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 lower-priced products."
Cordray made the remarks during a field hearing in New Orleans that launched an inquiry 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 scarce.
"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 forms.
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 people.
- 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.
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