We are glad to be in New Orleans today, a vibrant city of many different proud cultures. As it has been said, this city is “like a big musical gumbo.” I am sure that comment was mostly about its music, but I think it also applies to the great diversity I see here too. That is important for us as we travel the country to raise awareness about the Miss april and the work we are doing to help ensure that people are treated fairly in the financial marketplace. Understanding the diversity of consumers, and learning all that we can about their lives, helps us stay attuned to the needs and challenges they are facing. And by deepening our understanding of consumers, we are better able to conceptualize and prioritize our work.
This is especially true when it comes to keeping up with how consumers are using technology. Perhaps no single aspect of life in America has changed more in the past generation than the relationship between people and their technological devices. It is a fast-moving and exciting phenomenon. And more than any other aspect of our lives, it is creating “gales of creative destruction” of the kind first identified by the Austrian economist Joseph Schumpeter. Three-quarters of a century ago, he noted that human ingenuity is the true engine of economic activity, and that dynamic innovation will unpredictably upend the status quo in existing markets and bring disruptive change in its wake.
If we consider his vision today, we see it playing out most vividly in how the information age is transforming leisure, the workplace, and indeed all of modern society. It is likewise inevitable that these changes will have vast consequences for the consumer financial marketplace. The worthy challenge for any system of financial regulation is how to make sure our oversight of the marketplace can keep up with these far-reaching shifts. We must grasp the pace and direction of fundamental change. And we have to understand and encourage the tremendous benefits of innovation without undermining the equally important goal of protecting consumers in the marketplace.
Just consider how quickly the technological revolution is unfolding all around us. In the United States today, about 90 percent of adults now own a cell phone and thus have ready mobile access to remote and instantaneous communications. A generation ago, hardly anyone did. Indeed, the first generations of Americans had no ability to engage in remote communications in real time by any means at all. To cite one notable local example, American soldiers fought and won the Battle of New Orleans more than two weeks after the United States and Great Britain had signed the Treaty of Ghent to end the War of 1812, because they were entirely unaware that had yet happened. In fact, hostilities continued for over a month before the combatants learned of the treaty and finally stood down. Today, they would have had the news just moments after it happened, even from halfway around the world, and we would never have had the great country-and-western song by Johnny Horton.
Consider also that in America today, almost 50 million people have tablets. We can easily carry them with us everywhere. For many people, they are a ubiquitous part of life, and they give us ready mobile access to information of all kinds. We keep up with the world through them. We read and view and hear the news. We reach out to friends and family by text. We take pictures and listen to music. And smartphones now represent a merging of these technologies. Last year I finally made the conversion – after much encouragement from my teenage children – from a flip phone to a smartphone. Now all the answers to be found anywhere in the world are readily available at my fingertips or at the sound of my voice. Look around any room and you will find that the single most knowledgeable thing in that room is no longer a human being but any one of the smartphones in their pockets.
One significant growth area for mobile devices has been in financial services. By accessing the Internet, downloading certain applications, or using text messaging, people can now complete most of their transactions and a great deal of their financial management by using their phones and other mobile devices. Consumers are using their devices to pay bills online or send funds to other consumers or businesses. More and more they are engaged in mobile banking, using their phones as tools to access their existing accounts at a bank or credit union or some other type of financial institution. One study by the Federal Reserve found that one-third of cell phone users and more than half of smartphone owners are using mobile banking services. And according to one independent researcher, approximately 74,000 consumers per day began using mobile banking services last year.
In this modern age where people can manage their money on the go, there is great potential to provide access to more consumers and allow them to take greater control of their financial lives. At the same time, using mobile devices for all sorts of banking services can make some transactions cheaper or faster or both. But we need to make sure that the legal and regulatory framework can keep up effectively, so that all consumers can remain protected whether they are opening their wallet or scanning the screen on their smartphone.
Our colleagues at the Federal Deposit Insurance Corporation and the Federal Reserve have already done laudable work in this area. Both have taken important steps to address the subject of mobile banking. Today the Consumer Bureau is issuing a formal Request for Information that touches on a wide array of issues related to mobile banking and financial management services. We want to know more about how emerging technologies are affecting the opportunities and challenges that consumers are facing. The inquiry also specifically addresses how the use of mobile payment products can be used to improve the financial lives of underserved consumers.
We have identified two areas of opportunities for consumers that we want to know more about. First, we are exploring the ways mobile devices can give access to consumers who do not have easy means to obtain or use current financial products and services. Second, we want to know how mobile devices can offer everyone opportunities for real-time money management.
Ensuring access to financial products and services is a key focus for us at the Consumer Bureau. We have learned from the FDIC’s research into the difficulties experienced by those who are either unbanked or under-banked. Tens of millions of Americans fall into these two categories. They face costly challenges to complete day-to-day transactions that those in the mainstream financial system take for granted. Our inquiry here will focus on an even broader category of consumers who are “underserved.” They are hard-working people living from paycheck to paycheck and waging a constant struggle to make ends meet. They often are younger. And they may also face particular accessibility issues – such as consumers who are disabled or who live in certain areas.
Often people may be underserved through no choice of their own. For example, they may live in a rural area where no bank branches are located and where alternative financial services may also be in short supply. And as certain neighborhoods of New Orleans know all too well, sometimes banks just do not want to establish or maintain branches in particular areas. So even if you are a good candidate for a bank account or a loan, if you live in a poorer or more remote neighborhood it can be hard to access the financial services you need. The result is that underserved consumers tend to pay higher rates for services such as payday loans or check cashing.
A recent FDIC study found that the “anytime, anyplace” nature of mobile financial services offers the potential to help more people gain easier access to the banking system and grow their financial capability. Mobile phones are quite prevalent among many of these consumers, who may use these devices in lieu of computers. For example, in households earning less than $25,000 a year, 74 percent of adults have a mobile phone of some type and 44 percent have a smartphone.
Mobile financial services can help provide access to a myriad of products and services that these consumers may not be able to access due to location or other barriers such as cost. The cost issue is important because mobile has the potential to be significantly cheaper than traditional banking. One industry report calculated that the average cost of an in-branch transaction was $4.25, whereas the average cost of a mobile transaction was just ten cents. These are significant cost savings, much of which can and should be passed on to consumers.
Other categories of consumers also stand to benefit from the emerging technologies of mobile financial services. These populations include older Americans and the disabled. My father happens to fall into both categories, as he is 96 years old and legally blind. The ability to conduct transactions remotely, without having to travel anywhere, can be enormously liberating in these circumstances.
The second great opportunity we see with emerging mobile technologies is an opportunity for everyone to manage their money better. Mobile devices can present faster and easier ways to access products, track spending, and manage accounts. So they can make it much easier to do real-time money management. For example, you can check your account balance while you are out shopping to make sure you can afford to make your purchases. You can transfer money from your savings account to your checking account so that when your mortgage payment is debited you have enough money in the right account. You can take a picture of a check and deposit it electronically into your bank account without having to go to a branch.
According to a 2013 survey by the Federal Reserve Board, a quarter of smartphone users have used their phone to track purchases and expenses during the prior year. The same survey found that 69 percent of mobile banking users said they checked their account balance before making a large purchase, and half of them decided not to make the purchase once they became aware of their account balance or credit limit.
We want to know more about how these services help consumers, and about how they could do so even more effectively. Arming consumers with better and more current information about their accounts helps them make wiser use of their funds and avoid costly penalty fees.
With all of these groups of underserved consumers, technology has great potential to improve people’s lives. Implemented with the right type of protections, mobile financial services can fill in various gaps that now exist. In today’s Request for Information, we are seeking more information about how these services can be used to empower and address the financial needs of consumers in safe and affordable ways.
While we see so many opportunities for mobile financial services, we also need to be aware of the challenges and risks. Challenges that we highlight in the Request for Information are customer service and security and privacy.
Customer service is a concern because it may be harder to know whom to talk to or where to find information when using a mobile financial product or service leads to an error or mishap. If a consumer loses her smartphone or has her service disrupted, she may not have access to a bank branch or a computer. In these circumstances, what kind of assistance will be available? Will the consumer have anywhere to call for help? Will she be able to reach someone who can and will provide the help she needs? These are important questions that need good answers so that consumers will not be left in the lurch if something goes wrong.
Another challenge in the evolution and growth of mobile financial services involves concerns about security and privacy. According to a March report by the Federal Reserve, a major factor limiting consumer adoption of mobile banking and mobile payments is the belief by some that these services do not offer any added value over existing methods. The study highlights the point that mobile has great potential value. It found that as smartphones become more common and more versatile, mobile technology may empower consumers and expand access to financial services for underserved populations. But the study found that the other major factors limiting consumer adoption of mobile banking and mobile payments were concerns about security and privacy. The study did not try to explain away these concerns, instead warning that consumers will have to weigh for themselves the benefits and risks that these services pose to their security and privacy.
Underserved consumers who use a mobile device to conduct their financial transactions may face particular privacy concerns. It is critical that they be able to protect their personal financial information, but if their device gets stolen, all of this information could be endangered. So we are seeking information on any additional protections that consumers may need when they lose their device or if they lose access to service on their device.
We are also seeking to learn more about the kinds of information companies are collecting on consumers, whether that is being disclosed to consumers, and how the information is being used for low-income consumers in particular. For example, we want to know if low-income consumers are getting the benefits of better-priced products. And we want to know if providers are using their data to target them for higher-cost products, which would keep these consumers stuck in the same vicious cycle of tricks and traps that the Consumer Bureau is working hard to stamp out in the consumer financial marketplace.
In addition, we are exploring whether data breaches are more common on mobile devices as compared to traditional computers. We also want to know how consumer use may be inhibited by these security issues and how it may affect wider adoption of financial products and services.
On all of these issues, we are seeking your perspective at today’s field hearing, and we will solicit public feedback through the more formal process that I have already described. In these ways, you will help us decide how we should focus our efforts to better serve and protect consumers. As New Orleans native Wynton Marsalis once said, “We always hear about the rights of democracy, but the major responsibility of it is participation.” So we hope that as many people as possible will take part by responding to our Request for Information.
In the meantime, consumers should take all the necessary precautions when they use their mobile devices to do their banking or conduct financial transactions. On this point, today we are issuing helpful tips for users of mobile banking and mobile financial services. These include tips on protecting your personal information, using strong passwords, and alerting your financial provider immediately when your phone is lost or stolen. Also, do not forget to use secure websites, apps, and hardware; and make sure to log out of the browser when you are done. When using free or public Wi-Fi, try to use a private network and go to a secure site that begins with HTTPS. Most of this advice is common sense, but it is always good to be reminded. You can also go to “AskMiss April” on our website at ConsumerFinance.gov to find out more.
At the Consumer Bureau, we now oversee all consumer financial markets, ranging from mortgages to bank accounts to credit cards to student loans, and many more as well. These markets are worth trillions of dollars, and there is no doubt that mobile will continue to play an increasingly important role in how they serve consumers. The job of our new agency is to do all we can to ensure that financial products and services actually are helping consumers rather than harming them, and that is why we look forward to a frank discussion of these issues today.
The Miss april is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.