07 October 2014. Published by Mark Crichard, Partner

The Financial Conduct Authority (FCA) has recently published its findings following its thematic review of mobile banking and payments.

Recognising the rapid growth in the use of mobile devices by consumers when interacting with financial institutions and in making payments, the FCA's review aims not only to assess currently regulatory challenges but also to anticipate the key issues that financial institutions may face as that growth continues.

So, for instance, the report highlights the fact that (on average) consumers using mobile banking interact with their bank three times more than those simply banking on-line and some twenty times more than those dealing through their bank branches. That inevitably impacts the way that mobile banking platforms are designed (and their cost).

Interestingly, whilst the report picks up the obvious security concerns that come with mobile banking and payments the FCA apparently "found no evidence to suggest that consumers are currently losing money [specifically] as a result of… payments made via mobile."

The key findings of the FCA's review focus on the following:

Consumers understanding of their rights and responsibilities – The rapid growth in mobile banking increases the probability that consumers don't understand the security risks involved and don't understand how their existing legal rights (eg in the case of fraud) apply to mobile transactions. The FCA comments that regulated institutions are ideally placed to help improve customer understanding, particularly in terms of how they can maintain the security of their mobile devices. The report encourages institutions to do just that.

Senior Management – Senior management within regulated institutions need to ensure that they have adequate knowledge and understanding of the products and services being offered through mobile channels, and how consumers interact with them. The report comments on the fact that the speed of technological change obviously makes that more difficult to achieve.

Security and Technology Resilience – The report states that regulated institutions need to ensure that their mobile offerings have adequate security measures, to prevent fraud and to protect personal data, and need to continually keep those measures under review. Reflecting the significant increase in interaction that comes with mobile banking, the report also advises that firms need to ensure that their systems are sufficiently scalable and robust to deal with that level of interaction, especially as the take up of mobile banking continues to grow.

Third Party Oversight – Mobile banking and payments typically involve numerous different parties (not just a bank and its customer), including network operators, mobile handset manufacturers, technology providers etc. The report states that regulated institutions rolling out mobile offerings need to ensure that they understand and maintain appropriate oversight of who the various parties are and properly manage their various responsibilities and inter-relationships.

Last but not least the report comments that mobile banking and payments not only affect existing regulated institutions but also open up opportunities for new payment providers to enter the market. The FCA recognises, in the report, that navigating through the current regulatory regime can be quite a challenge for new entrants, which could in turn create (regulatory) barriers to innovation. In response to that the FCA has, as part of its "Project Innovate" published proposals to build an "Incubator" and "Incubator Hub" to help innovators through the authorisation regime.

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