WASHINGTON — As the federal government begins to take a closer look at the regulation of mobile payments, the first signs of a split within the payments industry are emerging.
The nascent divide pits firms that argue Washington should ensure a level playing field between banks and their non-bank competitors against others that warn about the potential of new regulations to stifle innovation.
The latter camp is represented by the Electronic Transactions Association, a trade group whose members include a range of payments firms, but not banks in their role as issuers of credit and debit cards.
"What we're concerned about is that some entities who view the advent of mobile payments as a threat to their incumbent advantage might call for unnecessary regulation," said Jason Oxman, chief executive officer of the Electronic Transactions Association.
Because the debate is still in its early stages, and no specific regulatory proposals are on the table, the argument remains largely abstract, though it figures to become more concrete as competition increases in the rapidly evolving world of mobile payments.
The broad outlines of the disagreement were evident in statements issued Friday by the ETA and the Clearing House Association, a trade group that represents the largest commercial banks.
The statements were released in connection with a House hearing on the regulation of mobile payments, which featured testimony from the Federal Reserve Board and the Financial Crimes Enforcement Network, but not from industry witnesses.
The Clearing House Association submitted a six-page statement that made a forceful argument that regulators need to hold non-banks to the same standards that banks must meet.
"Because the multitude of non-bank players entering the mobile payments ecosystem are generally not subject to the same functional regulation that applies to depository institutions, they are considered 'shadow payments providers,'" the Clearing House Association said.
"The patchwork of regulatory and supervisory regimes applicable to shadow payment providers leaves consumers with varied and often uncertain protections and a supervisory and examination structure that unevenly regulates the soundness and integrity of providers in the mobile payments space."
The trade group added that, "in general, the entrance of less-supervised providers is likely to result in a reduction in the reliability and integrity of payments."
The Clearing House Association, which did not make a representative available for further comment Friday, argued in its statement that firms engaged in functionally similar activities need to be regulated in equivalent ways.
"Although mobile payments technology holds great promise for the advancement of commerce and financial inclusion," the Clearing House said, "the rapid growth and fragmented ecosystem of mobile also presents serious regulatory and oversight challenges."
Those comments stood in contrast to the tone of remarks from the ETA, which represents a wider range of firms in the payments world, including some banks in certain behind-the-scenes roles in the debit and credit payment processes.
"We urge Congress to take care to avoid regulation that could stifle the innovation that gave birth to mobile commerce and will drive its future growth," Oxman said in that statement.
In a follow-up interview, Oxman said that mobile payments are largely reliant on existing networks, which are also used to process credit card and debit card transactions, and already include many consumer protections.
"All the consumer is doing is, instead of taking out a plastic card with a magnetic stripe on the back to pay for goods and services at the point of sale, they're taking out a mobile phone," he said. "It's essentially a new means, a new tool, for getting onto the credit and debit rails."
"In fact, using your mobile phone as a payment vehicle is a great way to take advantage of all the legacy protections in the payment networks," Oxman added.
During the House hearing, several lawmakers sounded loath to pick sides between different parts of the industry.
Rep. Shelley Moore Capito, R-W.Va., who called the hearing, asked a series of questions that addressed the concerns raised by the Clearing House Association, but she also expressed concern that regulation might stifle innovation.
"And so I think that the point of this hearing is to really see: Where are we? And where do we need to be?" Capito said.
Rep. Francisco "Quico" Canseco, R-Texas, called mobile payments the most significant development in consumer payments since the advent of debit cards, and said they will bring great benefits to consumers.
"Yet," he added, "it is essential that policymakers and regulators structure a regulatory framework that helps protect the private information of mobile users, but also encourages investment and innovation within the industry."
Testimony from the regulators touched on the potential of mobile payments to be used for money laundering, as well as consumer protection and data security issues.
One point that emerged was that a patchwork of regulatory agencies have potential jurisdiction over mobile payments, including the bank regulators, the Federal Communications Commission, the Federal Trade Commission and Fincen.
Rep. Carolyn Maloney, D-N.Y., argued that one agency needs to have primary responsibility for mobile payments, but the regulators from the Fed and Fincen responded that the existing system is working.
"It's such a broad area, and it covers so many different types of entities," said Stephanie Martin, associate general counsel at the Fed. "It's really hard to point to one agency with the right experience and expertise that can cover the gamut."
Although the Consumer Financial Protection Bureau did not testify, it submitted a statement pledging to be flexible and responsive to the changing mobile payments market.
"Innovation can be greatly advantageous to consumers, offering new tools for people to better control their own finances and plan their own lives," Marla Blow, the CFPB's assistant director for card and payment markets, said in the statement. "At the same time, innovation can introduce significant risks to consumers."