all relevant regulators and redress bodies in financial services, telecoms, data protection and trading standards.

Recommendations on payment services relevant to mobile payments Clear consumer information Accurate and clear consumer information about their rights, responsibilities and redress should be available regardless of how people contact providers, in a wide range of formats. Whether the point of contact is in a shop, on the phone or online, the information provided should be consistent, with clear and accurate signposting to other sources of help. Rights need to be outlined at point of sale (e.g. when a phone is

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purchased) and at the point when new services are added (e.g. when a payment services app is downloaded). Easily accessible information for consumers about their rights and what to do when things go wrong should be routinely provided in the apps for these services, as well as being prominently displayed on providers’ websites. Consumers should also have easy access to paper forms of information, billing, terms and conditions.

Rights to redress Consumers should be clearly informed of their right to go to the Financial Ombudsman Service (FOS) where appropriate, regardless of the size of the transaction. Where companies are licensed outside the UK it is especially important that consumers have clear information about rights to redress. We see no reason why all payment service providers offering services to UK customers should not offer access to the UK FOS on a voluntary basis, even if they are not obliged to do so. This is good practice, offers reassurance to consumers, stimulates confidence and helps to coordinate complaints and intelligence gathering.

Consumer rights in disputed transactions When fraudulent or erroneous transactions occur, consumers have the statutory right to be re-credited quickly, while investigation is underway. In addition, payment service providers should not claim that the customer must have made the transaction just because the card was used, or point to the use of security codes as proof that the consumer must have divulged security details. (This is under the Payment Services Regulations – credit cards have slightly different rules under the Consumer Credit Act.) The FSA or FCA should be alert to any infringements of these rights.

Privacy and data protection Consumers should be fully informed of their rights regarding privacy and data collection, and how personal data may be collected and shared with third parties. Opting in should be the norm rather than requiring consumers to opt out, and there should be easy access to redress if this is abused.

Review exemptions The limited network and IT device exemption within the Payment Services Regulations and the Electronic Money Regulations should be reviewed so that virtual currency such as Facebook credits, and some gift-card type schemes, are no longer exempt from the scope of these regulations. This should be addressed at EU level as part of the review of the Payment Services Directive, led by HM Treasury.

Recommendations on wider financial inclusion and consumer vulnerability issuesSafeguard access to payment services for all Access to safe, secure and reliable ways to receive and manage money, budget and pay is essential for full participation in society, as is access to ways to save, and to affordable credit and insurance. In its review of the UK payments strategy and the role of the Payments Council, HM Treasury should make inclusive access to payment services an explicit objective of whichever body it decides should set the strategy for this area, and ensure that there is a coordinating body with the specific remit to track and promote financial inclusion.

Safe arrangements for delegated payments There is an urgent need for many consumers to have access to ways of arranging safe delegated payments. This should be regarded as integral

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to the provision of inclusive services. Payment service providers should ensure that products are developed that meet this need as a matter of urgency.

Consumer vulnerability – regulatory understanding and strategy One of the prime and explicit objectives of regulation should be to protect and promote the interests of all consumers. Regulators therefore need an informed understanding and strategic response to the needs and interests of people in vulnerable circumstances. The new FCA will need to ensure that it has an organisational culture that takes proper account of vulnerability issues, based on intelligence and research, and embeds this in all aspects of its work. One way to do this would be to develop a consumer vulnerability strategy; Ofgem is currently developing such a strategy.

BSI Standard on inclusive service Businesses should consider adopting British Standard 18477: 2010 on inclusive service provision, which sets out requirements for identifying and responding to consumer vulnerability.

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Organisations consultedAction on Hearing LossAge UKAntelope ConsultingBarclaysBEUCCampaign for Community BankingCare Leavers’ AssociationCGAPCitizens AdviceConsumer FocusConsumers InternationalDWP Universal Credit DirectorateEuropean Commission: Internal Market and Services DGFinancial Ombudsman ServiceFinancial Services AuthorityMobile Broadband GroupO2OECDOfcomPayments CouncilPhonepayPlusRefugee ActionRicabilityRNIBScopeShelterToynbee HallUNLOCKWhich?

AppendixOrganisations consulted and roundtable participants

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A P P E N D I x

Roundtable participantsAntelope Consulting, Claire MilneCampaign for Community Banking, Derek FrenchCitizens Advice, Nick WaughConsumer Communications Panel, Jonathan Pillinger-CorkConsumer Focus, Marzena Kisielowska-Lipman, Jonathan Stearn (Chair)Consumers International, Robin SimpsonDWP Universal Credit Directorate, Felicity RidgwayFinancial Services Authority, Alison DonnellyFinancial Services Consumer Panel, Frances HarrisonFriends Provident Foundation, Andrew ThompsonO2, Claire MaslenOfcom, Chris TaylorPayments Council, Chris BrysonPhonepayPlus, Patrick GuthrieRicability, Caroline JacobsRNIB, Lori Di Bon ConyersToynbee Hall, Sian WilliamsWhich? Piers ClaughtonLinda Lennard (George & Lennard Associates) and Kate Scribbins (AnKa) (facilitators)

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mobile payments: problem or solution? (report)

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