Why the U.S. Stinks at Mobile Payments: Street Whispers

NEW YORK ( TheStreet) -Consumer Financial Protection Bureau director Richard Cordray presumably wore a straight face during a speech Wednesday in Mountain View, Calif., subtitled "Stimulating Innovation in Financial Products and Services," though it is easy to be skeptical.

Few in the U.S. look to a regulator for innovation, though to Cordray's credit, his speech contained at least a few specifics--real companies with which the CFPB is collaborating. These include BillGuard, a company that alerts consumers to questionable charges on their debit and credit cards, which will share its billing dispute data with the bureau , and Simple and Plastyc--mobile banking companies that aim to replace traditional banks. 

Details about these collaborations are still scarce, however, and Robert Atkinson, president of the Information Technology and Innovation Foundation (ITIF), has his doubts about whether the new regulator will embrace innovation. 

One area where Atkinson would like to see the U.S. make progress is with mobile payments. There has been lots of hype surrounding a well-financed start-up called Square and its recently announced partnership with Starbucks ( SBUX), as well as efforts by Bank of America ( BAC) Citigroup ( C) and JPMorgan Chase ( JPM), among others, to offer mobile payments technology to their customers. Still, the U.S. is well behind Japan and South Korea in embracing this technology, and a 2009 paper by ITIF senior analyst Stephen Ezell lays out some of the issues that need to be addressed to catch up. 
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"Countries can't just snap their fingers and put a mobile payments infrastructure in place or expect that because the technology is now ready the private sector will simply deploy it," Ezell writes. "Mobile payments entail a complex, system-interdependent ecosystem with many players--including mobile network operators (MNOs), handset manufacturers, financial institutions including major banks and credit card issuers, merchants, public transit authorities, government agencies, third party application providers, and consumers--whose success is dependent on joint action by all the players together at the same time. Everyone must act collaboratively in the ecosystem simultaneously, but this is not something at which markets tend to be very good." 

There is a potential role for government in helping to coordinate these players, but when Atkinson sat on a panel in March with Mark Egerman, a CFPB official charged with overseeing the mobile-payments market, he didn't get the impression the CFPB was interested in embracing it. 

"I don't recall him saying anything about proactively supporting an innovation role," Atkinson told me. 

Egerman has since left the CFPB to start his own mobile payments company, and so he made clear his views no longer can be construed to represent those of the regulator. (A CFPB spokeswoman sent me a speech by a CFPB official that addressed mobile payments in an effort to deflect Atkinson's criticism.)

When I spoke to Egerman, however, he did not conform to the caricature of a regulatory scold who was so interested in protecting consumers that he gave little thought to what they actually might want.

"The CFPB's primary goal is to protect consumers and a lack of innovation can be harmful to consumers," he said.

Still, Egerman says there are challenges in the U.S. that make it more difficult for the government to play a role in getting mobile payments off the ground. In Japan, for example, Egerman estimates NTT DoCoMo commands 60% of the mobile phone market--far more than Verizon ( VZ) or AT&T ( T) in the U.S. In other words, if Verizon uses one technology and AT&T uses another, it might be difficult to make mobile payments work.

On the other hand, "you won't find many government agencies strong-arming the private sector to play nice with each other. That's not something we try to do in America. We set the rules and let people fight it out," says the former regulator.

Egerman is well aware that South Korea and Japan--and even Kenya and Afghanistan in some respects--are ahead of the U.S. in making mobile payments work.

Still, Egerman thinks anyone looking for a more activist role from the U.S. government in spurring mobile payments is going to be disappointed.

"I don't think its realistic and I don't think there's a demand for it from the private sector," he says.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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