Five risky areas in mobile banking

Mobile banking has the potential to provide convenience to consumers and new service opportunities for financial institutions, mobile network operators and innovators.

But there are risks involved, too, as consumers engage in payments, financial transfers and account monitoring via mobile devices such as smartphones and tablet computers. Regulators have taken interest in making sure benefits are delivered to consumers while risks are minimised.

Five areas of potential risk were highlighted in an interim report released Tuesday by the UK Financial Conduct Authority (FCA). The report describes some early findings of an FCA review of mobile banking services; the full report is due in the first half of 2014.

The FCA will study whether providers of mobile banking services ensure that their products are secure, reliable and straightforward to use. These firms, according to the FCA, should consider risks in the following areas:

• Fraud. Fraudulent access to mobile banking accounts could result in customers being unable to access their money or make payments, the FCA said.
• Security. There is potential for consumers to receive malware or a virus when they download a mobile banking application, according to the FCA.
• Technology risk/interruption to service. A systems failure or IT problem could prevent customers from accessing their accounts.
• Consumer awareness and understanding. Consumers using new services may be more likely to pay the wrong person or an incorrect amount, the FCA said.
• Anti-money laundering systems and controls. Mobile banking could be used for money laundering, especially when a mobile payment is not linked to the customer’s current account and there are not additional safeguards to verify the identity of the payee and recipient, the FCA said.

“Mobile banking is an exciting development in financial services, with increasing numbers of consumers attracted to the convenience of banking on the move,” Clive Adamson, the FCA’s director of supervision, said in a news release. “With the market growing, now is the right time for us to take stock and … ensure that consumers are appropriately protected.”

Other regulators also are watching mobile banking closely. A report by the US Federal Trade Commission (FTC) released in March described some of the potential benefits mobile payments can provide for consumers – and described actions companies should take to protect consumers.

The FTC identified concerns over dispute resolution, data security and privacy with respect to mobile payments. The FTC encouraged service providers to keep financial, security and privacy protections in mind when developing mobile payment options.

The FTC said companies should:

• Develop clear policies regarding fraudulent and unauthorised charges, and clearly communicate these policies to consumers.
• Increase data security and encourage all companies in the mobile payments chain to adopt strong data security measures.
• Provide transparency about their data practices with respect to mobile payments.

Panellists at an FTC workshop said mobile payments can be an easy and convenient way to pay for goods and services, get discounts through mobile coupons and earn or use customer loyalty points.

Under-served communities may receive increased access to alternative payment systems through mobile banking, and mobile payments have the potential to create competition between payment methods to the benefit of consumers, the FTC found. In addition, mobile payments could lead to lower transaction costs for merchants, according to the FTC.

Interest in mobile banking appears to be growing, too; a 2012 US Federal Reserve report found that 12% of mobile phone users had made a mobile payment in the previous 12 months, and 28% of mobile phone users who had not participated in mobile banking said they definitely or probably would use mobile banking at some point.

Consumers who choose to use mobile banking and payment services can take steps to protect themselves. They can set password protection for their phone, and often can set a second password for payment apps, according to the FTC. In addition, consumers may be able to contact their service provider to have their phone and all payment apps disabled if their phone is stolen, the FTC said.

The FCA advises consumers using mobile banking services to consider:

• Taking steps to reduce the risk of fraud, such as making sure that if they lose their phone, others cannot easily gain access to their account.
• Being careful not to enter incorrect account details when making payments. Using small keypads and making payments at unusual times may increase this risk.
• Protecting their phone against the possibility of downloading malware or viruses when downloading a mobile banking product.

“We want to make sure that the industry knows exactly what we’re looking into, and consumers have a clearer idea of some of the potential risks,” Adamson said.

—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.