A Reuters article discusses the ease with which developments in cell phone technology are rapidly enabling mobile payments, replacing credit cards and other instruments controlled by traditional financial institutions.
"Japan is leading the way in this regard. KDDI, for example, is a Japanese telecom operator that has recently set up a bank along with Mitsubishi UFJ Financial Group. NTT DoCoMo, Japan's biggest wireless carrier, offers credit cards and lending services as part of a tie up with Sumitomo Mitsui Financial Group, Japan's third-largest bank. Outside Japan, telecom industry and financial players are still in the midst of working out how the wallet phone payment business would operate, who would get a cut and when. 'Traditional financial industry met telcos by going mobile. Now telecom operators want to play a part in that chain. These talks are well under way,' said Gerhard Romen, Director for Strategic Alliances & Partnering at Nokia."The Reuters article said little about the downside of the new technology. But terrorist financing experts in and outside government have long been worried that the mobile payment development is outpacing regulators' and law enforcement's ability to detect and prevent use by terrorists. In their new report on terrorist financing, "The Money Trail: Finding, Following, and Freezing Terrorist Finance," Contributing Experts Matthew Levitt and Michael Jacobson of the Washington Institute discuss terrorists' use of cell phones to transfer funds. "M-payments, where cell phones are utilized to transfer money electronically, are growing in importance, as is the transfer and storage of funds via online entities such as cashU or e-gold. In countries where the formal financial sector is less than robust—such as in many African countries—using cell phones is a far more attractive option for transferring funds. In some cases, terrorists are suspected of using the internet to obtain logistical and financial support for their operations... One factor is the evolution in terrorist financing, including the use of cell phones and cash couriers to transfer funds, abuse of charities and nongovernmental organizations (NGOs), and trade-based money laundering." As I wrote on February 29, the State Department labeled mobile payments a "growing threat" for their use by narco-terrorists.
Cell phones also enable the user to access stored value instruments, such as as an embedded chip in the phone, a hard card, or a cloud account, issued by financial institutions and other companies. As the Reuters article and a report by the Australian Government's Institute of Criminology noted, MasterCard is pushing the development of "phone wallets," through which cardholders can access their stored value account by sending text messages from a registered mobile phone (what one expert calls "Cell-a-Card").
Mobile payment systems are being deployed at an incredibly rapid rate. A recent article in a banking systems subscription newsletter recently noted that each of the top 10 banks in the U.S. will have a mobile banking platform opened by the end of this year. Last year, the Gartner Group predicted $2 trillion in mobile transactions by 2012. Workshop titles at recent cell industry conferences include “Convergence of Financial Tools on Cell Platforms” and “The Mobile ATM.”
The Obama Administration and next Congress need to get on top of this issue next year.
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