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Mobile Payments

The mobile payments sector could face a 'cocktail' of risks - report

Thursday 11 July 2013 | 01:14 PM CET

The expected rapid growth of the global mobile payments market is expected to create a potential cocktail of different risks that pose new challenges for risk managers and other stakeholders in the sector, a recent report has revealed.

In its latest research, risk prevention consultancy and analyst Riskskill, a division of UKFraud, has identified where it feels the key areas of risk lie in the sector. First of all, the risk lies in the scale of sector growth and technology change. With commentators suggesting that the mobile payments sector will reach USD 1 trillion in global transactions by 2015, the Riskskill research highlights that many risk professionals are concerned by the sector’s significant rate of growth. In Riskskill’s view, this rapid growth could mean that many proven risk strategies, once thought of as realistic and elastic, could be left out of touch in the medium term and lack the solid infrastructure required to be able to accommodate such growth.

Riskskill recognises that as a consequence of this growth, one of the greatest challenges to the development of plans and strategies that align organisations within the mobile payments sector is not only the diversity of sources of change but also the sheer speed of technology change be this hardware, software or the technology platforms used.

The research suggests that the main ‘mobile payments’ players are now extremely keen to produce the next ‘big thing’ and this is reflected in the significant investment being made by these key players. The international card schemes also have a positive influence on the development route(s) in the sector as will many other highly innovative and respected third parties.

The research explains that the technology organisations that act the most responsibly and altruistically will help minimise market risks over time. They are concerned though that in the rush to ‘jump on the bandwagon’, smaller players will adopt solutions that are based upon outmoded foundations and infrastructures. If this happens some regulators and stakeholders could struggle to keep up with the pace of technology change. This could mean that they might be unable to introduce the safeguards, protected environments and fraud prevention methodologies that are required at this early stage of market evolution. Fraud is deemed to be the greatest risk here. The fraudster thrives in such fast-paced environments, especially when there is no history, formality, process standards, anti-risk architecture or common IT foundations. Typically, fraudsters just ‘adapt’ and outsmart their targets.

Secondly, the research identifies globalization of mobile payments as another potential risk factor. Riskskill also points to the rapid spread of mobile payments globally, with the explosive growth of m-commerce in China, India, Latin America and the Far East. In some of these newer territories, the mobile payments sector is compensating for the lack of a physical and sufficiently robust banking structure and therefore proves extremely popular. Consequently, whilst the growth figures are impressive, the rate of growth could draw into question whether the existing and on occasion nascent regulatory systems and controls are sufficient to cope. According to the research, the most worrying aspect of this global spread is whether the technical and security infrastructures are built and based upon the solid foundations required.

Thirdly, there are potential consumer communication and information risks. There is a continuous stream of new financial products that are all seeking to outdo each other in the eyes of providers and consumers. Riskskill is concerned that alongside other areas of rapid market change, a fast churn of product lifecycles and the sheer variety of product nomenclature might cause consumers to become confused and thus more vulnerable to fraudsters exploiting their confusion. This will also be compounded by the absence of adequate fraud systems which will not have been put in place by all the main players, at an early stage, as some will only just have kept up with competitive product development.

Finally, the impact of such a rapid evolution of technology and financial products could threaten the applicability and implementations of many existing ‘standards’ programmes. Other newer standards will need to be evolved, although these too might still struggle to keep up with the rate of change. The research explains that as there is such a broad range of organisations and bodies from which such standards might come, that this in itself could cause confusion for market stakeholders and consumers alike. Once again, the most likely beneficiary of such confusion could well be ‘professional’ fraudsters. The hope is then that standards bodies will harmonise with other similar organisations around them, especially those who take a lead.

The research points out that there are a number of widely regarded bodies whose intervention could have a major impact in reducing market risk. This includes highly respected organisations such as UK Payments (formerly APACS), the ISO or the European Payments Council, which could potentially, some feel, develop a new SEPA-type regulation for the mobile payment sector. Other widely acclaimed and respected card schemes might also take a lead as they have a strong commitment to acting responsibly and correctly in the market.

According to Riskskill, if the standards that do emerge could drive the right risk–reduced conditions, it could in turn lead to both an evolution and a revolution in m-commerce practice and risk management. This could then prove to be a facilitator for wider adoption of mobile-based NFC /contactless payments.

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