Yesterday the Federal Trade Commission (FTC) hosted a forum – the second in its FinTech series – on peer-to-peer payment systems. Peer-to-peer payment systems are online services – often in the form of mobile apps – that allow consumers to share and/or send money electronically. These systems make it easier for consumers who may not carry cash to send and receive money from other people quickly.
The forum panel discussion was labeled: Peer-to-Peer Payments – Their Emergence and Path Ahead. Participating in the panel were the following individuals: Jo Ann Barefoot, Matt Van Buskirk, Beth Chun, Patrick Eagan-Van Meter, Brian Peters, Duane Pozza, and Christina Tetreault. Their bios and backgrounds can be found on the FTC website for the forum.
One might wonder why insideARM would be interested in this event. The answer is twofold, but it is also really quite simple.
First, FinTech (Financial Technology) is an industry that is absolutely exploding. The industry is all about using technology to make financial services more simple and easier to use by consumers. From marketplace and peer-to-peer lending to peer-to-peer payment systems, the ARM industry has to know what is happening in the FinTech space. (insideARM has previously written about the growth of alternative lending, including marketplace and peer-to-peer lending.
For the ARM industry Fintech
provides not only revenue generating opportunities, but also expense reduction
and efficiency opportunities. The expense reduction and efficiency
opportunities could come from the peer-to-peer payment platforms.
Second, though the
event was produced by the FTC, not the Consumer Financial Protection Bureau (CFPB),
it has become abundantly clear through
rulemaking proposals to date (both at the CFPB and state and levels) that
technology advancements are going to be essential to the success of those
organizations that engage in debt collection (whether creditor, agency, law
firm, or debt buyer). Those who run sophisticated companies need to engage in
regular research and education about current developments in FinTech.
As noted above, this forum was
devoted to FinTech and peer-to-peer payments industry. Examples of companies
and products in this space include, but are hardly limited to Apple Pay, Google
Wallet, PayPal, Venmo, CirclePay, Dwolla, and SquareCash.
These companies and products
could be on their way to replacing previous methods and products used in the
ARM industry for obtaining “urgency payments.” Instead of using credit
card/debit card payments, Western Union, Moneygram or some form of
autopay/check writing service, today’s consumer may be more interested in
making payments using a peer-to-peer payment platform. A consumer that does not have a checking
account yet wants to make a payment may prefer these alternatives instead of any
of the above “urgency payments” or buying and sending a money order via some
expedited mail or delivery service.
After initial introductions the
panel discussed the benefits of peer-to-peer payment systems to the consumer.
The benefits identified included:
3) Speed of transactions
Members of the panel all agreed that the consumer’s cost to use these payment systems was a significant benefit. They discussed how historically, it was very expensive for a consumer to use services such as Western Union or MoneyGram or to use some expedited mail or delivery service to send funds quickly. Several panel members highlighted how speed of a transaction was critical to the underserved or underbanked segment of the population. These products can process a transaction in seconds.
The panel members also
discussed who was currently using these products. To the surprise of
nobody, Millennials are currently the largest market segment. However, all panelists
noted that the products were quickly gaining acceptance among other demographic
The discussion then moved to how
the products were being utilized. Currently 3 types of use were the most
predominant; gifts, bill payments,
and entertainment. These 3 categories were well over 90% of total usage.
The group then moved onto a
discussion of legal issues surrounding the products. The most obvious concern,
money laundering, actually had only a token mention from the group.
The biggest legal issue facing
the developers of these products was -
to no surprise, the various state and federal consumer protection
statutes, with particular emphasis on state Deceptive Trade Practices.
The reason consumer protection
statutes were of such concern was a simple statement made during the
discussion: “The consumers that use
these products may be very tech savvy, but they also tend to be very
The panel was also consistent
in their belief that the recently announced CFPB Prepaid Card Rules were
applicable to the peer-to-peer payment solutions.
The panel next turned its
attention to some of the risks in this market.
The risk of fraud exists on three fronts. First, international criminal
and sophisticated hackers have and are likely to continue targeting companies
in this space. That creates exposure. Second, as many of these products are
utilized on a handheld device (i.e. a smartphone) the risk of fraud exists if
that device is not secure and is lost or stolen. Third, old scams that have
existed forever have simply moved their scam to this new platform. A scam that previously
involved a stolen checkbook and forged signature has just moved from paper to
the digital world.
Finally, the panel moved to a
discussion of privacy concerns. What transaction data is being retained and
could that data be used? Again, much of this issue might be mitigated by
security and privacy settings on a smartphone when the application is
The insideARM Perspective
The program was fascinating.
The products discussed are innovative. These are products the ARM industry
should know about.
insideARM recommends a review of the program. Usually the FTC archives their webcasts. Past webcasts of FTC events are available at www.ftc.gov/videos. However, as of this morning the broadcast was not yet on the site. It is likely to be available in the near future.
We, too, are focused on innovation. To this end, The iA Institute (publisher of insideARM) is in the process of forming an Innovation Council to leverage the collective imagination of big thinkers from across – and outside - the ARM industry, including creditors, collectors, and technology organizations. The Innovation Council will work closely the Consumer Relations Consortium, also managed by The iA Institute, to develop ways to address emerging regulations, better serve consumers, and still manage to remain profitable. If you think you can contribute, please get in touch.