FTC: Lack of Consumer Protections Could Stifle Direct Carrier Billing 

March 11, 2013

The Federal Trade Commission (FTC) on Friday issued a white paper examining mobile payments from a consumer protection perspective. The agency warned consumers in the report that, depending on the source used to fund the mobile payment (credit card, prepaid card, bank account, direct carrier billing, etc.), they may not enjoy protection under the law from unauthorized charges. The FTC noted that the practice of third parties placing fraudulent charges onto consumers’ phone bills—known as “cramming”—is on the rise and “should cause concern for all stakeholders in the mobile payments marketplace because it threatens to undermine mobile carrier billing as a legitimate and trusted payment.”

The report also addressed the data security and privacy concerns some have said are holding back widespread adoption of mobile payments. From a data security perspective, however, the FTC said mobile payment technology actually has several advantages over traditional payment systems: mobile allows for “end-to-end encryption” where that is not always the case during the traditional payment process and mobile payments can utilize dynamic data authentication, sending unique payment information for each transaction compared to mag stripe cards which transmit the same payment information each time.

“Although the industry is still young, FTC staff encourages those developing mobile payment products and services to create them with financial, security, and privacy protections in mind,” the agency’s authors wrote in the report. “The FTC will continue to monitor mobile payment options, and to evaluate whether consumers have adequate protections and the information they need to make informed choices about these new and innovative services.”