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Why payments need guardrails

In an app world, "rock-solid" and "vault-like security" aren't exactly the kind of descriptive terms that get the blood racing. Unless, that is, you've just lost your smartphone or had your debit card compromised.

Why payments need guardrails

If you've been reading this publication over the past few years you know there's a great deal of innovation occurring in the payments space. It's exciting stuff, to be sure. It's also regularly flogged in the media and in a steady stream of reports issued by technology research firms. All this has a tendency to focus on the "wow" of the moment.

So it's interesting to read in this month's cover story by contributing editor Lisa Valentine how several of the most-hyped payments developments—the use of near-field communications (NFC) and the related concept of mobile wallets in particular—have lagged far behind expectations, and may or may not ever blossom as predicted.

On the other hand, some new payment types—notably prepaid cards—have exceeded expectations.

When it comes to the payments system, the underlying needs of most people, we think, are certainty, security, and convenience more or less in that order.

No question it is definitely cool to whip out your Droid and pay for a Mocha Grande at Starbucks using their barcode app. But only if 1. you're comfortable that doing so doesn't compromise your transaction account, and 2. that it works predictably and is quicker and easier than pulling out cash or swiping a card.

It wasn't all that long ago that "swiping a card"—especially a debit card—was the latest big idea. One difference then was that people were used to using debit cards for ATM withdrawals and that there were networks and rules in place—guardrails, if you will.

That's not often the case today. Technology's advances have made it possible to develop and roll out new forms of payment without much groundwork being laid. One example is Bitcoin, the virtual currency that operates independently of the banking system. In the cover story, one source describes Bitcoin as "an anti-establishment movement at heart." While that no doubt appeals to some, the "establishment" has lately been tightening the screws on the service because of money laundering concerns.

Given the potentialities of the internet, it's likely that some form of virtual currency, if not Bitcoin, will be in use, and that some form of mobile payment will be widely embraced. New ideas deemed radical initially have a way of entering the mainstream after suitable controls are put in place and after a period of digestion. That's the way it should be with payments.

That point was made clear in a recent letter to member banks from ABA President Frank Keating. He wrote to apprise them of the association's work in two key, related areas: payments and cybersecurity. In regard to the former, a new report from ABA's Emerging Payments Advisory Group (see p. 29) raises policy questions relating to how best to balance innovation with consumer protection, competitiveness, and safety and soundness.

Clearly, too many rules stifle innovation, so you look for a balance. If in the process innovators are dissatisfied and the regulatory crowd is unhappy, well, that likely means you've gotten it right.

Bill Streeter

Bill Streeter has been a full-time business journalist for 40 years, 34 of them with ABA Banking Journal. During his time with the magazine, he rose from Assistant Managing Editor to Editor-in-Chief. He has guided the magazine’s editorial direction since 1985 and has been an observer of momentous changes in banking, from the introduction of ATMs to the 2008 financial crisis and passage of the Dodd-Frank Act. In 2012 Streeter became Editor & Publisher, responsible for the Banking Group overall including the magazine,, and related e-newsletters.

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