NEW ORLEANS -- Delivering bank services via cellphones and
smartphones should help bring down the costs that consumers pay
while reaching people who currently rely on expensive alternatives
such as check cashing and payday loan stores, a top federal
regulator said Thursday.
"These are significant savings, much of which can and should be
passed on to consumers," Consumer Financial Protection Bureau
Director Richard Cordray said. For example, in-branch transactions
cost an average $4.25 each, compared with 10 cents for a
transaction via mobile, he said, citing industry research. "We want
to know if low-income consumers are getting the benefit of
Cordray made the
during a field hearing in New Orleans that launched an
by the bureau into how to provide better, cheaper financial
services with new technology, while protecting consumers' privacy.
The heads of two online financial companies joined consumer
activists and regulatory officials to discuss the opportunities and
risks of mobile financial services.
Three floors below the hearing, held in a former U.S. mint here,
wooden coffers for transporting coins via horse-drawn carriages
were on display, providing a sharp contrast to the way money moves
around today. Applications such as remote deposits, text alerts and
budgeting tools that nudge you when you're about to overspend can
save significant costs for consumers, advocates said, as well as
saving time and adding convenience.
Meanwhile, the rapid adoption of mobile technology can spread
the benefits to people who lack mainstream banking services.
Cellphones are present in 75 percent of homes earning less than
$25,000 a year, and smartphones reach 44 percent of those
households, Cordray said -- potentially standing in for
brick-and-mortar bank offices in neighborhoods where they are
"Mobile is the missing link," said Joe Valenti, director of
asset building at the Center for American Progress, one of the
speakers at the hearing.
The CFPB inquiry includes a public comment period, which runs
until Sept. 9. The agency seeks information on how mobile devices
can improve access to financial services, and how mobile can
improve real-time money management for all consumers. One idea
Valenti raised, for example, was sending simple text alerts when
consumers' checking balances are low. Simple texts don't require a
smartphone, but can save consumers significant costs by averting
overdraft fees, he said.
"Arming consumers with better and more current information about
their accounts helps them make wiser use of their funds and avoid
costly penalty fees," Cordray said.
Indirectly, the comment period urges financial services that the
bureau regulates to move toward mobile services. But barriers
remain, experts said.
Fine print, four-inch screens
One question is how to provide lengthy terms and conditions on a
four-inch screen. "There is the issue of disclosure -- what is
going to be considered 'clear and conspicuous' in the mobile device
space," said Erin Fonte, a financial services attorney, during a
telephone interview. Technology is addressing this problem as well,
such as by providing links to a document, or pop-up notifications
for specific transactions, instead of 120 screens of fine print.
But whether this will pass regulatory muster remains to be seen.
Companies "are looking for clarity," she said.
New technology risks tossing out some benefits while it delivers
new ones. Valenti said calculations on monthly credit card
statements that show how long it will take to pay off a balance at
the minimum payment rate -- a requirement under the Credit CARD Act
of 2009 -- have encouraged many people to pay down their balances
faster. But people who pay their credit card bill using mobile
phones instead of paper statements or online documents are not
likely to see the calculation.
Steve Streit, CEO of prepaid card company Green Dot, said some
consumers' distrust of formal banking systems is another barrier.
Although dealing with a bank on a mobile device can be convenient
and potentially cheap, "People have to be comfortable with giving
their personal information, establishing their identity."
Technology may help address this barrier as well, said Josh
Reich, CEO of the online mobile banking company Simple. His company
is developing tools for users to snap pictures of their ID cards to
verify their identities, rather than having to fill out lengthy
With the convenience of mobile technology come security and
privacy concerns that service providers should address, Cordray
said. If a phone is lost or stolen, consumers need alternate ways
to reach service providers, and assurances that their personal
financial information can still be protected, he said. The bureau
is studying whether data breaches are more common on mobile devices
than other computers.
Mobile security tips
Consumers can protect themselves by taking precautions with online
transactions, the consumer protection bureau said, suggesting a
list of security tips.
- Choose reputable companies and go through the company's
website directly, not via a link provided by someone else.
- Don't save PINs and passwords when using phones or tablets,
just as you wouldn't share PINs and passwords with other
- Alert financial services if a mobile device is lost,
including banks, credit unions, credit cards, prepaid cards and
personal finance apps.
- Log out and close your browser after finishing financial
transactions, and consider clearing your browsing history.
Consumers prefer mobile banking to mobile