Out-Law / Your Daily Need-To-Know

O2 launches mobile money service under financial services 'passport' rules

Out-Law News | 27 Apr 2012 | 10:36 am | 3 min. read

Mobile network O2 has launched a new mobile 'wallet' service that will enable customers to transfer money to friends, pay for goods and services and take advantage of discount offers.

Users can utilise the O2 Wallet service by downloading a free application to their smartphones or use a 'Money Messages' function on other devices that provide the user with internet access. Money can be loaded on to physical and virtual cards through a variety of means, including at dedicated 'epay' outlets, while discount offers can also be accessed through the service, the company said in a statement.

O2 has partnered with a financial services firm, IDT Financial Services Limited, to deliver the service. IDT is regulated by the Financial Services Commission in Gibraltar.

In the UK companies that provide payment services must generally be authorised to do so by the Financial Services Authority (FSA). However, under pan-European single market initiatives, companies that are authorised to provide those services in one country can deliver similar services in other EU countries.

O2 is not currently an authorised e-money issuer or payment services provider. Its partnership with IDT allows the company to offer its e-money wallet in the UK despite this, an expert in technology and payments law has said.

"Within the EU e-money issuers and payment service providers are able to 'passport' authorisations they have obtained in one member state in order to provide the same services in another, and there are similar arrangements in place for Gibraltar that O2 and IDT seem to be benefiting from here" Angus McFadyen of Pinsent Masons, the law firm behind Out-Law.com, said.

Last year O2 owner Telefonica; Everything Everywhere, and Vodafone announced that they planned to form a joint venture company to develop a "mobile wallet" payment service that would "enable customers to transfer their entire physical wallet onto their mobile device" in order to "purchase products or services online".

However, rival mobile service provider Three asked the European Commission to prevent the three firms collaborating on the service arguing it would negatively affect consumer prices.

Three controls 6.9% of the UK mobile operator market, according to a New York Times report. The market leader is Everything Everywhere with 38.5% of subscribers using their service. O2 is second in the market, owning 30% and Vodafone is third providing services to 24.8% of UK mobile subscribers.

Both UK and EU competition laws prohibit businesses with significant market shares unfairly exploiting their strong market positions. The European Commission is responsible for investigating competition-restricting agreements between two or more firms under the Treaty on the Functioning of the European Union.

McFadyen said that O2's Wallet service launch without the collaboration of Everything Everywhere and Vodafone showed the company was keen to advance into mobile commerce. He said that the terms and conditions of the service could also enable the company to obtain lucrative revenues from customers' purchasing data.

"A key reason that the likes of Apple, Google and now O2 get into mobile payment services is that they can get a lot of data on consumers' spending habits and find ways to make revenues from that asset," he said.

O2's terms and conditions state that the company "may use and/or share [customers'] information with carefully selected third parties, for marketing purposes to tell you about other products, offers and services." Consumers can elect to opt-out.

The terms also enable O2 to offer personalised services to users based on the information the company can collect about them. The data collected from users of the O2 Wallet allows the company to "enhance and personalise the products and Services that we offer you and to develop new products and services", according to the company's privacy policy.

"O2 has to comply with existing laws on data protection and privacy to ensure Wallet users' shopping habits are processed lawfully," McFadyen said. "There are also industry-set rules on security that the company and its partner will have to adhere to. The Payment Card Industry Data Security Standards include requirements that involve building and maintaining a secure network for payments to be made and protecting stored cardholder information."

In December last year a digital forensics company published research that claimed that Google’s mobile payment application Google Wallet stores users’ personal information unencrypted on devices.

O2 has insisted its Wallet service is secure.

“We recognise that security is absolutely key," O2 Money managing director James Le Brocq said. "O2 Wallet has been trialled internally for months and has undergone extensive ‘stress-testing’ with security experts. In additional to PINs and passwords, all personal details and financial data are held on remote central servers rather than on the mobile device itself. This, we believe, is the safest and most secure way to deliver mobile payment services.”