Until the early 1950’s, check and cash were the primary forms of day‐to‐day payments in the U.S. The adoption of computers and networks in the 1970’s “electronified” the U.S. payment system, leading to the development of the ACH system, electronic credit and debit card processing, and the mechanization of check processing. Today, mobile and Internet technologies are driving innovation in payments.

Mobile Banking v. Mobile Payments

“Mobile banking” and “mobile payments” are not interchangeable terms. “Mobile banking” simply refers to the use of a mobile device to access Internet banking or e‐commerce applications. “Mobile payment” refers to the use of a mobile device to initiate a payment. A mobile device can initiate a “proximity payment” at the point of sale (POS) by interfacing with a payee’s terminal using near field communication (NFC) technology or a “remote payment” without regard to the location of the payee using technology such as SMS.

Mobile Payments Operating Models

The U.S. payments system is evolving as new information technologies combine with existing value transfer mechanisms to create new means of making payments. Innovators are creating a multitude of new mobile payments products, some leveraging the existing banking and payments system, and others taking advantage of both new technologies and gaps in the existing regulatory regime to process payments outside of existing banking and payments systems. Nonbank payment service providers offer new choices to consumers but can also present increased risks because their operations are conducted outside of the supervisory scrutiny that applies to banks and companies providing services to banks. In some cases, nonbank payment service providers fall outside of even the lesser degree of supervisory scrutiny that applies to money transmitters under federal and state law.

Three basic operating models have emerged for mobile payments:

• Bank Driven Model: Offered by financial institutions, these services allow a consumer to access traditional bank accounts and payments products using a mobile device.
• Mobile Network Operator Driven Model: Offered by mobile operators, these services allow a consumer to make a payment by accessing a prepaid or postpaid “account” with the operator.
• Mobile Payment Service Provider Model: Third parties (e.g., technology companies) offer services such as “mobile wallets,” which allow access to existing bank accounts, or services that allow payments using a prepaid “account” administered outside of the banking system (e.g., PayPal).

Upcoming issues of the Banking Brief will examine the structure, regulatory and oversight regime, and risks associated with each operating model.

The Clearing House is the nation’s oldest banking association and payments company established in 1853 to bring order to clearing and settlement between banks.