The Taiwan Banker

The rise of mobile payments has become an irreversible modern lifestyle trend, but mechanisms in use cannot solve certain dilemmas. Their effectively control and use has become a vexing question.Richard Crone, a financial consultant in San Francisco, said, “there is no better way to make people uncomfortable than to play with their money.” This sentence aptly describes the plight of current payment tools.Nowadays, when friends dine together, buy gifts, or need to divide accounts in the US, people often say, “I’ll Venmo you.” Its name has become synonymous with mobile payment. It has succeeded in expanding the market penetration of Paypal, its parent company, becoming a verb, just like “Uber” for taxis.In fact, Zelle, jointly launched by major American banks, has quickly grown and overtook Venmo last year in terms of mobile payments users. American Banker reported that as of the end of July, Zelle had cooperated with over 100 banks, reaching 17% growth in 2Q, 11％ higher than in 1Q. With over 1 trillion transactions, totaling over US$ 28 billion, its growth rate for the whole year is 73%. The rapid growth of Zelle and Venmo has concentrated the US P2P payments market. In 2017, the two platforms had US$ 75 billion and US$ 34.7 billion in transactions respectively, and their number of users in 2018 is estimated to reach 24 and 22.9 million. Square Cash, in third place, had 9.5 million.Zelle, Venmo, and other payment companies in the same market – such as Square Cash, Apple Pay Cash, and Facebook Messenger – are all contending to become the ‘coolest’ payment tool. The following however are difficulties in the pursuit of the ideals of account security and immediacy.Insufficient Security and CompatibilityZelle is a payment platform jointly developed by several large American banks, including Bank of America, BB&T, Capital One, JPMorgan Chase, PNC Bank, US Bank, Wells Fargo – like an extended banking channel. The large banks served as anchors for the network, while small banks and community banks – seeking to avoid exclusion, while also responding to customers’ mobile payment demands – joined the network in turn. Zelle’s advantage is user friendliness. Many banks build its functions directly into their apps. Money can be transferred within minutes (1-3 minutes, after initial authorization), with no fee.These features have also been questioned though. Zelle’s rapid expansion has caused problems for many users, particularly those outside the seven major banks. They have had problems being unable to set up accounts or receive payments. Therefore, customer complaints have surged along with the user base. The main problem is system compatibility, including the inability to connect bank accounts and pass fraud tests, such prohibiting users from using suspected fraudulent accounts or credit cards, or funds not being received in accounts. These problems still require customer service support, which takes more time than running a bank. In addition, Zelle payment accounts are bound to a phone or email. Someone with two or three bank accounts won’t be able to repeat the registration - though who has so many phone numbers or email addresses?Consistency, but Lacking CreativityFrom the perspective of bank operations, many small banks are concerned that Zelle’s free service will affect their own profits. At the same time, other banks have experimented with ways to reduce expenses related to cash handling and checking in physical branches. Zelle can help banks consolidate tasks, allowing for profits in other areas. More importantly it can help them maintain links with big banks. In addition, its use of a joint platform to provide common services has also been questioned, on the premise that the big banks are only seeking to keep up with electronic payment trends, and that the platform lacks creativity and features. This may become a major weakness of Zelle, preventing it from becoming as mainstream as Venmo.In contrast, websites with communities, like Facebook and Amazon, are actively forming alliances to turn their social networking sites into payment platforms. As the Wall Street Journal pointed out in August, Facebook hopes that banks will provide information for exchange. It is building its own financial platform. Currently available services include an alliance with PayPal last year, enabling users to send and receive payments through Messenger. Mastercard users can also buy through Messenger using an online wallet, and American Express customers can contact customer service. Venmo also is also combined with Uber and UberEats for direct on-platform payments.Security Problems and Data PrivacyVenmo was the first popular payment tool. In addition to payments between individuals, it also pioneered business payments, although it currently takes 1-3 days for the payment to arrive – instant transfer costs US$ 0.25. Starting out as a technology, rather than financial company, it has always followed its parent Paypal and focused on security systems. Its recent data leakage incident has also had considerable impact though. The Guardian reported that a German engineer recently discovered that Venmo treats personal transaction records as public information, and lacks measures to protect privacy. While this strategy might be one of the ways it became a popular tool for social networking sites, it has enabled the transaction records of many users to be discovered online. Records on purchase and sale of drugs, eating habits, or conversational records can be read publicly. For example, a separated husband continues to send money, quarrels between a husband and wife are recorded, or a successful fruit vendor has thousands of transaction records showing who is buying what, and when. Such messages may seem like nothing, but they may conceal a great deal of information. For example, if a girl eats unhealthy food, that may make it more difficult for her to purchase health insurance. Knowing the times of day that someone goes out shopping may allow someone to target their home for robbery.What Level of Security?In addition to the openness of transactions, many payment applications retain the right to use customer information, including for unrelated uses or targeted marketing, and many also retain the right to buy and sell the information from third parties. However, there is also innovation in privacy protection: for example, Apple Pay Cash was rated as the safest payment tool this year by Consumer Reports, because it restricts data access, and does not store credit card numbers or transaction records. Most payment tools emphasize security measures such as PINs or dual-factor identification, but Apple is the only one to mandate these processes. Zelle is rated as less secure, because it allows for wider use.Incomplete Measures for Bad TransfersEach P2P payment app aims to be simple and convenient to use. Behind the program are many protocols, regulations, and consumer rights measures, but consumers may not be aware of their rights regarding financial fraud. In fact, these measures are not complete. For instance, it is easy to send money to the wrong recipient. In that case, users may not know that the money cannot be received. If the recipient does not return the funds, the platform offers no protections. Another problem is fraud. If one falls for a scam, current law does not guarantee that the money can be returned.The Importance of Instant TransferFinally, everyone who uses P2P tools desires instantaneous transactions. Zelle found in a survey that 2/3 customers (especially the younger group) want their money to be deposited as soon as possible. Banks need to invest in instantaneous fraud detection systems to preserve security and privacy – using comprehensive fraud systems to detect suspicious activities and protect consumers, using machine learning, to automatically freeze accounts when the system detects abnormal transactions. Many small banks joining Zelle are relying on the large banks to provide this protection, but current performance is not sufficient, and implementation needs to be strengthened. Immediacy is also an important factor for consumers. Alphabet’s Google Pay has launched a highly secure and instant mobile wallet, and Paypal has also offered an instant credit-to-account service.Maintenance of back-end functions such as security, privacy, and instant services, building communities, and marketing attractive features among peer groups are requirements both for platforms’ continued operation, and for the search for applications in other areas. Amazon’s Alexa, for example, which was actively tested in India in 2017, will allow P2P payments using voice commands. It will be a strong competitor. Other user age groups are also being added. For the younger generation, the scope of use includes any expenses that may be sub-divided, such as shared rent, utilities, or travel. In addition, the 50-70 group is also growing rapidly. Aside from ordinary consumption, they also use it as a tool to transfer money to children.A cashless society is the ultimate convenience. Payments can be made at any time, without need for cash or delays, allowing money in the bank to be used at one’s convenience. Various payment apps have gained widespread use, and they are still making progress, despite difficulties. In the future, reliable platforms will become global. Creating profitable models, increasing usage, and providing fast and secure financial services will be the measures of success. As the tools evolve, platform operators and regulators must be mindful of effective risk control. The US experience will serve as an example for Taiwan’s future development, making it easier for it to adapt to all sorts of difficulties.