Mobile Payments: Convenience at a Cost?

Once, swiping a piece of plastic through a slot to pay for something was a technological marvel. Now, the same thing is becoming possible with a wave of your phone. For some, this is exciting – for others, perhaps, a bit unnerving. With good reason: In at least some ways, the laws and policies that protect our money and credit aren’t keeping up with technology.

In the video below, Money Talks News founder Stacy Johnson talks about the growing popularity – and risks – of mobile payments. Check it out, and then read on to learn how the mobile magic works, along with concerns raised by a Consumers Union report released this month.

How mobile payments work

The phrase “mobile payment” is an umbrella term, and includes more than the newest fad of waving or tapping to pay, which is variously called “contactless payment,” “tap and go,” and “near field communication” among other things.

But the current risk of mobile payments has not so much to do with how you pay – the engineers obviously make considerations for protecting the privacy of your data and transactions and fight hacking attempts – but more to do with the funding source.

Mobile payment accounts can be linked to any number of possible payment sources: credit card, debit card, prepaid card, gift card, bank account, or directly through your phone bill. Each offers different policies and protection for fraud and mistaken or disputed charges.

Expected to launch this fall, Google Wallet service is expected to popularize the “tap and go” payment for Android phone users. It’s going to be linkable to MasterCard credit cards through Citibank, Google prepaid cards, and gift cards.

Here’s how each payment type works:

Credit cards. According to the Consumers Union report, mobile payments linked to credit cards offer the best protections:

• $50 max liability for unauthorized charges resulting from a lost or stolen card, “which in mobile payments can include the phone itself, a chip in the phone or a sticker on the phone.”
• $0 liability if the erroneous or fraudulent charge is reported inside 60 days
• Chargeback (payment cancellation) rights for faulty or undelivered goods and services

Debit cards/bank accounts. These are the second-best source to link mobile accounts to but are significantly inferior to credit cards:

• $50 max liability for unauthorized charges only if the card is reported missing within two business days.
• Liability greater than $500 for reports later than that.
• $0 liability for unauthorized charges reported within 60 days that are not a result of a lost/missing phone.
• No ability to dispute charges, but unauthorized transactions can be credited within 10 business days.

Prepaid and gift cards. These have few protections, if any. Because there’s no law requiring protections, they’re based on what the providers choose to offer:

• Potential liability limited to full balance.
• Protections are based on card’s contract, which can usually be altered at the company’s whim and are often poorly understood by customer service reps, making recovery a hassle.
• While Visa and MasterCard have “zero liability” policies for prepaid cards, the Consumers Union report points out there are significant loopholes, including limits on how often you can report unauthorized charges and not protecting ATM or pin transactions.

Direct phone billing. Protections against unauthorized charges made directly to your phone bill vary widely depending upon your service provider and the state you’re in:

• According to the Consumers Union report, currently only California residents have chargeback rights for unauthorized or disputed charges.
• The major carriers suggest do-it-yourself protections and vary on time frames for disputing charges.
• Verizon offers a BillBlock protection service to help prevent unauthorized charges, available freely on request, and allows disputes within 180 days
• AT&T also blocks third-party charges or “cramming” upon request and allows disputes within 100 days
• Sprint adopted stronger unauthorized payment standards after a settlement with the Florida Attorney General cost the company $800,000, but doesn’t seem to list its policy or offer guidance online, and allows disputes within 60 days

While Consumers Union is fighting for credit card-like protections for all mobile payments, if you’re going to be an earlier adopter of mobile payments, use a credit card when paying by phone. If you don’t have one, tie it to a debit card or your bank account.