Social Media and Financial Services: Convergence or Collision?

Transcription

1 Social Media and Financial Services: Convergence or Collision? ACI s 5th National Forum on Emerging Payments March 21-22, 2013 San Francisco, CA Andrew J. Lorentz, Partner, Washington, D.C.

2 Social Media by Depository Institutions 3/21/2013 2

3 Social Media by Depository Institutions Involvement Limited to: Public Relations Promotions Brand-Building Co-Branded products Reputational Risk: Bad PR Regulatory Oversight Issues Security Risks P2P Baby-Steps: PopMoney ClearxChange In-stream 3

4 Peer to Peer Payment Offerings PopMoney Leverages Financial Institution funds transfer networks (ACH) Used by 1,700 banks: Notify recipient of payment via e- mail or text message Recipient clicks on link, enters bank account info and verification code $0.95 transaction fee for senders Not instant ACH delay; but accelerator technology coming Don t need to know recipient s bank info 4

5 More Peer to Peer Payments ClearXchange Leverages Financial Institution funds transfer networks (ACH) to send money to individuals Used by only 3 banks: Wells Fargo, BofA, JPMorgan Chase Notify recipient of payment via e- mail or text message Sender must be an accountholder at one of Wells, BofA, Chase Not instant ACH delay; but accelerator technology coming Don t need to know recipient s bank info 5

6 In-Stream Payments American Express: Amex Sync Launched 2012 Cardholders Sync cards with Facebook, Twitter, or Foursquare credentials Requires Amex Card Cardholder data not shared with social media platforms Twitter Sync is only true in-stream offering: Largely a promotional tool rather than a true payment system Not Peer to Peer can t send money to friends 6

7 Regulators Take Note Cautionary Tale: Fed Governor Sarah Bloom Raskin Bank of America s $5/month debit card fee led to Bank Transfer Day campaign on Facebook resulting in billions of dollars in deposits shifted out of large banks 7

8 Regulator Perspective Take-away: Reputational risks presented by social media can directly affect safety and soundness Institutions that actively manage reputational risk by using effective social media strategies and policies increase transparency and build consumer trust 3/21/2013 8

9 FFIEC Social Media Guidance (proposed) FFIEC defines social media as: any form of interactive online communication in which users can generate and share content through text, images, audio and/or video, including microblogging sites (Facebook, Google Plus, MySpace and Twitter), forums, blogs, customer review websites and bulletin boards (e.g. Yelp), photo and video sites (Flickr and YouTube), sites that enable professional networking (LinkedIn), virtual worlds (e.g. Second Life) and social games (Farmville and CityVille). 9

10 FFIEC Social Media Guidance Some Special Risks tends to be less formal and occurs in a less secure environment [and thus] presents some unique challenges to financial institutions. Payment Systems Explains that social media does not require additional disclosures but calls out Reg E and check rules (UCC Art. 4 and Reg CC) as worthy of special attention BSA/AML Virtual world Internet games and digital currency present a higher risk for money laundering 10

11 FFIEC Social Media Guidance Whether or not an FI uses social media, risk management plan should include: Governance structure with clear roles and responsibilities for senior management; Policies and procedures regarding the use and monitoring of social media and compliance with federal consumer protection laws [and to] address risks from online postings, edits, replies, and retention; Due diligence process for selecting and managing third party providers. 11

12 FFIEC Social Media Guidance Whether or not an FI uses social media, risk management plan should include: Employee training program on policies and procedures, work-related use of social media, and prohibited activities; Oversight process for monitoring information posted on proprietary social media sites; Audit and compliance functions to ensure ongoing compliance with internal policies and applicable laws; Parameters for providing appropriate reporting to senior management that enable periodic evaluation of the effectiveness of controls. 12

13 FFIEC Social Media Guidance Full Compliance Checklist Truth in Savings Act/Reg DD ECOA/Reg B TILA/Reg Z EFTA and Reg E Article 4 of UCC: Check transactions Expedited Funds Availability Act/Reg CC Bank Secrecy Act/Anti-Money Laundering Community Reinvestment Act GLBA FCRA FDCPA UDA(A)P FTC.com Disclosures no exceptions for social media 13

14 FFIEC Social Media Guidance Who will supervise social media companies that deploy payments products and services? CFPB Supervisory authority over certain nonbanks, defined as a company that offers or provides consumer financial products or services but does not have a bank, thrift, or credit union charter CFPB also enforces UDAAP against service providers 14

15 Social Media and Payments Outlook? End Notes Collaborative consumption are the banks missing the point?* Primary reason people don t have a bank account is simple dislike of banks (says a Fed Governor quoting surveys) Social media bridges the trust gap ; reputational trails enable the commerce why use a (dis)trusted intermediary? OR: Path to reinvigoration of community banking? *What s Mine is Yours: the Rise of Collaborative Consumption, by Rachel Botsman and Roo Rogers 15

16 Questions? Andrew J. Lorentz, Partner Davis Wright Tremaine LLP Washington, DC

17 Annex Social Media and Payments Examples 17

18 Facebook Credits: Social Payments 1.0 Originally intended as a Universal Online Currency Use credit/debit/paypal/etc. payment methods to buy Credits in virtually any local currency; also sold at retail locations Use Credits to buy game play, etc. in the Facebook application environment only Later extended to independent gaming sites, but Credits converted into local game currency (i.e., Farmville Farm Cash ) Issues: Once converted, difficult to know how much you were spending (no readily available exchange rates; once converted, couldn t swap back out); 70/30 rev share Phased Out Summer 2012; replaced by. 18

19 Facebook Payments: Not Credits 2.0 Full-featured, hosted, localized payments platform 80+ Payment methods Developer API Pricing in local currencies to accommodate for purchasing power discrepancies Online and mobile apps Easy cash-out, no expiration Leverage Facebook user base and credentials to promote products Currently limited to developers using Facebook App Platform 19

20 Amazon Coins: Virtual Currencies Resurrected? Virtual currency for use only on Amazon Kindle Fire App store and in-app purchases Spring 2013 Launch One Coin = 1 Cent; buy with credit/debit/prepaid/paypal Massive promotional give-away: more spend on apps means more incentive for app developers to create more apps; 70/30 rev share Plans to extend beyond App Store? 20

21 Virtual Currencies: Regulatory Issues? Rumored P2P virtual money system scrapped due to regulatory concerns; however Google 2010 purchase of Jambool (white-label virtual currency platform); converted to Google in-app payment system 2012 investment in Pocket Change (Android-based virtual currency) Facebook "Depending on how our payments product evolves, we may be subject to a variety of laws and regulations in the United States, Europe, and elsewhere, including those governing money transmission, gift cards and other prepaid access instruments, electronic funds transfers, anti-money laundering, counter-terrorist financing, gambling, banking and lending, and import and export restrictions. IPO Prospectus 21

22 In-Stream Social Payment Systems Leveraging social media platforms and friend networks to send and receive payments Analogous to SMS payments 22

23 In-Stream Social Payment Systems: Chirpify Peer to Peer Payments via Social Media Users store payment method w/chirpify (credit/debit/paypal) No hyperlinks, shopping carts or checkout process No hardware/software to set up Leverage follower/friend lists Tweet or Comment to Buy 5% per transaction charged to recipients Drawbacks: both sender and recipient need Chirpify Account Chirpify Instagram 23

24 In-Stream Social Payment Systems: Dwolla Peer to Peer Payments via Social Media Users store checking/savings account info w/dwolla (ACH routing/account #) No hyperlinks, shopping carts or checkout process No hardware/software to set up Leverage follower/friend lists Tweet/message to send money $.025 per transaction, free if under $10 Senders and recipients must have Dwolla Account and Social Media Account Up to $500 in Dwolla Instant funds if checking account empty for monthly fee 24

25 This presentation is a publication of Davis Wright Tremaine LLP. Our purpose in making this presentation is to inform our clients and friends of recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations. Attorney advertising. Prior results do not guarantee a similar outcome. Davis Wright Tremaine, the D logo, and Defining Success Together are registered trademarks of Davis Wright Tremaine LLP Davis Wright Tremaine LLP 25

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