Mobile Financial Services: Implications for Privacy and Financial Inclusion

Editor’s note: Hibah Hussain, a Policy Program Associate with New America’s Open Technology Institute (OTI), and Hannah Emple, a Policy Analyst with the Asset Building Program, discuss a new report on mobile financial services and the implications for mobile privacy and financial inclusion.

A recent report from the Federal Reserve shows that the rise in mobile phone usage is having an impact on the way Americans navigate their financial lives. In 2012, 87 percent of American adults used mobile phones, and about half of those were smartphones. Between 2011 and 2012, the Federal Reserve reports a 33 percent increase in the use of mobile banking (28 percent of all mobile phone owners used mobile banking in 2012, compared with 21 percent in 2011). Despite these increases, “the report indicates that many consumers remain skeptical of the benefit of mobile banking and the level of security associated with the technology.”

Hannah Emple (HE): Your work with OTI supports access to affordable and universally accessible communications technology with an eye to privacy and consumer protection. With that background in mind, what does this report tell us about the concerns U.S. consumers have about mobile banking and technology?

Hibah Hussain (HH): The Federal Reserve reports that mobile users frequently voiced “concerns about the security of the technology” as reasons to avoid mobile payment and banking systems. However, the report’s language on security is both vague and unaccompanied by any potential solutions that might address these identified concerns. In order to ensure that mobile innovation bridges financial gaps instead of widening them, it’s crucial for mobile financial service providers and regulators to fully articulate and address specific security concerns.

HE: Do you have thoughts on how to break down these security concerns in a productive way?

HH: There are no easy answers, but one of the first steps should be to distinguish between various genres of privacy and security issues. For example, there are several security issues that are inherent to mobile phones in general. Devices must constantly broadcast their location in order to function and information stored by providers might be handed over to authorities, for example. Then, there are security issues unique to individual apps that can vary based on how an app is collecting data, how it’s sharing it, who has access to it, and so on.

HE: Are there specific security issues you wish the report had addressed?

HH: The report identifies financial inclusion platforms that send “low balance” alerts to users via text messaging. Given how insecure text messaging is, such platforms need to be extremely proactive about protecting this sensitive and valuable information. If this information is archived and shared with third party data brokers, a mobile user who has accrued too many “low balance” alerts might suddenly find themselves facing new forms of financial discrimination.

HE: That’s both a fascinating and scary prospect. One could envision a scenario where a financial services company might target a consumer for a loan product offer after tracking those “low balance” alerts. If the targeting of those offers falls along race or income lines or if the terms of the loans aren’t favorable and put the customer at risk of sliding into a cycle of debt, that’s a problem. On the other hand, the same forms of technology could be used to actively promote financial security. Last year, two members of the Asset Building team promoted an idea for an app for low-income families to better manage their finances and access information about public programs.

HH: How has the asset building field dealt with technology-related challenges in the past?

HE: The asset building field has tended to focus on aspects of financial product design that make the savings process and other financial decisions easier under the assumption that building up financial assets will lead to increased financial security and other benefits. But without a nuanced understanding of how companies use consumer data and the limits of mobile privacy, advocates may mistakenly prioritize ease of use over security without fully understanding the risks to consumers or the ways company practices could further income or race-based disparities. The report actually concludes that “given the prevalence of mobile phones - particularly smartphones - among minorities, low-income individuals, and younger generations, mobile technology has the potential to empower consumers and expand access to financial services for underserved populations.” The key phrase from that sentence should be “has the potential”: while mobile technology certainly has the potential to improve access, reduce disparities, and otherwise improve customers’ financial lives, it also has the potential to exacerbate existing inequality and jeopardize individuals’ privacy. On the technology and communications side, what policies can help ensure that mobile phones help bridge racial and socioeconomic gaps rather than widen them?

HH: Mobile technology is often presented as a panacea, but in order to promote meaningful social change and improved access, technology must be accompanied by thoughtful, well-informed policies. Concerns about security need to be addressed with policies that make it easier for users to know what information is being collected about them and give them the knowledge and tools to control who can access their personal information. There are a range of potential challenges stemming from consumer concerns related to the ongoing use of mobile financial services.

HE: Exactly. We shouldn’t expect future increases in mobile phone use to automatically correspond with increases in mobile banking. While a lack of awareness and familiarity with technology may also play a role, the report notes that “more than half of mobile phone owners who do not currently use mobile banking say they have no interest in using this technology.” We should not assume that mobile banking is something that everyone wants or that it will automatically connect everyone to safe and affordable financial services, particularly if the services are available only by risking consumer privacy.

Key Takeaway: Advocates, policymakers, and regulators alike need rigorous cross-discipline research on mobile financial services in order to effectively promote meaningful digital and financial inclusion. The report highlights the vast potential of mobile financial services, but reveals the need for additional interdisciplinary analysis through its own omissions. Read the report here and leave your thoughts or questions as a comment.