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THE FUTURE OF MONEY: HOW 

MOBILE PAYMENTS COULD 

CHANGE FINANCIAL SERVICES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

MARCH 22, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–110 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

JAMES H. CLINGER, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SHELLEY MOORE CAPITO, West Virginia, Chairman 

JAMES B. RENACCI, Ohio, Vice Chairman 

EDWARD R. ROYCE, California 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JEB HENSARLING, Texas 

PATRICK T. MCHENRY, North Carolina 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

CAROLYN B. MALONEY, New York, 

Ranking Member 

LUIS V. GUTIERREZ, Illinois 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

GREGORY W. MEEKS, New York 

STEPHEN F. LYNCH, Massachusetts 

JOHN C. CARNEY, JR., Delaware 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

March 22, 2012 ................................................................................................. 1 

Appendix: 

March 22, 2012 ................................................................................................. 29 

WITNESSES 

THURSDAY, MARCH 22, 2012 

Leach, Troy, Chief Technology Officer, PCI Security Standards Council, LLC . 6 

Martindale, Suzanne, Staff Attorney, Consumers Union of U.S., Inc. ................ 11 

McLaughlin, Ed, Chief Emerging Payments Officer, MasterCard Worldwide ... 7 

Oliver, Richard R., Payments Consultant/Retired Executive Vice President, 

the Federal Reserve Bank of Atlanta, and co-author of ‘‘Mobile Payments 

in the United States: Mapping Out the Road Ahead’’ ...................................... 4 

Vanderhoof, Randy, Executive Director, Smart Card Alliance ............................ 9 

APPENDIX 

Prepared statements: 

Leach, Troy ....................................................................................................... 30 

Martindale, Suzanne ........................................................................................ 39 

McLaughlin, Ed ................................................................................................ 43 

Oliver, Richard R. ............................................................................................. 55 

Vanderhoof, Randy ........................................................................................... 58 

(1) 

THE FUTURE OF MONEY: HOW 

MOBILE PAYMENTS COULD 

CHANGE FINANCIAL SERVICES 

Thursday, March 22, 2012 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:02 a.m., in room 

2128, Rayburn House Office Building, Hon. Shelley Moore Capito 

[chairwoman of the subcommittee] presiding. 

Members present: Representatives Capito, Renacci, Luetkemeyer, 

Huizenga, Grimm; Maloney, McCarthy of New York, Scott, and 

Carney. 

Chairwoman CAPITO. This hearing will come to order. 

I appreciate the witnesses being here. We are expecting a series 

of votes as early as 11:30, and if we are unable to complete the 

hearing before the votes, we will return after votes are completed. 

But we meet today to begin what I think is an exciting and important task, which is making sure our financial system and its 

regulatory structure are prepared to enter the new world of mobile 

payments. 

You see a lot of press about mobile banking; certainly a lot of advertising on mobile banking. And without saying too much about 

my general age area, this is age-specific in some ways considering 

my mother has never used an ATM, but she does pump her own 

gas. 

I know what my children, who in their 20s, are going to be doing 

in terms of how they bank. And this is what I think is the relevance—why I am extremely interested in this as we move through 

this panel. 

While most people believe that making a mobile payment involves waving a smartphone at a cash register, and it may be, 

there are a lot more ways to exchange values. 

Contactless cards and short e-mail messages giving instructions 

to transfer value represent other form of mobile payments. The 

whole field offers the possibility of faster and cheaper transfers of 

value, oftentimes with the promise of enhanced security that surpasses what is possible today. 

We are, I think, on a precipice of some fundamental change in 

the way money is exchanged between consumers and businesses. 

2 

And that is why I am interested and I wanted to have this hearing 

on the future of money. 

While some aspects of mobile payments have been with us for a 

while, and some business models are already developed, other aspects of mobile payments are in the beginning stages of pilot programs. Either way, there is a lot for Congress, banks, regulators, 

retailers, and customers to learn. 

Most importantly, we want to make sure these payments are safe 

and secure; at least as safe as using cash, checks or credit cards, 

and hopefully even more so. Bringing the strength of high-powered 

computers to bear on account safety could allow us to erect layers 

of security that help foil the hackers who lie in wait on the Internet 

today, stealing millions of identities—and we have looked into this 

in our subcommittee as well—and billions of dollars annually. 

After all, the smartphone that was essentially nonexistent less 

than 6 years ago, is said to be far more powerful than the large 

supercomputers of the 1980s, or certainly of those of us who went 

to college in the 1970s and took computer science and we had those 

stacks of cards that we had to feed into the computer and stay in 

the computer room all night to make sure they went through. 

Today’s hearing is an introduction to mobile payments, the first 

I am aware of to be held by Congress. We have five expert witnesses who can discuss broadly the state of the mobile payment industry and where and how fast they see it developing. 

Among them is Richard Oliver. Until he retired last year, he was 

the Federal Reserve’s top mobile payments expert and the principal 

author of the Fed’s widely praised White Paper on the subject. We 

also have experts from the issuer side, from the standards sides of 

mobile payments, and a consumer specialist. 

So I look forward to hearing everybody’s testimony and I would 

now like to recognize the ranking member from New York, Mrs. 

Maloney, for the purpose of making an opening statement. 

Mrs. MALONEY. First of all, I would like to thank Chairwoman 

Capito for holding this hearing, one in a series on the future of mobile payments in our financial system. 

And thank you to all the panelists for joining us this morning. 

I believe this hearing will serve as a great first step and learning 

session on this rapidly evolving technology. I feel that this is another example of American exceptionalism, of coming up with an 

innovative idea, an efficient idea that keeps America moving forward and employing more people, becoming more efficient and 

making us an even stronger country. 

I am excited about this idea and I really look forward to hearing 

all of your testimony. 

Mobile payments in the United States are expected to generate 

$215 billion by the year 2015. Forty-three million adults in this 

country use alternative financial services as a form of banking. And 

as this technology continues to move forward, it creates innovative 

and exciting opportunities for everyday citizens at home and at 

work. 

The possibilities are truly endless. We are seeing what technology can do for consumers and businesses as mobile technology 

opens the door to an entirely new method of financial interaction. 

3 

Mobile payments, payments made by electronic means, effectively replace cash, checks, and traditional credit cards. This evolving form of financial exchange can provide consumers with greater 

purchasing power; allow merchants to market their goods more efficiently; and help create a truly mobile, electronic, and innovative 

society. 

Mobile payments can involve text messages that transfer funds 

from one person to another or to a financial institution, as experienced in the successful program to funnel aid to earthquake victims in Haiti. I was truly stunned at how successful this program 

was. They had on every taxicab, ‘‘Get on your mobile phone and 

text $5 to the earthquake victims.’’ And that successful effort led 

to $5 million in $10 donations from Americans throughout our 

great country through their cellphone carriers. 

This happened—truly outstanding possibilities for this new form 

of payment. And mobile payment technology can allow consumers 

to wave their phones at checkouts and even direct those charges to 

prepaid phone deposits and phone bills. I love it. It just gets better 

and better. We wouldn’t lose all our papers all the time if we had 

this. 

And as mobile phones become more prevalent, and as the number of methods of making payments increase, it is important to look 

at the hurdles facing its implementation. 

How much will the adoption of mobile payments cost merchants 

as they purchase and install readers for their technology? How protected are consumers? Can hackers steal their data out of the air? 

What is the level of disclosure that will be provided to our consumers—greater regulatory clarity for this market? Consumers 

want payments that are convenient and inexpensive. 

But we must make sure that security is not abandoned for the 

sake of this new technology. It may be years before this technology 

fully becomes a reality for the majority of people the way debit 

cards have. However, I am happy that we are discussing this important issue at the ground level. I congratulate the chairwoman 

for calling this important hearing. I look forward to your testimony 

and I welcome everybody. 

Chairwoman CAPITO. Thank you. 

Mr. Renacci, for 1 minute, for an opening statement. 

Mr. RENACCI. Thank you Madam Chairwoman. 

This is an exciting time in the payments industry. Over the last 

several years, innovative companies have invested huge amounts of 

capital and manhours to lay the groundwork for many of the methods we are discussing here today. 

New innovations in smartphones and mobile payments are bringing consumers greater convenience and a better buying experience, 

while also increasing the security of payment transactions. While 

I am interested to learn about these new products and services 

here today, I also want to hear what we in Congress can do to 

make sure that these innovations progress in a safe and prosperous 

manner. 

We must encourage a free market where innovators can realize 

the benefits of their investments and consumers can benefit from 

lower costs and safer products. I look forward to hearing your testimony today. 

4 

I yield back the remainder of my time. 

Chairwoman CAPITO. Thank you. 

I don’t think Mr. Grimm wanted to make an opening statement, 

so we will go ahead and go directly to the testimony. 

I want to recognize the witnesses for the purpose of making a 5- 

minute statement, and then we will go to the question-and-answer 

period. 

As I mentioned in my opening statement, we are really lucky and 

pleased to have Mr. Richard Oliver here. He is the co-author of 

‘‘Mobile Payments in the United States: Mapping Out the Road 

Ahead,’’ which was published by the Federal Reserve Bank of Atlanta. 

Welcome, Mr. Oliver. 

STATEMENT OF RICHARD R. OLIVER, PAYMENTS CONSULTANT/RETIRED EXECUTIVE VICE PRESIDENT, THE FEDERAL 

RESERVE BANK OF ATLANTA, AND CO-AUTHOR OF ‘‘MOBILE 

PAYMENTS IN THE UNITED STATES: MAPPING OUT THE 

ROAD AHEAD’’ 

Mr. OLIVER. Thank you very much. 

And let me start by thanking the committee and the subcommittee for the opportunity to come and share information with 

you about the mobile payments environment while it is still very 

early in its evolution. 

In 2010 payments research teams from the Federal Reserve 

Banks of Atlanta and Boston collaborated to conduct an assessment 

of the state of and potential for deployment of mobile payment options in the United States. Our interests were to determine the impact of mobile payments on existing payments businesses and to 

isolate potential risks to consumers and businesses who might 

choose to use mobile payment options. 

To conduct the assessment, we invited most of the major players 

from the mobile payments industry to discuss with us on a voluntary basis the opportunities, barriers, and challenges associated 

with implementing a successful mobile payments environment in 

this country. 

The attendees included major card brands, wireless operators, financial institutions, industry trade groups, retailers, and many 

other participants. 

Please note that this effort was not directed at mobile banking, 

which is the use of your mobile phone to access online banking 

functions. It was directed at actually exchanging value at the point 

of sale utilizing your phone. 

Over the course of what turned out to be seven meetings during 

2010 and 2011, we not only gained great insight into the evolution 

of mobile payments in the country, but the group helped us isolate 

a series of key factors that they collectively felt should be met to 

ensure a safe implementation of mobile payments in this country. 

And my purpose here today is to share those with you. 

The first was that the proposed environment should be best defined as an open wallet. That is, a wallet that would allow complete 

access by all persons using all credentials they might want to use 

as opposed to proprietary initiatives that might limit the amount 

of instruments available for use by a consumer. 

5 

Second, the mobile infrastructure would likely be based on nearfield communications technology, resident and mobile devices, and 

in retail point-of-sale terminals. This technology is now becoming 

common in other countries and would allow users to tap their 

phones and institute a purchase. 

Third, existing, well-protected clearing and settlement rails 

would likely be the way that value would be exchanged. That is 

through the debit card, credit card, and prepaid and automated 

clearinghouse networks to be used for clearing and settlement between parties. 

Fourth, some form of enhanced security such as dynamic data 

authorization should be used to deter counterfeiting and I.D. theft 

at the point of sale. This technology is already resident in chip and 

pin cards being used throughout the world. 

Fifth, common standards should be designed, developed, certified, 

and implemented throughout the industry to ensure interoperability, efficiency, and ease of use by consumers and businesses. 

Sixth, the regulatory oversight regimen for mobiles should be 

made clear early on and participants should be involved in these 

compliance activities. 

Bank and nonbank regulators such as the FCC, the FTC, and the 

new Consumer Financial Protection Bureau should collaborate 

early on to define the regulatory environment for all the participants. 

Seventh, entities such as a trusted service manager that exist in 

the card world today should oversee the provision of the interoperable and shared security elements in the phone. 

The group also recognized the possible need over time for some 

entity to serve as a coordinating party to keep the very diverse participants on track and working together and possibly to create a 

roadmap for the future to allow the participants to understand how 

to minimize their long-term investments in the technology that is 

necessary. 

However, the majority of the group at the time felt it was too 

early in the process to do this and the completion of early pilots 

and tests would better inform such work. 

All of this information and more was captured in the White 

Paper that you alluded to, which was authorized by the participants and cooperatively authored by the two Reserve Banks. 

It is available on Reserve Bank Web sites. It has been well-vetted at conferences and trade press over the past year, and was 

shared with all of the Federal regulators and law enforcement 

agencies at a session we held in the first half of last year, at which 

my colleague from Boston and I presented. 

As the work proceeded, most of the participants have decided to 

participate in a number of pilots and test situations going on that 

should better test the validity of these aforementioned principles 

and pave the way for more widespread deployment. 

In closing, the work group continues to meet on issues of common 

interest such as data security. But they have been outspoken recently about the need to educate and inform business, government 

and consumers about the mobile environment. 

We view this hearing as a great first step in this process and appreciate the opportunity to participate. Thank you. 

6 

[The prepared statement of Mr. Oliver can be found on page 55 

of the appendix.] 

Chairwoman CAPITO. Thank you very much. 

Our next witness is Mr. Troy Leach, chief technology officer, PCI 

Security Standards Council. Welcome. 

STATEMENT OF TROY LEACH, CHIEF TECHNOLOGY OFFICER, 

PCI SECURITY STANDARDS COUNCIL, LLC 

Mr. LEACH. Chairwoman Capito, Ranking Member Maloney, and 

members of the subcommittee, thank you for the opportunity to testify on the important topic of mobile payment security. 

My name is Troy Leach. I am the chief technology officer for the 

Payment Card Industry Security Standards Council, also known as 

the PCI Council. 

Formed in 2006 by the major payment card brands, the Council 

guides the development of open industry standards to protect payment information. 

More than 600 companies worldwide participate in the Council’s 

work for many different industries and backgrounds, including a 

number of the leading players in the mobile space, including a 

number of people who will be spoken about later today. 

So it is exciting for us to be here today representing these members, from restaurants to banks to airlines to technology vendors, 

who are eager to realize the benefit of mobile payment acceptance 

in the most secure way possible. 

The PCI standards are a strong industry framework for protecting payment data. And it is this framework that we are applying to mobile payment acceptance space. 

Mobile technology is exciting and dynamic with a potential to 

change the way we accept payments not only in the United States, 

but also around the world. The benefits could be significant. However, both consumers and merchants want to know that using mobile technology for payment is just as safe as using a traditional 

form of payment. 

From our perspective at the council, making it secure is our priority. For traditional payment card security, for the Council, we 

have focused on people, process and technology. 

The mobile payment environment is very complex, more so than 

the traditional payment card scenario. Our goal is to work with the 

industry to provide security across that spectrum. 

Let me also clarify the Council’s focus. There are two aspects to 

mobile payments: initiation; and acceptance. The first is when a 

consumer is using a phone in place of a payment card to make a 

purchase. That is initiation. And the other is where a mobile device, perhaps even the same mobile phone, is being used by a merchant to accept payment cards. 

There are a number of groups, including some of my fellow panelists, working on the first aspect with the aim to protect consumer’s payment data. 

The Council’s security efforts have been focused on the second 

area of payment acceptance, specifically of securing the use of mobile devices as a point-of-sale acceptance tool. 

Our first step has been to make sure that merchants can use mobile technology to accept payments safely and to protect their cusVerDate Nov 24 2008 18:27 Aug 09, 2012 Jkt 075082 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\75082.TXT TERRIE
7 

tomers’ information. PCI standards already apply to mobile acceptance today, addressing the security of mobile devices, of mobile applications, and the environments in which they operate. 

Expanding on these standards, we have published security requirements that make it possible for merchants to use plug-in devices with mobile phones to swipe payment card data. 

We have also put out guidance on developing mobile payment acceptance applications to help merchants process these payments securely. And we will be releasing additional best practices later this 

year on securing mobile payment transactions. 

As payment security is a shared responsibility, all parties in the 

payment chain must work together in this effort. The Council is 

concerned with making sure that these parties are validated in the 

products and services that they provide. And moving forward, we 

will explore this area even further. 

Lastly, great work is being done through the advancement of 

technologies in payment. Technologies are emerging that have the 

ability to eliminate card data from potentially insecure mobile environments. 

The Council has already harnessed some of these technologies to 

address this dynamic environment and we will continue to assess 

and develop standards and guidance around them moving forward. 

In closing, mobile technology offers exciting potential to that payment space. To help realize this securely, the Council will work 

with its global stakeholders to develop industry standards and the 

resources necessary for the protection of cardholder data across all 

payment channels and the reduction of fraud for consumers and 

businesses globally. 

Thank you. I look forward to your questions. 

[The prepared statement of Mr. Leach can be found on page 30 

of the appendix.] 

Chairwoman CAPITO. Thank you very much. 

Our next witness is Mr. Ed McLaughlin, chief emerging payments officer, MasterCard Worldwide. Welcome. 

STATEMENT OF ED MCLAUGHLIN, CHIEF EMERGING 

PAYMENTS OFFICER, MASTERCARD WORLDWIDE 

Mr. MCLAUGHLIN. Thank you, and good morning, Chairwoman 

Capito, Ranking Member Maloney, and members of the subcommittee. 

My name is Ed McLaughlin. I am the chief emerging payments 

officer at MasterCard Worldwide based in Purchase, New York. It 

is my pleasure to appear before you today and discuss developments in mobile payment. 

MasterCard is a leader in the transformation of mobile phones 

and to secure payment devices and a champion of global mobile 

payment standards. We appreciate the opportunity to be here today 

to share our perspective on how mobile payments are developing 

and benefiting consumers and businesses. 

As mobile payments continue to evolve, we need to constantly 

focus on two goals. First, we must strive to make paying for something as simple and as compelling as possible for every participant 

in the payments chain. 

8 

Second, we must provide the highest level of security to consumers, to merchants, and to our financial institution customers. 

At MasterCard, we invest heavily in the technologies that make 

both of these goals possible. 

Now, as you might expect, mobile devices are bringing changes 

to the way people interact and also how they want to transact. For 

example, the acceptance of card-based payments through the use of 

handheld devices is opening up channels of transactions for entrepreneurs that were not possible just a few years ago. 

Smartphones also provide a platform for the delivery of new applications that are transforming the in-store shopping experience 

for consumers. For merchants, smartphones provide a convenient 

channel to engage consumers at multiple levels such as through an 

Internet storefront or social media account. 

Smartphones themselves are also becoming payment devices 

through the adoption of near field communication, or NFC, technology. MasterCard’s PayPass, our Tap & Go product, is at the 

forefront of this space. And by 2016, it is anticipated that the majority of smartphones will support this technology. 

So why are the new uses for mobile phones so important? Because they provide convenience and promote financial inclusion in 

a very secure environment. 

Unlike the simple plastic card that has been around for decades, 

smartphones provide an intelligent device right in the consumer’s 

hands that the consumer can use to interact with financial service 

providers and merchants in ways that were never before possible. 

Also, when you look at the 85 percent of transactions that are 

still being funded through cash and check, it is clear that 

smartphone technology provides an unprecedented opportunity to 

accelerate the transition to safe and secure electronic payments. 

By enhancing the ways that people connect to our network, we 

are able to deliver new services to benefit consumers and to reach 

a large number of consumers who are currently outside the financial mainstream. 

For example, payment card solutions like prepaid cards, coupled 

with mobile technology, can unlock the global commerce grid to 

consumers who do not currently have access to mainstream financial services. 

So at MasterCard, we have invested substantial financial resources and human capital in developing the technology necessary 

for our part in the mobile payments ecosystem. 

Each day, we strive to make payments simple for all participants 

in the payment chain while providing those highest levels of security. For example, this is why we applied MasterCard’s zero liability protections for consumers to these new payment technologies, 

including mobile-based payments. 

In addition, we have recently announced a program to transition 

MasterCard-branded payment products in the United States to the 

EMV standard. The EMV standard is a global standard for debit 

and credit payments based on chip technology, the objective of 

which is to ensure interoperability globally and acceptance of payment cards on a worldwide basis. 

9 

The adoption of EMV-compliant payments in the United States 

will help provide additional layers of protection for consumers at 

the points of interaction. 

MasterCard is extremely proud of the role we play in advancing 

commerce through new technologies. The mobile phone and many 

other smart handheld devices are transforming the way we conduct 

our everyday lives, and hold significant promise for providing new 

value to consumers and businesses, particularly in the delivery of 

financial services. 

Again, I appreciate the opportunity to appear before you today, 

and when we get to it, I will be glad to answer any questions you 

may have. 

Thank you. 

[The prepared statement of Mr. McLaughlin can be found on 

page 43 of the appendix.] 

Chairwoman CAPITO. Our next witness is Mr. Randy Vanderhoof, 

executive director, Smart Card Alliance. 

Welcome. 

STATEMENT OF RANDY VANDERHOOF, EXECUTIVE DIRECTOR, 

SMART CARD ALLIANCE 

Mr. VANDERHOOF. Thank you. 

Chairwoman Capito, and members of the subcommittee, on behalf of the Smart Card Alliance and its members, I thank you for 

the opportunity to testify today. 

The Smart Card Alliance is a nonprofit organization that provides education and a collaborative open forum among leaders in 

various industries, including mobile payments. 

We applaud the subcommittee’s interest in making mobile payments safe, flexible, and resilient with the appropriate legal, regulatory, and security frameworks. 

Mobile devices can be used to facilitate the payment process in 

many ways. I am going to focus my remarks on the use of a payment-application-enabled mobile phone that can be used to pay at 

a physical merchant location as an alternative to paying with a 

plastic credit or debit card. 

This hearing was convened to examine issues essential to making 

mobile payments safe and to ensure appropriate legislative oversight is in place. The good news is that the type of mobile payments that I am here to talk about today is built on already-established legal, regulatory, and security frameworks in both the payment and the wireless telecom industries. 

This mobile technology is referred to as NFC mobile contactless 

payment. NFC, or near field communication, is a form of shortrange wireless communications inside a phone. NFC is a new technology that enables secure mobile payment at physical merchant 

locations. 

The NFC mobile contactless payment approach has two advantages very important to this subcommittee. First, underpinning the 

legal and regulatory framework is the simple fact that while NFC 

mobile payments use a phone instead of a card, the payment account remains a credit or debit card account, and as such is already 

covered by existing laws and regulations. 

10 

Second, the security and reliability of this approach are grounded 

in global standards, established certification processes, and in industry best practices that are the culmination of nearly 20 years 

of work in applying smartcard chip technology to protect payment 

accounts and mobile phone subscribers. 

Multiple international standards have been developed for NFC 

mobile payment, and are supported by the mobile industry and endorsed by the payment industry. In addition, new and existing 

safeguards are used with mobile payment devices to add many layers of protection for consumer account information and transactions. 

For example, access to the payment application can be passwordprotected, and a lost or stolen phone can be turned off instantly 

with one call to the customer’s mobile operator. The NFC-enabled 

phone is provisioned with a digital payment credential issued by a 

bank and stored in a new, specially designed, secure memory location in the phone. 

The credential is transmitted to a merchant’s NFC-enabled payment terminal by short-range wireless communications. The authorization and settlement processes are the same for those used 

when the consumer pays with a traditional credit or debit card. 

Market development involving many of America’s largest and 

most trusted companies is well under way. One example is Isis, a 

new mobile carrier joint venture between AT&T, Verizon Wireless, 

and T-Mobile using the NFC mobile contactless payment technology we are discussing today. Isis will license payments provided 

by American Express, Discover, MasterCard, and Visa for its NFC 

rollouts. 

Another example is Google Wallet. Google has already launched 

its NFC mobile contactless payments offering to consumers, 

partnering with MasterCard, Citi, First Data, and Sprint. More 

than two dozen large retailers including Macy’s and American 

Eagle Outfitters have enabled their stores to accept Google Wallet 

mobile purchases and coupon offers. 

NFC payment-embedded and mobile phones won’t be the only 

form of mobile payment. There are new mobile technologies being 

tested other than NFC that are promising yet still unproven. NFC 

offers value to both consumers and merchants. In addition to value, 

consumers’ confidence is in the underlying infrastructure, and the 

credibility of industry offerings are critical to its adoption. 

Consumers will benefit from and trust in a mobile payments infrastructure that has a strong focus on security and uses the existing payments infrastructure for transactions. 

Mobile phones represent a fertile landscape for new ways consumers can transact with retailers, financial institutions, application stores, and each other. Mobile payments innovation is going to 

continue to evolve, as more people upgrade to smartphones and 

learn about the new services they hold in the palm of their hand. 

In summary, ‘‘The Future of Money,’’ as this hearing is entitled, 

is being positively impacted by mobile technology. The changes in 

financial services that you have rightfully called attention to are 

being well-managed and securely protected by NFC technology and 

the collective knowledge resources of the financial and mobile industries. 

11 

The Smart Card Alliance would like to thank the subcommittee 

once again for holding this important and forward-looking hearing. 

We greatly appreciate the opportunity to present information that 

assists in the setting of legal, regulatory, and security frameworks 

necessary to implement safe, flexible, and resilient mobile financial 

products. 

Thank you. 

[The prepared statement of Mr. Vanderhoof can be found on page 

58 of the appendix.] 

Chairwoman CAPITO. Thank you. 

And our final witness is Ms. Suzanne Martindale, staff attorney 

with the Consumers Union. 

Welcome. 

STATEMENT OF SUZANNE MARTINDALE, STAFF ATTORNEY, 

CONSUMERS UNION OF U.S., INC. 

Ms. MARTINDALE. Madam Chairwoman, Ranking Member Maloney, and members of the subcommittee, thank you very much for 

the opportunity to testify today on behalf of Consumers Union, the 

advocacy policy arm of Consumer Reports. 

Mobile payments allow consumers to buy products or transfer 

money with a mobile device. The market includes a range of different technologies and many ways to fund the transactions. The 

U.S. mobile payments market is still developing and it remains unclear which trends will prevail. 

It is too soon to know which consumers will benefit most from 

the industry’s growth, or inversely, be most vulnerable to risk. 

However, policymakers can make a few simple fixes to ensure that 

all mobile payments are safe. 

The mobile payments market is, in a word, complex. There are 

multiple ways to initiate payments. Some services involve sending 

a text message or using an application downloaded to the device. 

Others employ a chip embedded in the hardware which the consumer waves at a contactless reader. 

Furthermore, multiple parties are involved in completing the 

transaction. You have consumers, merchants, third-party processors, wireless carriers, and financial institutions, all in the same 

ecosystem. With so many players involved, the risk of confusion for 

the consumer increases, should something go wrong. 

Who is responsible for fixing the problem? If the different parties 

all point fingers at each other, the consumer may be out of luck. 

Despite these challenges, mobile payments in the United States 

are projected to gross $214 billion by 2015, in part due to their potential to provide speed and convenience for consumers and merchants. Some merchants are interested in the technology because 

mobile payment service providers may charge lower processing fees 

than traditional networks at the point of sale. 

Mobile payment technologies also have the potential to serve new 

audiences. This may appeal to young, tech-savvy consumers, as 

well as consumers who go outside the traditional banking system 

for financial services. For unbanked or underbanked consumers, as 

we call them, mobile payments may provide increased access to financial services. 

12 

Low-income households and households of color, in particular, 

are more likely to be unbanked or underbanked. And according to 

a recent Pew study, these same households are more likely to adopt 

cellphones and smartphones compared to the general population. 

This presents an opportunity for mobile payment technologies to 

penetrate these markets. However, these same markets may be 

vulnerable to risk without adequate safeguards. 

Internationally, mobile payments have garnered attention for 

helping consumers in developing countries gain access to financial 

services. An estimated 5 billion consumers worldwide have a mobile phone, but only 1.5 billion have a bank account. 

In Kenya, where more consumers have cellphones than have 

bank accounts, Safaricoms’ popular M–PESA service enables consumers to manage transactions entirely through their mobile 

phones, not smartphones, just regular cellphones. M–PESA customers can deposit or withdraw cash and send money through a 

network of ATMs and agents, and they can buy goods and services 

with their mobile phone, all without needing a bank account. 

However, U.S. consumers have been slow to adopt mobile payments for several reasons. Some mobile payments systems remain 

limited in scope and availability. For example, the new Google Wallet uses an NFC, or near field communication, chip embedded in 

the mobile device, which the consumer waves at a contactless reader. However, Google Wallet is currently only available to Sprint 

customers with a particular phone, the Nexus S smartphone. 

Another mobile payment system, Bling Nation, uses a sticker 

with an embedded chip that the consumer affixes to the device and 

waves at a reader. However, Bling Nation is still available only 

through pilot programs in Palo Alto, Chicago, and Austin. 

Furthermore, market research indicates that consumers have 

concerns about security of their financial information. In a survey 

released last week, the Federal Reserve found that over 40 percent 

of consumers still cite security concerns as a reason for not adopting mobile payments. 

Finally, not all ways to pay with a mobile device are created 

equal when it comes to consumer protection. Although consumers 

may not be aware of it, U.S. payments law is fragmented. The level 

of protections against unauthorized transactions and errors varies, 

depending on whether a consumer links payment to a credit card, 

a debit card, a prepaid card, a bank account, a prepaid phone deposit, or a phone bill. 

Traditional credit and debit cards have mandatory protections 

under existing law; however, prepaid cards do not. Mobile payment 

links to a prepaid phone deposit or a phone bill are especially problematic, because they do not neatly fit into the existing legal categories. 

Wireless carriers may provide voluntary protections, but they are 

typically not disclosed in customer contracts. The different ways to 

pay by mobile device, and the varying protections that apply to 

each, create the potential for confusion when a consumer is faced 

with a transaction gone wrong. 

Consumers need to know where to complain and how to get their 

money back, in case of errors or unauthorized use. Consumers cannot afford to lose precious funds due to inadequate protections. And 

13 

for low- and moderate-income consumers, this loss could be especially acute. 

Until U.S. payments law is updated to provide clear, guaranteed 

protections for all payment methods, consumers may be at risk 

when using mobile payments technology. Nevertheless, a few simple fixes could close the gaps in protection and provide clarity to 

the industry. 

The Consumer Financial Protection Bureau is in a unique position to address mobile payments, because it has jurisdiction over 

payment service providers and can clarify regulations implementing Federal consumer financial laws. 

Congress and other Federal agencies also have a very important 

role to play in establishing some sensible rules for the road that 

protect consumers and foster innovation. 

Thank you again for the opportunity to testify. I welcome your 

questions. 

[The prepared statement of Ms. Martindale can be found on page 

39 of the appendix.] 

Chairwoman CAPITO. Thank you. 

I want to thank all of you. And I will begin with the questions. 

First of all, Mr. Oliver, just so I understand, I am starting here 

with the basics. You mentioned ‘‘open wallet.’’ Can you just explain 

what an ‘‘open wallet’’ is? 

Mr. OLIVER. The concept of the ‘‘open wallet’’ is that it would operate on the phone the same way it does in your current wallet. 

And you can select on that phone any payment instrument you 

choose from any provider and execute a payment using standard 

technology without having to do something terribly different from 

paying an instrument to another. 

Chairwoman CAPITO. So you could pay out of your bank account 

on your card? 

Mr. OLIVER. Out of your bank account, or any card you may have 

in your wallet. Competing cards, prepaid cards, what-have-you. 

Chairwoman CAPITO. Right. Okay. 

My understanding, and I am sort of throwing this out to anybody 

who knows this—is that Europe has been much further ahead than 

we are on this technology. They have the chip and PIN cards, I 

guess they are using in Europe? And there is some thought that 

this NFC chip would sort of leapfrog that technology. 

Why do you think it has caught on there and it hasn’t caught on 

here? And do you in fact think that this will leapfrog their technology? I imagine it is going to catch on like wildfire once it gets 

going in a more robust fashion. 

Does anybody know why the European model is further ahead 

than we are on this technology? 

Mr. MCLAUGHLIN. Let me open. When you look at markets and 

how they evolve, it usually starts at the baseline conditions. The 

United States benefited from having the best telecom infrastructure in the world at the times they were looking at. So there are 

requirements in Europe to be able to handle things like offline 

transactions; to put more intelligence into the transactions themselves to purely compensate for the telecoms infrastructure that 

were there. So that led to a set of investments in EMV and underlying security technology. 

14 

We have seen that now cascade in markets around the world— 

Canada, Mexico, and other markets are moving towards endorsing 

that. 

So in the United States, we now see it as absolutely time for us 

to move from static, plastic-based credentials to dynamic protections that can be generated using EMV and chip technology. In 

many ways, we took a plastic card and we put a chip on the card. 

We are now taking the chip off the card and putting it into the 

phone. 

Chairwoman CAPITO. In the phone. 

Mr. MCLAUGHLIN. It is also essential, though, as we work on 

this, that we continue to maintain that worldwide interoperability 

so consumers know that anywhere that they can go, they can get 

the same security around their payment products. 

Chairwoman CAPITO. I agree with that. 

The question I have on—I think all of you have mentioned the 

contactless reader which would be at the vendor site, the retailer 

site. I represent a rural area and there is always a question of cost 

for the retailer. How expensive are these devices? Are people investing in them? Somebody mentioned 20 retailers who are involved in this, the larger retailers. 

How do you see this in terms of the retailer investment? I know 

when we changed the interchange, there was a big hue and cry 

from the retailer to the different readers and so does anybody have 

any kind of statement on that? 

Mr. VANDERHOOF. I would like to begin by saying that when the 

U.S. brands—particularly Visa, MasterCard and Discover—announced that they were moving towards the EMV chip strategy 

within the last year, an important distinction that they included in 

that road map was that they were going to incorporate both contact 

and contactless technology as a part of that in order to be able to 

embrace the mobile contactless technologies that we are talking 

about here today. 

From a merchant perspective, they now have a very clear and 

distinct path forward in terms of what will be the technology platform not only to accept their existing payment cards that consumers have today, the new and emerging EMV chip cards that are 

coming, but also the mobile NFC payments technology. 

The advantage for the merchants now is that when they do make 

that decision to upgrade their acceptance infrastructure in their 

stores, they can purchase one device that is going to support the 

legacy card technology that is in the market today, the evolving 

new chip contact card technology that is coming and the NFC mobile technology in the phone. So they will make one investment 

supporting three of their primary methods of payment. 

Chairwoman CAPITO. Is that technology available right now? 

Mr. VANDERHOOF. It is not only available, but also the manufacturers of those devices have now totally upgraded their equipment 

to be able to absorb these new technologies so that the same devices that they would purchase 5 years ago didn’t have— 

Chairwoman CAPITO. Right. I understand. Yes. I understand. 

I have just a couple of seconds because I think the security issue 

is something that we want to delve deeply into. 

15 

I think Ms. Martindale brought out a great question, ‘‘If something goes wrong, how are you going to track back as a consumer 

to figure out how you are going to right that wrong?’’ 

And the other thing that Mr. McLaughlin mentioned that I think 

we should be looking at here is talking with the regulators about— 

as you mentioned, this is regulated as a card. But then, Ms. 

Martindale brought up some exceptions to it that I think are significant with the evolution of different types of cards. And I think 

that is something we need to keep our eye on. 

I am now going to yield to Mrs. Maloney for 5 minutes for questions. 

Mrs. MALONEY. I want to thank you, Mr. Oliver. In your statement, you said we should come out with common standards that 

would help us more efficiently move this forward. Where do you see 

these common standards coming from? Who is going to pull them 

together? The industry or whatever? 

Mr. OLIVER. Yes, these are best and usually done by industries. 

And Mr. Vanderhoof made several comments about the efforts of 

the Smart Card Alliance and others. There are forums in Europe 

as well as international standard forums such as ISO that generate 

these types of standards and allow people to adopt them. 

It is a critical issue in interoperability and really the key to the 

earlier question about an open wallet; that you would have the 

same experience no matter what you did. So there are organizations collaboratively participated in that would generate these. 

Mrs. MALONEY. That is great news because on 9/11, one of our 

biggest challenges was that the phones from the police couldn’t 

interact with the phones from the fire department. And if they 

could have, it could have saved lives. So making that commonsense step forward would be important. 

Many of you talked about how this would allow more access for 

the unbanked and those who don’t have access to banking. Would 

someone elaborate, because that is the concern to make sure that 

all of our citizens can find some sort of banking services? 

How are you going to reach out to the unbanked? How is it going 

to help the unbanked? 

Mr. MCLAUGHLIN. This something that at MasterCard we have 

been working on a lot; particularly using prepaid products as an 

access tool for those who don’t have formal banking relationships. 

It starts with providing ways to get access to funds themselves 

so they are not left to the tender mercies of the check cashers and 

payday lenders. You can look at the work we have done with the 

Social Security Administration for the electronic distribution of 

funds and the other ways to allow it to reach these consumers. 

We think the key to using mobile will provide people more visibility into their financial information, into their account status so 

they can be more informed. They can make savvier decisions and 

we can reach individuals that we haven’t traditionally been able to 

reach through bank branches and other areas. 

Mrs. MALONEY. The Federal Reserve has been looking into this, 

and they did a Federal Reserve report which said that 57 percent 

of all Americans and consumers surveyed felt that the banking 

services that they had now were adequate. Then, they looked at 

people who had mobile banking, and only 12 percent of mobile 

16 

phone users reported that they made a mobile payment in the past 

12 months; so the technology is out there and people aren’t using 

it. 

And given this finding in their report, what actions should be 

taken by retailers, credit card companies, banks and nonbanks, mobile phone service providers, and others to develop mobile payment 

opportunities that are tailored to customers so that the customers 

use it? They say the technology is out there and that people don’t 

even want it at this point, or use it. 

Mr. VANDERHOOF. The mobile devices are still just starting to 

reach the consumers’ hands through the mobile networks and 

through the retail stores that offer them. So we are expecting that 

there is going to be an increasing number of options available for 

consumers to be able to upgrade phones with smart card technology that has the ability to support these types of mobile payments. But unfortunately, today, we have a chicken-and-egg situation where we have consumers who want to pay with their mobile 

device and are waiting for the equipment to arrive for them to use 

it. When the equipment is available in consumers’ hands, then the 

issuers of these payment instruments that will work on mobile 

phones will have an opportunity to get them in consumers’ hands 

and merchants will see— 

Mrs. MALONEY. That is one barrier. What other barriers exist 

that could inhibit widespread adoption of mobile payment options? 

Security concerns? 

Mr. LEACH. I would think so. One of the areas that we are addressing is the security of payment card data wherever it progresses. 

At the PCI Council, we look technology agnostic at how the data 

flows into the systems. Many of the terminals that are certified on 

our Web site have gone through laboratory tests and do have the 

capability to accept what we are talking about here today. But we 

are talking mostly on the consumer side. We also have the security 

of the merchant side and we are seeing rapid growth in the merchant community. 

So we talked about unbanked consumers—there have been 

unbanked merchants. And we are starting to see a new generation 

of merchants who, before, were not accepting any type of payment 

other than cash, and now are using such devices as peripherals 

that you would plug into a smartphone or other types of mobile devices to accept payment. And we are seeing a new industry boom 

here in the United States. 

Mrs. MALONEY. Thank you. My time has expired. 

Chairwoman CAPITO. Thank you. 

Mr. Renacci, for 5 minutes. 

Mr. RENACCI. Thank you, Madam Chairwoman. Again, I want to 

thank the witnesses for being here today. 

Mr. Oliver and Mr. McLaughlin, what effects do you think the 

current regulatory environment will have on many of these new innovations; and has the uncertain and, really, the changing regulatory environment had an effect on or slowed the evolution of 

many of these new products? 

We will start with Mr. Oliver. 

17 

Mr. OLIVER. That is a great question, and one of the important 

questions that we discussed within this work group; and one of the 

reasons they asked us to try to rationalize the regulatory infrastructure that might be in place. 

Given that most of the payments will be made using existing instruments, I think that people are pretty comfortable with where 

that is right now and there appears to be no serious legislation on 

the horizon to change that. 

I think the real issue here has to do with those places where 

gaps occur where different parties are involved in a transaction 

now than have typically been involved before. The Federal Communication Commission, for instance, oversees the wireless industry, 

but they have no experience with payments. Many of the payments 

firms have no experience with that. 

And so, that is why this collaborative effort to try to understand 

whether or not any new regulation at all would be required is a 

really important first step, we think, on the part of the government, and should occur pretty quickly. 

But it is not obvious that there are serious unregulated areas at 

this time. 

Mr. RENACCI. Mr. McLaughlin? 

Mr. MCLAUGHLIN. I think it is important to recognize that the 

mobile phone will be one device, albeit an incredibly compelling device, that consumers will use to access their account. 

So from a MasterCard perspective, we want to make sure that 

all the rights, protections, and privileges consumers have doing 

that transaction are the same whether they are using a physical 

card, they are initiating the transaction from a mobile device, or 

they are shopping online. 

And that is the reality for our consumers. They want to be able 

to trust the transaction and know they are protected, whatever 

they are using. So we believe in making sure that we aren’t creating some separate and independent mobile world, but rather saying these devices are an extension of the rights and privileges that 

people have today, is essential. 

I think it is also important that we allow innovation to flourish 

in this area. We need to ensure the security and consumer protections. What we can’t do is constrain or restrict the ability for industry to determine how to create the most value for consumers and 

merchants using the new devices. 

Mr. RENACCI. Mr. McLaughlin, to move into these type of innovations, there is a scale of investment that has to be made. Can you 

kind of explain again the scale of investment a company such as 

yours spends on developing these products and the underlying infrastructure? 

Mr. MCLAUGHLIN. Absolutely. And one of the things I think it is 

important to point out that these are technologies that we have 

been working on for a decade or more. 

We knew that we would want to take advantage of smart devices. We knew that the form factors would be changing. So the 

first trials we had of contact with technology were in Orlando and 

Dallas in 2002. 

We continue to build and invest. In 2005, as an industry, we 

began rolling out PayPass, which is the contact technology we have 

18 

had. And we worked with all of the participants in the chain, 

whether it is handset manufacturers, security and chip companies, 

or telcos, to make sure there is a safe and secure environment to 

leverage that technology. 

So it is an ongoing and substantial investment, not only in the 

consumer experience in the environment, but in the underlying security infrastructure. 

Mr. RENACCI. Thank you. 

Mr. Oliver, could you talk about the potential up-front costs that 

will be required for merchants to accept mobile payments? And is 

there any danger that they make an expensive transaction, only to 

have payment technology veer off in a different direction? 

Mr. OLIVER. I am probably not the best person to answer a question about what the expense will be for the merchants. But I would 

like to answer the question about the long-run investments there. 

Obviously, they are confronted with the issue of trying to understand what the end game is, and therefore make wise choices now. 

There are very large merchants who have already made that decision to say, ‘‘What do we think will happen in the next 7 years?’’ 

And they have said, ‘‘We believe mobile technology using NFC contact and contactless cards, as well as current instruments will be 

there.’’ And they have actually already acquired the terminals to do 

that. 

The incremental costs, from what I understand, of adding that 

technology to existing terminals is pretty inexpensive. But across 

a huge footprint for a large retailer, it is going to incur some costs. 

But that is what they want to do with this roadmap, to determine what is the end state, and then let us choose how to transition and spend wisely. 

Mr. RENACCI. Thank you. 

I see I am running out of time, so I yield back. 

Chairwoman CAPITO. Thank you. Mrs. McCarthy, for 5 minutes. 

Mrs. MCCARTHY OF NEW YORK. Thank you. 

And thank you for your testimony. I tend to think that a lot of 

people would find this really fascinating. 

The Europeans have been using this technology for a while. 

What are the statistics for those countries that are more advanced 

than us on the breaking in, the stealing of information, their protections? 

You already see that information over there. What have you done 

that is going to be different for here, for us? 

Mr. VANDERHOOF. There are several underlying technologies that 

we have discussed today. The European markets, in particular, 

have been using this chip technology as part of their payment card 

infrastructure for many years. And they have proven dramatic reductions in their fraud, because the payment cards now are unable 

to be counterfeited or the information on that consumer payment 

product can’t be cloned and replicated because of the security of the 

chip technology. 

What is inaccurate is that they have been ahead of the U.S. market in terms of mobile payments. In fact, the U.S. market has a 

much faster potential for adoption of mobile payments because we 

have made this investment over the last 5 years in contactless payment card technology. 

19 

And therefore, we have hundreds of thousands of terminals already installed in the marketplace that can now use a mobile 

phone with the same payment capability to make those payment 

transactions, where in Europe and other parts of the world which 

have implemented chip technology, they have not implemented 

chip technology with the ability to interface to a mobile device. So, 

they are going to require a second investment. 

Mrs. MCCARTHY OF NEW YORK. Obviously, we hear a lot about 

cybersecurity. I know all the nations, NATO; it is their number one 

issue when they are talking together. 

Have you given it any thought, because we are always one step— 

or hopefully always one step in front of the criminals? This is obviously going to be a big area in the United States, because we have 

very innovative people who are always trying to—hopefully, you 

are hiring them, because they always seem to be outsmarting us. 

Getting back to the cybersecurity, what mechanisms are out 

there, when something like that possibly will happen, which many 

of us agree it will? And how are we going to combat that? 

I will throw that out to anybody. 

Mr. LEACH. The PCI Council has written standards already to 

look ahead to where the future is. We are a global standard body, 

so we already have our standard implemented in Europe with this 

type of technology. 

One of the standards we released last year is called point-topoint encryption. What this allows is for, regardless of the technology, whatever innovation we create here in the United States or 

abroad, we can encrypt this information, and render it of no value 

to a criminal. 

That way, the system itself can produce and transact, and the 

consumer can have confidence in that transaction. What we have 

seen here in the United States, one example is that merchants are 

taking devices and plugging them into the phone. 

And they are now swiping the traditional cards or they are using 

new mobile technology. They are able to encrypt this information, 

protect it, before it ever gets into an insecure mobile environment, 

and are able to process that information securely and safely on behalf of consumers. 

So, we do have standards already as an industry. We are looking 

at new standards, as well as new dynamic ways to make it so that 

data is of no value. So even if that data is exposed—I share my 

credit card information with you—we have new technologies that 

are emerging that would render that of no value to a criminal. 

Mrs. MCCARTHY OF NEW YORK. The only reason I am concerned, 

is we all have our BlackBerries. They are government-issued. But 

every few days, we get a very long list of those who have actually 

broken into our BlackBerries, and likely Spam or someone has gotten our information. 

So I can understand where the American people might be a little 

concerned here, because we are supposed to have the protection, 

yet we are not even supposed to use these when we go overseas. 

They ask us not to use them. 

So, I can see where Americans—you are going to have a big sell 

for a lot of people, I think. It might take time. And I do know it 

is used over in Europe quite a bit. 

20 

But with that being said, you are going to have to convince an 

awful lot of people that their checking account is not going to be 

wiped out. 

Mr. MCLAUGHLIN. I think that is what happens any time we introduce new technologies. People are comfortable with the familiar. 

And that is why our obligation is to make sure every new technology we bring out there is enhancing the security, it is making 

it safer, so consumers can understand that we can do things using 

the intelligent devices to make it more secure than what we could 

ever do with the static, plastic device. 

So, that is the advantage of the new technology. But we need to 

make sure that we are smart about how we harness it. 

Mrs. MCCARTHY OF NEW YORK. With that, I yield back the balance of my time. 

Chairwoman CAPITO. Thank you. 

Mr. Grimm, for 5 minutes. 

Mr. GRIMM. Thank you, Madam Chairwoman, for holding this 

hearing, first of all. 

And I appreciate everyone’s testimony today. 

A couple of questions—Mr. McLaughlin, how much does 

MasterCard spend annually on fraud? I know that there is quite 

a bit of fraud now, even traditionally with cards. Do you have a 

ballpark of how big that problem is for MasterCard? 

Mr. MCLAUGHLIN. I don’t think we have broken out specific fraud 

expenses. But what I would say is it is something that we constantly battle. Any change, anything we do, we have to make sure 

that we are making the system safer for that; so one of the primary 

focuses of our organization is to make sure that we are eliminating 

fraud or mitigating it wherever possible. 

Mr. GRIMM. Would you say that it increased significantly with 

the advancements of the Internet? 

Mr. MCLAUGHLIN. I think any new technology creates challenges 

to make sure that it is secure. We have been able to, over the last 

decade, do a lot to mitigate the fraud potential of what is online. 

But that is something that we combat every day. 

Mr. GRIMM. I will take that as a ‘‘yes.’’ 

And don’t get me wrong, I am all for the new technology. I just 

recognize that with anything that is new—I slightly disagree with 

my colleague. I think that criminals are a step ahead of us many 

times with most of these things, whether it be the Internet, counterfeiting cards originally was a tremendous problem. 

Then with the Internet—just now, there was a massive sting operation throughout the entire country, people ordering online and 

then fencing those items for cash at significant discounts. 

The effect on merchants, because I think a lot of the merchants 

are going to have some issues—when someone comes in and does 

a transaction, for example if they order over the phone, and they 

give their credit card over the phone, and then they get their bill 

and say, ‘‘Oh, I didn’t order this,’’ the merchant usually eats it. 

That has been my experience. 

Which is really unfair because you have seen—let us just say it 

is for food at a restaurant. You have delivered to that residence 

many times, and the delivery boy actually knows the person. But 

21 

it might be a college student using dad’s card. And this time, dad 

got the bill and said, well, $45 for this. 

They come in and they actually sign for it, then the merchant is 

protected. So are there going to be safeguards for the merchants, 

because there obviously aren’t going to be any signatures with this. 

So, that would be a question. 

Mr. MCLAUGHLIN. I think you have highlighted one of the most 

important points of running a payments network or a payments environment. And it is not simply the technologies that are available 

to us. 

Quite often, when we see proposals that are out there or innovations, it is not, ‘‘What can the technology do?’’ but, ‘How do you run 

the network itself, and how do you make sure that you are balanced and fair for all the participants who are in it?’’ 

That is why, as I said earlier, as we adopt mobile technologies, 

we want to make sure the same protections and rules that we have 

apply, and the same dispute resolution mechanisms are there. 

The goal for adopting the new technologies is to increase the 

level of verification and certainty we can put around every transaction so issuers benefit from reduced fraud. Merchants also benefit from that reduction in fraud. 

Harnessing the new technologies to provide enhanced security 

and enhanced clarity is the objective. We can do things like providing one-time cryptogram on the individual transaction so we 

know specifically where it was generated from, moving from static 

identifiers to dynamic. We can get additional certainty of who you 

are and the device that you are transacting from, when you do 

things like an online transaction. 

So what we see going forward is the distinction between what is 

happening at the till, how you purchase online, and other ways 

that you are transacting; we will move more and more to intelligent devices; and looking to harness the capability of those devices to get us to reduce fraud is the overall goal. 

Mr. GRIMM. And then the last question, just on that topic, how 

about the advanced phishing technology that is out there? When 

cell phones first came out they were cloning the phones constantly 

by using phishing technology to steal your I.D. right out of the air. 

I am assuming that is built into this technology but I think it is 

worth mentioning since this is an information forum right now. 

Mr. MCLAUGHLIN. Absolutely. And that is why—and the reference that Mr. Oliver made to trusted service managers—that is 

why we want to make sure that anything we do with the new devices is more secure than what we did in the physical card world, 

so we are more protected against things like phishing and other 

types of attacks. 

Mr. GRIMM. Okay. Thank you. 

My time has expired and I yield back. 

Mr. RENACCI [presiding]. Thank you. 

I yield 5 minutes to the gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you very much, Mr. Chairman. 

This is a really fascinating hearing. We are moving so fast with 

technology that it is hard to keep up with it. 

And now, we have a real challenge here, it seems to me, and I 

have a number of questions, particularly that 91 percent of the 

22 

American people now own a mobile phone. That is a phenomenal 

situation. 

First of all, I have questions about who is to regulate this. I am 

going to start with people who are paying their phones through 

their mobile units. Who regulates this now? Where does it come 

under, mobile payments? Is there regulation now? 

Ms. MARTINDALE. I think you pose a great question. And everyone kind of goes—there really isn’t, when it comes to mobile payments, specifically, the use of a phone to make a non-communication type of transaction; the fingers are pointing in all different directions. And the Federal Communications Commission doesn’t appear to, at least, perceive that it has jurisdiction over these types 

of transactions. 

As I pointed out earlier, I think that when a consumer’s phone 

gets stolen, they are going go to the wireless carrier and expect 

that the wireless carrier has maybe something in the contract, 

maybe has a policy, and maybe there is a phone agency that is supposed to be in charge. But that is, at best, unclear right now. 

Mr. SCOTT. Yes, that concerns me because people lose their 

phones all the time. The point I am making is if you have 91 percent of the American people, 90 percent of the American people 

means young people, old people, senior people, people who are getting adjusted to it. So I think that there are some very serious 

questions here about the regulatory function of it. I also think that 

there are some issues about the size and the complexity of this 

issue. 

My other major concern is that who really is responsible for monitoring the security risks that are here? 

All of these questions really have to be carefully examined. And 

I think that we have the Consumer Financial Protection Bureau, 

we have the FCC, we have the FTC. Then we have this little thing 

in there where, these bills, who pays them? Where do they get the 

money from? How is it transacted? 

In some cases, a telecommunications company pays the bill for 

them, adds that to their monthly bill and you have, I am sure, 

within there, all kinds of fee structures, late payments that are 

piled upon if they don’t pay their phone bill, let alone the other bill. 

And it just seems to me that the consumer can really get bamboozled here with a lot of financial burden. And yet, right now, this 

is going on and we don’t have a regulator for it. 

So my question is where do you all believe this should fall? Is 

there one agency? Should there be several? Who is going to regulate this? 

Who is going do the oversight for this? And particularly, right 

now, I am sure there are problems in this area. So my concern is 

this technology is moving so fast we really have to put a priority 

on how we are going to protect the American consumer, because it 

is going to move very, very fast. Even right now, with my own cell 

phone, I have problems just trying to figure out how to get all of 

this information I am receiving. 

And now the other point is too, this is going to have an economic 

impact someplace. This is going to put a lot of businesses that are 

in business now out of business. It is certainly going to expedite 

putting the post office further out of business. 

23 

And then there is no paper trail here. If I get my bill, and I am 

paying my bill, I like to have something in my hand that says, 

‘‘Hey, I paid this bill. I have a paper trail here.’’ 

There is nothing here. It is all in space. So I am just making 

these points to say we have some work to do. 

Thank you, Mr. Chairman. 

Mr. RENACCI. Thank you. 

I yield 5 minutes to the gentleman from Delaware, Mr. Carney. 

Mr. CARNEY. Thank you, Mr. Chairman. 

And thank you to the panel for coming today. 

I would just like to pick up where my colleague left off and ask 

the question: What is driving this move to mobile payments? 

Why don’t we start with Mr. McLaughlin? 

Mr. MCLAUGHLIN. Let me open by saying Salesianum, Class of 

1983. 

Mr. CARNEY. Oh, you would have to do that, wouldn’t you—my 

archrival. 

Mr. MCLAUGHLIN. I think it is absolutely driven by the demand 

we are seeing from consumers. What they are recognizing is that 

mobile is transforming their lives, particularly younger consumers. 

They expect to be connected. They expect to have immediate access 

to information. They expect to have more information and richer 

information about where they can shop, what deals and offers are 

available to them and have immediate access. 

Mr. CARNEY. So that information would be available on their cell 

phone, and they would then make some purchase and make the 

payment through the phone, is that—personally, I don’t want my 

cell phone to do anything more. 

I have a hard time keeping track of what it does for me now. And 

then when I leave it at home, I feel completely lost and naked 

without my phone. 

Mr. MCLAUGHLIN. Yes. 

In fact, when you do consumer research they use expressions like 

‘‘losing a limb,’’ which I found disturbing, when they don’t have 

their phone with them. 

I think you are right. I think it has become your GPS. It has become your personal assistant. It has become your alarm clock. It 

is something that is always on and will progressively be always 

with you. 

Mr. CARNEY. I think several of you have touched on this, but is 

it more secure? 

Mr. MCLAUGHLIN. That is absolutely the objective. We would not 

move towards this payment environment unless we could enhance 

the security of what we are doing. 

And keep in mind, what we have been able to do with plastic 

cards in the online authorization network has been a great way to 

combat fraud. We believe by harnessing mobile devices we can enhance that even further by using the intelligence that is available 

to it; and then by incorporating consumers deeper into the process 

of monitoring their finances. 

Even without an NFC payment, we can use the phone today. 

MasterCard has a technology we call ‘‘In Control’’ where I can say, 

‘‘Let me know on my mobile if an international transaction occurs 

24 

or an online payment occurs or a transaction over a certain 

amount.’’ 

So that connectivity gives consumers more information: ‘‘How 

much money is in my account before I make this payment?’’ It 

gives them more information— 

Mr. CARNEY. That was going to be one of my questions. It would 

help you not make a payment that you didn’t have money to cover. 

One of the big things that aggravates folks is when they overdraft their account and get a charge for that. This would help you 

not do that? 

Mr. MCLAUGHLIN. Yes. We can do even better than that. We can 

tell you exactly, working with mobile banking and other applications, the current status of your account. We can say, ‘‘Here is how 

much you spent against the budget you have set in certain categories,’’ and provide this real-time access to information. So alerts 

and controls, I think, are essential to the mobile payments experience. 

And keep in mind it is the MasterCard network and the underlying account that pulls this together. So in my experience in getting out of— 

Mr. CARNEY. Yes, I am breaking in because my time is running 

out. 

How about the unbanked or underbanked? 

Let me move on to Ms. Martindale. What is the advantage and 

how does it work? You mentioned that, I think in your opening 

statement, for those folks because that is an important group of my 

constituents. 

Ms. MARTINDALE. I think it—the way that you could set it up 

now so that you wouldn’t even need a bank account to do these 

types of transactions is you could have a prepaid debit card, which 

is not a bank account. 

And you could link your mobile payment application to that prepaid card so that you are drawing down funds from your prepaid 

deposit. And this is a way that unbanked or underbanked consumers could use these types of— 

Mr. CARNEY. You would have to, though, set something up? 

Ms. MARTINDALE. Yes, you would have to set something up. 

And again, we have a whole host of other concerns about prepaid 

cards just standing alone because they are as yet not regulated in 

the same way that a debit card linked to a bank or credit union 

account already is. 

So a prepaid card itself doesn’t have any mandatory protections 

against fraud, theft or errors should your card be lost or stolen or 

someone rips off your number. And so, if you are adding an extra 

layer of that mobile payment transaction linking to a prepaid card, 

we do have a concern that this could—this is a great opportunity 

to, again, to provide that information in a way that consumers will 

actually use it. 

Unbanked and underbanked consumers are adopting cell phones 

and smartphones. At the same time, we need to make sure that the 

payment transaction is covered by some guaranteed legal protections against fraud from the consumer financial protection side, beyond the data security side. 

25 

Mr. CARNEY. So, I have 15 seconds left. How do the interchange 

fees work for this? We had a big debate about that—a dispute 

about that over the last year. How do the fees work for—would 

they work for mobile payments? 

Mr. MCLAUGHLIN. From MasterCard’s perspective, whether you 

have initiated from a card or initiated from a phone, it is the same 

transaction. 

Mr. CARNEY. Same transaction. Thank you. 

I thank the subcommittee. 

Mr. RENACCI. Thank you. 

I recognize the gentleman from Missouri, Mr. Leutkemeyer, for 

5 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

I guess, I probably want to start out with, what kind of timeframes do you see all of this developing in? What is the timeframe 

for general acceptance? What do you see as the timeframe for the 

problems to pop up and occur here so we know what kind of timeframe we have for some sort of regulatory fix for some of this? 

Mr. OLIVER. Can I take the first shot at that? 

Mr. LUETKEMEYER. Yes. 

Mr. OLIVER. There are a lot of elements of change involved in 

this and a lot of parties that are going to have to collaborate, release technology, implement technology, educate the consumer, and 

so forth. 

My sense, just as a personal estimate, is that you will see significant deployment in the 2- to 5-year range, because many of the pilots that are currently going on aren’t going to be completed until 

sometime next year. So, I think you are going to see a slow growth 

curve for an extended period of time. 

Mr. LUETKEMEYER. Do the rest of you kind of anticipate the 

same? 

Mr. LEACH. We have been talking about the consumer side of the 

phone. I think from a mobile payment acceptance, we see that 

today. 

At PIC Council, we have standards that accept certain types of 

mobile technology to accept traditional payment cards, plastic 

cards. We have seen our first products come through, be lab tested, 

certified, and listed on our Web site. So for mobile acceptance, payment acceptance, it is here today. 

Mr. VANDERHOOF. Excuse me, I would just add that the solutions 

on mobile payment that you are hearing from the well-known, wellrecognized brands that have a clean sense of the security and the 

certification requirements of this technology are going to evolve 

slower than the Internet start-ups of the world who might come up 

with an application that you can download on your phone and be 

in business basically overnight. 

But for consumers, I think they have to pay attention to who is 

behind the technology that they might be interested in using? 

What safeguards exist? And it is probably always the wise choice 

to look at the established companies that are backing this and the 

reasons why they are moving at the pace that they are moving in 

order to maintain security. 

Mr. LUETKEMEYER. Yes, I am not very technologically savvy, so 

this is kind of three steps above my grade here. 

26 

But it would seem to me that you are going to have to have a 

platform here within which all of these transactions can occur with 

the same sort of technology to be able to talk to each other. I assume that is possible. I am assuming everybody is already working 

on the same platform or the same language or whatever it takes 

to make this all work. Is that a safe assumption? 

Mr. MCLAUGHLIN. I think you see a strong movement that we 

work together as an industry to make sure that this will work; that 

it is safe and secure. So that is why some of the standards that we 

have talked about earlier like the underlying EMV technology, the 

PCI standards that are out there, and things of that nature provide 

a baseline that consumers and merchants know they can trust. 

Having those standards out there also allows us to compete vigorously on who can deliver the best consumer experience and the 

best value out there. So, we have to make sure that there is a foundation that works so we can all compete on the works better. 

Mr. LUETKEMEYER. Are there other places in the world where 

this is being done already? Are we the leading country? Are we 

technologically leading the world with this application? 

Ms. MARTINDALE. Actually we are one of the—we are behind on 

mobile— 

Mr. LUETKEMEYER. We are behind? 

Ms. MARTINDALE. Yes, in fact, other countries—people have mentioned Europe—but in developing countries, this is taking off like 

wildfire, but with a very different set-up, and granted, the infrastructures in those countries may be different. So, I am not necessarily saying that we would be able to replicate in the same way 

that we have seen in other countries. 

I would use Kenya as an example. African countries have been 

adopting mobile payments using a regular—you don’t have to have 

a smartphone—cell phone, where basically you are giving a deposit 

to the wireless carrier and the wireless carrier is helping you manage your funds. 

And that is something that I have not heard the industry is not 

as interested in going that direction right now. I think it is more 

the NFC-enabled, Google Wallet-type of scenario where you have 

your different payment cards linked up to the application. But 

other countries have been doing this for several years now, and it 

has been a way of banking unbanked consumers. 

However, it has also involved a great deal of proactive collaboration between the Central Bank of Nigeria, for example, and the 

major telecoms. It is a very different, more centralized set-up then 

we would have here. 

Mr. MCLAUGHLIN. Yes, I think the key is providing the appropriate technology for consumers. Consumers in the United States 

today have access to electronic payments. In many of these countries, they don’t. So, MasterCard has been working hard to work 

with the telecommunication providers and financial institutions in 

those countries to provide appropriate technology. 

One quick example—the GSMA is a mobile association, which 

last year gave us their Mobile Money Innovation of the Year Award 

for what we had done in Kenya working with Standard Charter 

Bank and Airtel to provide virtual MasterCard numbers to people 

who had no access to online transactions on the Internet. 

27 

So suddenly, a whole swath of the population who weren’t able 

to access anything online now had access to it by harnessing the 

existing payment networks and tailoring it precisely for what was 

needed in those networks. 

Mr. LUETKEMEYER. That is interesting. I know the death knell 

has been sounding for cashing checks for many, many years, and 

it seems that they are still there. So maybe, you guys are taking 

a first step down the road to do away with those. Thank you, Mr. 

Chairman. 

Mr. RENACCI. I want to thank all of the members of the panel 

for testifying this morning. 

The Chair notes that some Members may have additional questions for the panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for Members to submit written questions to these witnesses and to 

place their responses in the record. 

This hearing is adjourned. 

[Whereupon, at 11:18 a.m., the hearing was adjourned.] 

(29) 

A P P E N D I X 

March 22, 2012 

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