You still write checks? Wow!…….Entering the world of Mobile Phone Payments

That’s the gist of a conversation that I was in a week or so ago about paying my bills.  Yes, I still write checks.  AND………I mail them with actual stamps!  We at Consumer Courage are at an interesting stage of life.  We are no longer hip – and are becoming painfully aware of that fact.  Perhaps we will soon reach the stage where we think that Bermuda shorts actually DO go with black socks…….

It is in that spirit that this week’s post is about an area that is becoming more popular by the day.  The market for using mobile phones to make everyday purchases is expected to reach into the Trillions of Dollars in the next few years.  The premise is that instead of having to pull out your credit card to buy your new TV/pair of shoes/loaf of bread, you use your cell phone (which is probably in your hand as you reach the checkout counter, anyway), instead of a credit card. Convenient?  You betcha.  Best idea ever?  Not really.

(Editor’s Note: for a more in-depth look at just how few Consumer Protections we enjoy when using mobile payment systems, check out the Consumer Federation of America’s report on the subject ‘Mobile Pay or Mobile Mess’  )

First, the good stuff.  Imagine stepping up to the counter at a store.  Instead of reaching for your wallet…….opening it………digging out your credit card and your license, you only have to take your phone (which is usually more accessible than our wallet) and either touch it to the key pad, or merely say your name, or sign on the keypad and voila! You’ve paid.  It can be as simple as that.

Now, let’s look at what might go wrong

MORE VENDORS

When you pay with a credit card, there are two vendors in the transaction – the credit card company and the store.  The only information they get from you is the cost of the item and your billing information.  If there are problems, you only have to deal with one of two parties to try to fix it.  If you pay with your phone, you are adding parties to the mix – the vendor for the app that you use; your phone company (if you use the option to bill through your monthly phone contract); and possibly another party, if the APP uses a third-party billing service. 

‘What’s the big deal,’ you say?  For starters, each of these new companies now have a ‘business relationship’ with you. This means that they can each send you SPAM or sell your contact information to another company to send you SPAM. It also means that your efforts to put your phone number on the National Do-Not-Call list do not apply to those places, because of the newly created ‘business relationship.’

There’s also the matter of correcting billing errors.  Your credit card company and the store where you bought that fancy new gizmo have dedicated customer service departments and the desire to keep you as a customer.  However difficult it is to contact VISA’s customer service line to fix an incorrect charge, imagine how tough it will be to contact the customer service line for the new app on your phone.  If you are unable to get help, you might think that there are government regulations that pertain to this new segment of the market. 

Unfortunately, if you thought that, you’d be wrong.  There are very few government regulations in place to protect consumers from glitches in the process. This is probably the most overlooked aspect (and from Consumer Courage’s vantage point, the most important) of making mobile payments.  This is especially true, considering the fact that every time you make a mobile payment, you are allowing the seller and the maker of the APP to have access to your phone number and other important information about you.  When you buy something at Target with a credit card, they don’t receive your address and phone number, during the process.  But, when you use an APP that is attached to your phone, the vendors in the process are able to obtain much more detailed information about you.  (Such as: your address, e-mail and phone number; a detailed list of what you bought; how much you paid; etc.)  This information can be repackaged and sold to advertisers.

HACKING

Whatever kind of payment system you use, if you are making mobile payments, your credit card information will be permanently stored on your phone.  That means that if anyone hacks into your phone, or if they hack the company that produced the app that you downloaded (indeed 92% of the top 100 APPs have been hacked), your ID info AND your credit card number will be the possession of whoever does the hacking.  While it’s true that hackers can obtain information from folks who never use mobile payments, keep in mind that this gives them one more chance to get at your information.

WHO IS PROTECTED THE MOST?

This depends on what kind of payment system you use.  From the consumer’s perspective the best mobile payment system is one that is tied to a traditional credit card; followed by debit/prepaid credit and gift cards.  If you are using a system that makes debits to your phone bill, you have the most to worry about. 

• Credit cards:  C/C agreements allow you to dispute certain charges, have the most accessible customer service departments and can provide for credits;

• Debit/prepaid/gift cards: come with fewer guarantees for purchases and are more one-sided, with regard to consumers’ rights;

• Charges to phone bills: Not only do you have much less of a chance to challenge a charge that was added to your phone bill; you also have to worry about ‘cramming’.  This occurs when a company (other than your cell provider) adds charges to your phone bill for a service that you didn’t order or use.

HOW DO YOU PROTECT YOURSELF? 

Since you might be thinking that mobile payments aren’t the safest way to make purchases, here are a few tips to help you provide an extra layer of protection to your purchase, when you are making a mobile payment:

1. Password-protect your cell phone. Otherwise, anyone who finds your phone can open up your handy-dandy payment app and start buying things until you call your cell service (or until they hit the limit on your credit card!)

 2. Get that Receipt. Use an APP (or payment method) that will send you an e-mail copy of the receipt.  This way, you can verify that the charge is yours (and correct it) right away.

3. Make that TWO passwords. Use an APP (or payment method) that has its own password. That way, even if your phone is lost or stolen, only someone who knows your password to the app can make charges.

4. Save those receipts!  Each month, when you get your credit card bill (or your phone bill if you choose to have charges added to your bill) compare the receipts to the bill you are about to pay to make sure they are all correct.

5. Keep things the same.  Use the same card and the same payment APP/method for all of your mobile purchases.  That way, it will be easier to verify the purchases; track the payments; and correct any errors that occur. 

6. Report problems right away. Your liability for bogus charges may just depend on how quickly you report the errors to the appropriate vendor.  Credit card users typically have up to 60 days to notify the company of a bogus charge on their bill, while somebody who has a charge added to their phone bill only has two days to tell the cell provider that there’s a problem. 

Just remember when you are deciding whether to use a mobile payment system: quicker isn’t always better.  You’re much more protected if you use your credit card.  But, don’t get in line behind me.  I’ll be the one fumbling with my wallet, getting out my ID and asking you to hold my cell phone while I swipe my credit card. You’ll also recognize me by my Bermuda shorts and black socks. 

Posted by: Mark Wiseman