U.S. Telcos and Banks Attend Informal Meetings Convened by Fed

Aug 2 2010

While major U.S. banks and mobile operators are not apparently working together on mobile payment, they have attended meetings together convened by U.S. central bank officials, who want the parties to reach common ground on standards, infrastructure and business models.

A major focus of the quarterly meetings, set up by regulators for two regional branches of the U.S. Federal Reserve, has been on NFC and the prospects of mobile-payment rollouts using the technology, Richard Oliver, executive vice president at the Federal Reserve Bank of Atlanta, told NFC Times.

Besides representatives of major telcos and banks, the non-binding discussions have also included representatives of trade organizations, card schemes, processors and vendors, such as software providers.

The initiative, called the Mobile Forum, so far has held three meetings since January, including one earlier this month. Another one is planned this fall. About 20 people have attended each meeting.

“We’re trying to get people working together here that don’t have a history of working together: mobile operators and financial institutions,” Oliver told NFC Times.

He declined to name any of the attendees or their companies or go into specifics about the discussions. But he confirmed that they included major telcos and banks. That would likely mean representatives from such telcos as Verizon and AT&T attended. Among banks considering NFC or related contactless-mobile technology that might have sent representatives are Citigroup and U.S. Bank.

As NFC Times has reported, the two largest U.S. mobile carriers, Verizon and AT&T, along with T-Mobile, have formed a joint venture that is laying the groundwork for a possible NFC mobile payment launch. Another large telco, Sprint, is believed to have dropped out of the project.

The launch, if it goes forward, could involve a new payment scheme or might use an existing payment brand. For example, some have suggested Discover Financial Services might be interested in working with the telcos. But sources say so far the carriers have not included any major U.S. banks in their plans, though might involve the U.S. of UK-based Barclays bank.

When asked if the mobile carriers' m-payment project came up during the meetings, even indirectly, Oliver declined to go into details. But he indicated that the possibility banks and telcos would pursue mobile payment separately was a subtext of the meetings.

“I think the different parties have seen the parties opine on this subject independently,” he said. “As a result of that, each of them is concerned how this is going to evolve. We see in Japan an MNO (mobile network operator)-centric solution. We see in some places bank-centric solutions. Those are types of things we are talking about.”

But Oliver emphasized there has been no consensus yet on business models for mobile payment. And bank and telco representatives in the meetings have not committed to work together.

“It would be too strong for me to make that statement, (but) their presence in the room for three meetings would lead you to believe they at least think that’s part of the solution.”

The initiative, which is also backed by the emerging payments unit of the Federal Reserve Bank of Boston, plans to issue a white paper or “discussion” document by the end of the year. This could include areas in which the parties agree, such as security for contactless-mobile transactions and ways to avoid duplicating infrastructure for payments. The paper also could discuss gaps in standards and how to fill them and areas of agreement or disagreement on types of secure elements that would host applications in NFC phones. The paper would likely include bridge technologies and is expected to address network-based payment.

Oliver said the meetings have already yielded general agreement on security, such as requiring some type of “dynamic authentication” for payment transactions. That is similar to security used today by contactless cards.

The U.S. central bank, or Fed, is concerned with the efficiency and integrity of the payment system, so takes an active interest in the emerging mobile-payment market.

But while regulators could serve to referee and encourage discussions between banks and telcos, they are unlikely to impose any requirements on the budding mobile-payments players outside of such areas as fraud prevention and ensuring the parties comply with banking laws.

An overview of the first meeting of the group, held Jan 27-28, posted on the Atlanta Fed’s Retail Payments Risk Forum page, provides few specifics about the discussions or participants. But it does discuss what regulators see as the opportunities and potential problems for NFC and other mobile payment, as well as other applications.

“One of the Fed’s goals is to let free markets work without intervention for as long as possible to allow markets to resolve problems before government intervenes,” said the overview. “This recent mobile-payments development introduces a whole new cast of characters that complicates issues with regard to responsibility and liability, and how much trust we ought to have in that marketplace.”

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