Transcripts For CSPAN3 Hearing On Mobile Payment Security 20151221

Position. This is very unamerican. Very unamerican. But you know, people are growing aware of that. You know, events like here, we try to take advantage of whatever venue we can have to express our views. And listen, i mean i came to this Country First time in the early 80s. Things are completely different, you know, 35 years later. America in the 80s, being a palestinian in the america in the 80s, i dont want anyone to experience that. It was tough. It was tough. Today, many sympathizers, many people who understand, many people who are willing to listen and this is encouraging, because the more we have people who understand both of you i never ask anyone to be antiisraeli, propalestinian. Im asking people to be for justice, for peace, for equality. This all im asking you to be. Thank you very much. [ applause ] ambassador, id like to thank you so much for coming to the Palestine Center today. Can i just thank you for being all of your experience as a diplomat political analyst and advocate, thank you. Next, a house hearing on the use of mobile Payment Technology. That will be followed by a discussion of afghanistans future. Roe v. Wade a 1973 case that determined a womans right to have an abortion is texted under the 14th amendment right of privacy established by connecticut v. Griswold. The court ruled this right is not absolute and the states can join us from the justice who wrote the opinion and explore the impact since the decision. Thats tonight starting at 9 00 eastern on cspan and here on cspan3. Fallowing that, American History tv in prime time looks at russian spies, including trial of rudolph abel, sex, kgb spies and the 70s and the Manhattan Project here on cspan3. . This holiday weekend, book tv br brings you three days of nonfiction authors. Backtoback, afterwards. Arthur brooks discusses the conservative heart, how to bill a fairer, happier america the biggest mistake, the one that trips people up the most, believe it or not, the one that should be the easiest, get happy. 8 00 p. M. , cornell west examines the life of dr. Martin luther king jr. In the radical king. Martin understood for not just christians but any human being who wants to reach a level of integrity, honesty, decency as Long Distance runner youve got to kill something in yourself. Fear. Youve got to kills something in yourself, obsession with status and wealth. Senator john danforth. Relinlen does point us beyond ourselves and in for faithful people, the me, you know, whats in it for me, the me is not central. And at 10 00 p. M. , senator Claire Mccaskill talks about plenty ladylike s a memoir, about experiences in local, state, federal government. I dont think we do anybody any favors by trying to dress up politicians as we are not real human beings that had major problems in our lives. Saturday evening, 7 00, discussion on william f. Buckley jr. s run for new york city mayor in 1965. 11 00 p. M. , Winston Groom discusses the generals, patton, mcarthur, marshall, winning of world war ii. One of the first questions i ask, why did you choose these three men from the Second World War . And my answer is that they embodied, i believe, super characteristics of courage, character, and patriotism. Sunday night at 8 00, david petrusia look as the 1932, rise of hitler and fdr. Assi assi alyssa katz discusses the corporate capture of american life. Theres a reason i chose the chamber of commerce as subject for my book. And its because this Single Organization really sums up the story how we got here to this place. Reporter this holiday weekend, watch book tv on cspan2. The house commerce manufacturing and trade subcommittee held a hearing on the growing use of mobile Payment Technology and security challenges. Representatives from samsung and paypal were among witnesses providing testimony. Subcommittee on commerce manufacturing and trade will now come to order. The chair recognizes myself for five minutes for an opening statement. I want to welcome everyone to hearing this morning examining mobile payments, which are to upend how customers pay for goods and services in stores, online, in apps, and at the parking meter. This hearing is the latest in or disrupter series, covering a variety of technologies that are redefining our lives and improving our economic condition. This past week black friday, Small Business saturday, cyber monday, flooded all of our inboxes and took over the commercial breaks on television. As the Holiday Shopping season is in full swing, this is a good time to take a look at the Consumer Experience with mobile payments. This morning we will hear from our witnesses representing a variety of Innovative Products and services in the mobile payments arena. This hearing is an opportunity to learn about the innovations that are available to consumers today and those that will be available in the near future, but we recognize that there are exciting innovations on the horizon for payments, including mobile currencies, which will be a topic for another day. Smartphones are increasingly an ever present part of our lives. Its no surprise that they are also changing the way we shop for goods and services. You can shop for your tablet in front of the television, compare on your phone while you browse in the store, and pay without ever opening your wallet. Consumers have access to more information and more competitive options are at the tip of their fingers during the busiest shopping season of the year. There has not been this big an upheaval in somehow consumers pay for goods and services from groceries to haircuts since computers replaced the old knucklebuster manual ink printers in the 1980s. In 2014, 22 of mobile phone owners reported making a purchase with their phone. 39 used their phones to make a purchase in the store. When you find that perfect christmas gift, you may be able to pay by tapping your phone at checkout or clicking the paypal check out button on a mobile website. When you want to send your friend money for the concert ticket they bought for you, all you need is their email address or mobile phone number. These mobile Payment Options include protections not available with cash, and are easy to use for consumers who may be more likely to have their phone in their pocket than carry the exact change with them. Some basic questions remained top of mind for consumers when they think about mobile payments. Are they safe . Can i use my phone . This hearing is an opportunity to hear from companies implementing the cuttingedge technologies in mobile payments and how they are addressing these and other concerns raised by consumers. Two of the top security topics that are raised by mobile payments are authentication, how the device knows you have permission to make the payment with the device, and tokenization, protecting your data through the payment process. We all know passwords are difficult. They are difficult to remember. Theyre difficult to keep straight, which is why many people, myself not included, but many people simply use their name for their user name and 1234 as their password. Mobile devices offer some alternatives to the traditional password that add an additional layer of protection for consumers. Authentication is the process that a system uses to verify the identity of a person that wants access to the system. The user name and password is the most typical authentication process used to log into a variety of websites. Mobile devices have changed. Theyve changed how people think about authentication. Fingerprint sensors, cameras, are found in an increasing number of mobile devices. And instead of having to remember a separate password to unlock your phone or tablet, you may be able to use the fingerprint scanner to unlock the device with just a touch. This protects the information on the phone, including access to Payment Options. Another security feature that is regularly brought up in discussions about mobile payments is tokenization. Were all familiar with the tokens you get at the fair or the arcade. Tokens in a mobile Payment System are similar in concept, replacing the value currency or Payment Information with a code that then becomes useless for another transaction if someone were to steal it. As has been the case throughout history, technology has the potential to solve problems and improve our lives. Mobile payments are no exception to that trend. So i look forward this morning to hearing from our witnesses and how theyre leveraging technologies to provide and easy experience for United States consumers as we make our way through this shopping season. I will yield back the balance of my time and recognize the subcommittee Ranking Member, ms. Schakowsky. Five minutes for an opening statement, please. Thank you, mr. Chairman, for holding this hearing and this series of hearings on disrupters. I just learned that my bank i can now make a deposit by taking a picture of the front and back of my check and my bank will take it although it doesnt account for my husbands really bad handwriting and says it cant verify the number i put in is the number he wrote on the check. Thats a problem. But i think this Holiday Shopping season it is very important to hear from our witnesses about this important new technology. We do expect mobile payments to double from today to 2020. One of the Fastest Growing sectors of the u. S. Economy. Mobile payments do facilitate transactions with anyone to a food truck to Farmers Market, taxi driver, parking meter. They have made buying and selling goods and services easier in many ways. But as this technology continues to expand, we definitely need to understand how the payment structure works, security, Consumer Protection vulnerabilities, how to address those issues is the responsibility of our subcommittee. We want to maximize benefits and minimize risks, obviously. Mobile Payment Technologies rely on a number of nontraditional identifiers such as geolocation, purchase preference, phone numbers, email addresses. Those features can enhance protections against payment fraud. However, they can also put consumer at greater risk if they are unprotected or if their use extends beyond managing payments. With regard to Electronic Communications generally, we need to ensure that all of the players engaged in mobile payments, hardware and software developers, businesses, banks, credit unions, and Credit Card Companies are taking reasonable security measures to protect the information that theyre handling. We also need to make sure that consumers know how these payment structures differ from more traditional transactions. Consumers need to know how Consumer Financial liability for these type of payments differs from those made using credit or debit cards. They should also know how mobile payments can be used to cram consumers. Running up bills that they never explicitly approved. As the subcommittee responsible for Consumer Protection, we have an obligation to close those and other existing loopholes that leave consumers more vulnerable. So i look forward to hearing from our witnesses, getting their perspectives on opportunities, challenges, and the way forward with regard to mobile payments. And i yield back my time. The chair recognizes the gentlelady. The chairman recognizes mr. Upton. Five minutes for an opening statement, please. Well, good morning. Today we continue our disrupter series. Weve previously examined the internet of things, the sharing economy, and most recently drones. Today we discuss the growing trend of mobile payments. No matter where folks choose to travel or shop whether it be in michigan, the nation, or even across the globe, their smartphones are ever present, always at the ready, provide direction, daily news, scores, and even make payments. Early estimates show for the First Time Ever more people shopped online than in stores over the thanksgiving holiday. Cyber monday estimates are still being tallied, but were seeing a fundamental shift in how people are buying the goods and services throughout our economy. Consumers have more choices ever before about when and where to shop. These choices open up opportunities for innovations to take root and spread throughout the economy. Weve seen this sort of disruption throughout this series of hearings and mobile payments are certainly no different. They are impacting how the internet of things and the sharing economy develops. The disrupter series remains important as we work to better understand how the industry impacts job creation and our economy as a whole. Mobile Payment Technologies have opened up opportunities for businesses and individuals alike. So businesses small and large can benefit from these disruptions as we have seen with a hardwarelike square, and softwarelike mode which make payments easier for Small Businesses and between friends respectively. These are just two examples in an ecosystem thats bursting with growth as more as more americans get smartphones, tablets, and other mobile devices. New technologies in competition are responding to Consumer Needs. Mobile Payment Innovation is happening all over the country. However, Adoption Across the ecosystem continues to be a challenge that all businesses in this space are working to address. There a lot of facets to the mobile payment space. Im pleased today that were going to learn more about the options that consumers have, particularly how these options can and will continue to improve security for consumers and job creators. I yield the balance of my time to marsha blackburn. Thank you, mr. Chairman. Im so appreciative that were doing this hearing today, and i thank our witnesses. You all are the experts, and we have plenty of questions that were going to have for you. Wireless and mobile devices and quick purchases are changing things. This past weekend my 6yearold grandson got into the app store on my iphone, found something that he wanted to buy, handed me the phone, and said, marsha, you need to pay for this. And of course i did not. But i use this illustration to make a point of the simplicity and also the assumption of our kids and grandkids, that it is going to be at the scan of a screen or a touch of a button or with great ease that youre going to be able to make these purchases on the go, in realtime paid in realtime and with great convenience and security, and security. And that is where much of our focus is going to be, whether its the multifactor authentication or tokenization or what i want to hear from you, the whats next. Where do you think we are going with this . Because convenience, yes. People want security. Theyre going to demand it because they want to be able to protect their virtual presence online, just as theyre able to protect their presence in the brick and mortar relationship with those that theyre choosing to do business with. So i thank you for the time that you are going to spend with us today, your preparation in coming to the committee, and i look forward to your thoughts on whats next. Yield back. Gentlelady yields back. Chair recognizes the gentleman from new jersey, the Ranking Member of the full committee, five minutes, for an opening statement, please. Thank you, chairman burgess. During todays hearing, we will discuss the new ways consumers are paying for goods and services through their mobile devices. At a time when it seems like virtually everything is tied to our smartphones, it should come to no surprise were able to store credit cards electronically, transfer funds directly to our peers and make purchases by simply tapping our phones at the point of sale. These exciting innovations hold promise for consumers. Imagine the convenience of being able to send money instantly to a friend or family member, regardless of location or proximity to an atm. For consumers who forget their credit cards in an outing, a mobile peer to peer payment could be the difference between being squared away and an iou. The ability to store credit cards in your phone may also offer consumers some peace of mind that, in the event of a lost or stolen card their information is stored behind a password, and a physical card is not compromised. Perhaps most encouraging for consumers with limited or no access to a bank, mobile payments can be a welcome alternative for purchasing the goods and services they need. For example, the use of mobile payments has skyrocketed in kenya, where access to banking is quite limited. With all these new products that involve consumers personal information, privacy concerns must be raised. In general, mobile payment apps can access a wealth of personal data through a users smartphone, such as phone numbers, geolocation, and email addresses and detailed purchase histories. Consumers do not know who has access to their information or with whom it is shared. This data may be used in ways the consumer never intended, including by merchants sending unwanted advertising tailored to consumers through their mobile devices. That personal information could also be sold, so consumers location and other private matters are shared with the highest bidder. And thats why Privacy Protection should be baked into these new mobile pay applications. And also important that consumers are ensured secure transactions through a mobile Payment System. As with any mobile device or application, digitally stored or transmitted information is hackable. With major data breaches still fresh in consumers minds, mobile Payment Users will understandably be hesitant about using an app if there is no protection from hackers who may try to intercept their personal information. Its been made clear through this series of hearings on disrupters, innovation and Consumer Protection must go hand in hand for these new technologies to flourish. Mobile payments present an exciting opportunity to make ecommerce a more seamless experience for consumers. And i look forward to hearing from todays witnesses on this topic. Thank you, mr. Chairman. I yield back. Gentleman yields back. The chair thanks the gentleman. This concludes Opening Statements. The chair would remind members that pursuant to committee rules, all members Opening Statements will be made part of the record. We do want to thank our witnesses for being here this morning and taking time to testify before the subcommittee. Our Witness Panel today and we do have a good and great group our Witness Panel for today includes mr. John muller, the Senior Vice President at Global Payments policy at paypal. Miss jex ka dekinger. Mrs. Sarah jane hughes, and mr. Sang ahn, chief commercial officer at u. S. Samsung pay. We appreciate all of you being with us this morning. Well begin the panel with you, mr. Muller. Each of you will be recognized for five minutes for a summary of your opening statement. Mr. Muller, youre recognized. Thank you, mr. Chairman and Ranking Member schakowsky, and the other members of the committee. Thank you for the opportunity to testify on behalf of paypal. My name is john muller, and im Vice President of payments policy for paypal. And paypal has been involved in mobile payments now for 16 years and started with the cuttingedge payments mobile device of its time, which was the palm pilot, you may remember, the personal digital assistant without phone capability, but a very portable device. And paypal was actually built to deem payments from one palm pilot to another. At that point, we quickly realized that more people had email and Internet Access than owned a palm pilot, but weve now come back full circle to a focus on mobile payments to the point that last year we processed 1 billion payments from mobile devices all around the world. And just in the last quarter of this year, the growth rate continues and we process 345 million mobile payments. I have some more information on paypal in a prepared statement, so i wanted to shift a little bit and just make a few high level points about mobile payments and where we stand today. One point is payments follows commerce and it follows where people spend their time. Very few people, but people on this panel accepted, make a payment just for fun or just to try it out. Theres always a purpose behind it and for most of us the purpose is commerce or the purpose might be to pay back a friend. Increasingly were doing our shopping on mobile devices, and we have our mobile devices with us when were out with a friend or contacting a friend, so its only natural for payments to be part of that broader mobile experience. Another point is that payment has been mobile for quite sometime. There are few things more portable than paper currency, coins, or a plastic card. Whats really new about the new generation for mobile payments is opportunity for all of us in the payment industry to take advantage of what the Technology Makes available, namely, increased security through things like the device identifier or geolocation on the device or biometrics on the the device or biometrics on the device, the thumbprint being the first live version of that, but certainly more to come in that arena. And then, to that security, add a better User Experience compared to just paying with cash or a card. Things like automatically recognizing my loyalty program, giving me points, giving me choice of funding methods so, if i have a card, a plastic card, then i have to use that card. If i have a digital wallet like paypal or the other wallets, i can use my mobile device in realtime to switch among all the different Payment Methods that i have available. So those are some of the reasons why we see the growing popularity of mobile payments. Another point i wanted to make is we often use the term broadly mobile payments. And it really covers, to a large degree. Three different fields. One, and certainly the one that predominates for paypal and many other Payment Companies, is using the mobile device as a substitute for what a few years ago would be a transaction on certainly not to diminish it in any way, equally important, is using the mobile device as a way of enabling businesses, mostly Small Businesses, to accept cards and other Payment Methods electronically in a mobile business environment, whether its a food truck or a Farmers Market or any of the other many opportunities that Small Businesses use for devices, attaching a small reader to their device, using it usually to swipe a card or enter another Payment Method. Companies like square and paypal have made that available to Small Businesses all over the country. And all of those are different types of mobile payments. But its important to recognize that there are distinctions among the three. And then finally, also important to recognize that the field is already regulated. We have to give credit to the drafters in particular of the Electronic Fund transfer act when they created Consumer Protections for what at the time was primarily the atm card. Quite a few years ago. They drafted the statute in terms of access devices and financial accounts, not limited to plastic cards or any other kind of specific technology. So an access device can be a password or a phone or any other device. And the Consumer Protections remain in place, supplemented by the zero liability programs that visa and mastercard and paypal all offer to buyers. So i just wanted to make those broader points. With that, ill conclude my remarks. Thank you and look forward to the questions. Chair thanks the gentleman. Member dekinger. Youre recognized for five minutes. Thank you, mr. Chairman. Thank you for the opportunity to testify on behalf of Merchant Customer Exchange. We appreciate the invitation to appear before the subcommittee to discuss the rapidly developing and evolving mobile payment space. The subcommittees interest in the topic is welcome. Who is mcx. The Merchant Customer Exchange was founded by a leading group of u. S. Merchants in 2012 to create a broadly accepted mobile commerce platform. The members include retail leaders in the big box, convenience, fuel, grocery, quick service, full dining and specialty retail. Also providing opportunities f. I prepared a short video for you to give you a sense for what mcx i think this guy might have turned off his mic. I think we were always hearing it from video . Hold on. Hold on. I think its going to a video. We have great news. Currency is now live in columbus, ohio. The people of columbus are experiencing a powerful new way to shop. Not only can they pay. They can redeem coupons and gain loyalty points. All in one swift move. Currency was made to be used at the places the people of columbus go every day, like their favorite restaurants. Even at the drivethrough. That will be 8. 32. Great. Ill be paying with currency today. Great. Have a great day. They can also clip offers and scan at the checkout at retailers and the grocery store. And theyre good to go discounts and loyalty are applied instantly. And they can pay with their phone while comfortably sitting in their car at the gas pump. Currency is available on virtually any smartphone and soon youll see it at thousands of other places around the country. Stay tuned, soon you too will be able to shop like never before. This new network will benefit a wide range of consumers in three basic ways. One, delivering a better shopping and payment experience by enabling customers to interact directly with merchants through virtually any smartphone. Two, safeguarding consumers and merchants by maintaining the direct relationship that merchants have with customers and protecting customer data. Bringing balance to the ecosystem. Mcx will allow consumers to use their smartphones wherever they shop. It brings together the best in Class Technology and mobile partners to create a network in the mobile space. Mcx launched it own application called currency that can be downloaded to any smartphone. We conducted private rollouts and we are currently in a public beta operating in columbus, ohio. The purpose of our beta is to gather learnings to continue to refine and improve the product to meet the needs of consumers and merchants. Expansion of the rollout will continue as additional partners go live with National Public availability currently anticipated in 2016. At a fuel station customers may be asked to dip their card or type their zip code in to begin fueling. At a restaurant consumers wait for the server. Other merchants have a more selfservice experience. Weve specifically designed our Technology Platform to support the best, most progressive technologies. To deliver an Optimal Payments experience at any merchant to serve their customers in the best way possible, to deliver the best merchant experience we are best Consumer Experience at merchants were leveraging several types of solutions and are always looking to source the best options for consumers and merchants. At present we are working with several different Innovative Technologies including qr codes, Bluetooth Low Energy beacons and geo location providing the best User Experience regardless of location. Fundamentally, the current Payment System works well from a consumers perspective. Swiping a credit for debit card is widely accepted and easy to do and familiar. Were trying to provide more convenient and rewarding and safer ways to shop. Currency provides incentives by owner acceptance. Our merchants include National Leading retailers and regional leaders in many arenas. Were focused on the place consumers shop every day. Developing the network will give the consumers the available to shop with frequency. Allowing it to replace the card swipe over time while providing additional security and convenience. We believe consumers should have the convenience in mobile payments regardless of their hardware choices and because currency is cloud based its easily transferrable should a consumer choose to change their mobile device. We partnered with merchants as well. A consumer can choose to access currency directly or have the ability to garner the same benefits if they wish to use the merchant app. Merchants value their relationship with their customers and want to enhance the relationship adding value that motivates the consumers to shop in the store. Currency delivers by including Consumer Loyalty cards and accounts, empowering consumers to apply offers, coupons and promotions and when they pay in a single transaction. Our solution combines the benefits together in one qr code read. A consumer no longer has to remember a phone number or use a key chain to get discounts. We have the ability to deliver additional benefits such as item level coupons. In an effort to provide flexibility. Choi choice. Were testing different programs in columbus. Two of the most popular are a coupon for a free frosty, which is an ice cream cone. And with every purchase at wendys, a free gift with purchase at cvs. We are seeing that these are tangible motivators to the average consumers. Consumers can pay with a variety of accounts. Mcx signed a partnership with Jp Morgan Chase as well. It is anticipated that additional general Purpose Credit and debit cards will be available to the future. Were always open to adding new forms of payment to provide greater forms of convenience to consumers and allowing them to moving to pay with their favorite merchants using our payments platform. Were focused on leveraging innovative did secure technology. Consumers are inundated with Security Breaches and have become aware of the vulnerability of various Payment Methods and technology. Many consumers remain in the dark will how to leverage Security Technologies in their lives. We believe its incumbent upon us to not only use the latest Security Technology and educate consumers on how its working for them. We were our op uses secure dynamic tokens to facilitate transactions instead of constantly passing data between the consumer, merchant and Financial Institution. This mooeans the Payment Information is never stored on the device, is never stored on the merchant p. O. S. And if the dynamic token was stolen its worthless because it cant be used again. Miss dekinger let me ask you to wrap up. We have other witnesses to hear from. Okay. Thank you. Ill just finish this section. Our registration process includes several security questions, a fourdigit p. I. N. And consumers can disable their phones quickly and easley. We want to reiterate our appreciation for your interest in mobile technologies and providing us the opportunity to share about our innovation. We believe mobile payments will provide a better opportunity for merchants and consumers to experience an improved experience overall. Thank you. Chair thanks gentle lady. Miss hughes, youre recognized for five minutes. Thank you, mr. Chairman. Thank you members of the subcommittee and members of the committee here today. I am pleased to be here with you to talk about mobile payments generally and with a microphone it will be even better. Yes. And to talk about consumers in todays marketplace. And i am especially pleased, not only to be here with you but to be here with my longtime professional acquaintance, john muller of paypal. I have three disclaimers that are unique to me and a couple of others that relate to mobile that i think i should say. First, i am not here as a representative of indiana university, so the trustees dont stand behind what i say. This is my personal opinion. I am also not here as a representative of the uniform law commission, although im currently working on a Virtual Currency project with them and i am not here as a representative of the Federal Reserve systems Faster Payments Task force even though im also working with them on that. Those are the formal, usual disclaimers. Now the personal ones. I do use paypal. And i use paypal on my phone. I do use square, particularly to pay tickets and pay things as mr. Muller said, at Farmers Markets and at arts and crafts fairs and to make ticket purchases and i use both square and paypal to make charitable contributions. Its not just the Christmas Shopping season that we have right now, its also the end of year Charitable Fund drive and mobile payments are very important to charities. And as john segregated, even stationary ecommerce payments are very important to charities. I dont use apple pay or samsung, and the reason is because i dont have a new enough phone to make an apple pay, and i dont happen to be carrying samsung. So the committee asked us to look at four questions. And in the interest of time, the first was whether mobile payments were disrupting other forms of payments. And i personally believe the answer is not yet. And i am not certain when that moment will come when that will happen, but i think that it is a question of a level of adoption. And i am not positive, given that mobile payments will continue to rely on credit, debit and other traditional sources of the funds for clearing and settlements, the degree to which mobile payments will disrupt in the way that we typically use the term. I would prefer to say that mobile payments can augment. The second question the committee asked me to discuss was the security and what the technologies are. And while i agree that there have been some significant upturns in security, i like multifactor authorization, which we do not yet have with plastic cards in this country, but in other countries we do. I like the tokenization options, and i like the geolocation option from a security perspective. I must be honest. From a privacy perspective, i dont like the geolocation option quite so much, but that is because i am really a privacy hawk, and so i think that that is a significant issue. The hurdles that are existing to widespread consumer adoption of mobile payments include something that mcx is going to solve by allowing ubiquitous type utilities, but the other hurdle i believe requires significant Consumer Education expenses on the parts of the companies that are engaged in this. And i dont know whether you noticed, but yesterday i saw an ad, i thought for samsung on this score, and i know that there have been others, but i think that there is an absence of Consumer Education which could be significantly enhancing the opportunities in this field. Security depends in part on the contract between the user, me, and the providers. And so in addition to the Electronic Fund transfer act, which is older than my oldest child, who is 37, i think it also depends on the degree of supervision of payment processors who are not the providers and not chartered Financial Institutions to take good care of security in the middle, and the next question that you asked involved privacy in this ecosystem. Many years ago now, by comparison, the privacy was put into place in the bill and the bfrn banks lived with other privacy opportunities and responsibilities that they believe are considerable. I would welcome any questions that the committee may have. Thank you. Chair thanks the gentle lady. Mr. Ahn, youre recognized for five minutes. Chairman burgess. And members of the subcommittee, thank you for the opportunity to testify on behalf of samsung electronics, america. I would like to introduce you to samsung pay combining security, simplicity and widespread acceptance. Whether its fighting fraud or helping consumers zip through black friday checkout lines, samsung pay benefits consumers, retail merchants and Financial Institutions. For consumers, samsung pay is accepted virtually anywhere you can swipe or tap a card. Its secure, easy to use and simple. Swipe up. Ill demonstrate on my phone. Swipe up. To launch the application. Confirm your identity with the fingerprint. Hover the device over the payment terminal and pay. Its that simple. And has the widest acceptance of any mobile payment service. For merchants samsung pay helps merchants provide a secure, innovative and fast payment experience. It supports all payment terminal types, including Magnetic Stripe, nfc and the nv terminals. For Financial Institutions it has security features including tokenization and fingerprint authentication that limit fraud and reduce liability. Those are samsung pays benefits in broad strokes. Importantly, our innovation was made possible by the governments decision to have consumers pick the winners in the mobile payments space without additional regulations. Going forward, congress should continue to allow Consumer Choice to drive innovation and differential in this space. Before diving further, it might help if i highlighted samsungs presence in america and how our u. S. Employees are contributing to samsung pay. Were head quartered in new jersey and samsung traek drofrngs america is a recognized innovation leader. We employ approximately 15,000 people in america and our 15 billion investment in our austin Semi Conductor plant is the largest singlesite Foreign Direct Investment in america. Our u. S. Employees have driven much of the development and success. Several years ago samsung pays r d teams examined mobile payments. We found that consumers would transition from plastic cards to mobile payments if the Technology Solution is, one, secure, two, simple to use and, three, widely accepted at the most merchants nationwide. We concluded Many Companies with make a secure and easy to use solution but the trick is making the solution widely accepted by merchants. Current solutions rely on nfc, near field communications. Though nfc shows great promise only a small fraction of merchants in the United States have adopted nfc. Without the infrastructure in place for accepting nfc based transactions consumers acceptance of nfc only payments has remained low. Enter samsung pay. Unlike other mobile wallets you can pay at most any terminal where you can swipe a credit card. Were using new technology known as mst. Magnetic secure transmission. It leverages Magnetic Stripe Technology Already accepted by more than 30 million merchants around the world. It emulates a swipe transaction thanks to a tiny coil in our phones that transmits the same magnetic data and code that Magnetic Stripe readers normally get from a credit card or debit card. By including both types in our phones it enables customers to make secure payments almost anywhere regardless of the mercha merchants point of sale equipment. Because of the wide Merchant Acceptance we can make a meaningful contribution to Payment Security by enabling the largest footprint of secure tokenized payments. With tokenization, samsung pay never provides a consumers personal account number to a merchant. It provides merchants with tokens that enable the merchant to process a transaction without exposing customer information to potential data thieves. Samsung pay utilizes biometrics as well allowing users to provide a fingerprint to authenticate a transaction. It keeps all payment data locked and secure. Getting user privacy right is critical. For samsung pay we do not and cannot monitor user purchases. The transactional details are encrypted and only decrypted on the consumers device. We want all consumers regardless of income to make secure payments. No other mobile manufacturer reaches as diverse an audience as samsung or offers its consumers such a wide array of products. We are closely examining how to include samsung pay in a greater range of devices. We would welcome your thoughts and input from your constituents. Thank you for allowing samsung to share our thoughts and benefits about mobile payments at this hearing. Chair thanks the gentleman. Chair thanks all of our witnesses by providing testimony today and food for thought. Well move into now the member question part of the hearing. Ill begin recognizing myself for five minutes for questions. Miss dekinger, let me ask you, obviously weve heard from mr. Ahn about some things that are rather device specific, you talk about being agnostic as to the type of device. So how does that interplay into the Consumer Experience, having a device any device which is then able to use your product . Thank you so much for your question. We are were very focused on creating Consumer Choice and enhancing that, making it available to all consumers. We feel like its very important to have consumers have the option to use whatever device theyd like to. We have designed our technology to work on all smartphones. Virtually any smartphone that a consumer has can leverage our technology pretty easily. I have to ask the question. What about a flip phone . Some of us still have them. Were not quite there yet. Not quite there yet. Mr. Ahn, you bring up some great points. I think you heard Ranking Member pallone talk about providing services to the unbanked in places where the infrastructure for checktobank does not exist, whether it be because of civil strife or warfare or poverty. So you actually could to some degree bridge that gap, could you not, with the devices that youre talking about . Thats right. We have the opportunity through our phone ecosystem and remember we have over 700 million devices in market around the world. We are a global company. We have the opportunity through our application to provide Payment Solutions that are relevant for consumers. What were doing in the United States with our recent launch of samsung pay is providing an opportunity for the user, the consumer, to pay at any merchant location, whether its a bigbox retailer like many of the mcx merchants for small popandmom shops. Were in discussions as partners. We were designed to be a consoretia of the largest merchants. We think that we need to go beyond just largebox retailers into momandpop stores, anywhere there is a transaction we want to be there for the consumer. Thats our nearterm opportunity. Having said that, i think its in early stages of this payment ecosystem, and all innovations are helpful, as a rising tide lifts all boats, we want all innovations to succeed and move the Payment System ecosystem forward, primarily creating additional security for the user moving forward. Mr. Muller, let me ask you, paypal, one of the originals and i think in fact, when i ran my First Campaign 13 or 14 years ago, i actually had a paypal option that, as far as for people who wanted to support. But you have probably had more experience in this space than almost anyone else. How do you how do you leverage the security . How do you add layers of security to or additional layers of security for the transactions for the consumers . Its always a matter of trying to add security with user convenience. And the User Experience. And thats what the mobile device offers in a somewhat unique way is the way to improve both the User Experience and security. And thats a rare thing in the payments field. Through the kind of technologies weve already mentioned like the device location or unique device identifier and do it in a way where the user controls what information theyre sharing. So thats the holy grail were all trying to achieve. And also want to emphasize that all of the same risk programs are still running in the background, so its we dont assume that there is a Silver Bullet type solution in security. So even if we do have a customer who is taking advantage, say, of the fingerprint authentication or device location and they pass that test, were still running all these other tests in the background looking for risk variables in the transaction. So its a matter of adding to riskreducing programs that already exist, not substituting them purely with new types of authentication or security. Well, thank you. I do just want to this is not a question. Its an observation. We had a hearing here not too terribly long ago about Senior Citizens who were taken advantage of by various phone solicitations. And as this Technology Becomes easier and more ingrained, i would just ask you to be thinking about weve always got to stay one step ahead of the very clever thief out there. So to help protect Senior Citizens against this type of activity, do be thinking about what type of safeguards may be incorporated into the technology. With that im going to recognize miss schakowsky for five minutes for questions. Miss dekinger, we celebrated Small Business saturday. I went to a number of Small Businesses, took selfies, in my neighborhood. So your technology right now really favors larger operations, right . At the moment, yes. We are in early stages of a pilot at the moment, so were still developing our technology and working to build a network that consumers can use currency in places where they shop every day, yes. I wanted to ask some questions about Consumer Privacy. Professor hughes, what kind of data is collected by these apps, and is that data different from what a more traditional means of payment might collect, like a credit card . So, thank you, miss schakowsky. I think it depends a great deal on the system. Mr. Ahn has just said that samsung pay, which is relatively recently introduced in the United States, does not i did it again does not have does not allow the merchant to see any of the information. And so the authentication device does not share that information with the merchant. It operates in a more traditional way like an escrow service, if i understood you correctly, for that information. You keep it. And youre passing the payment through but youre not passing the consumers information through. So why dont we is that a correct description . That is correct. The way we implement today is we send a data package over that is encrypted and no one sees whats inside. Is that unique to your company, or no. No, its not. But its not mandated in any way right now, right . This is unregulated. This is one implementation of tokenization thats prevalent in the market by leading technology companies. Go ahead. I was about to say but i think your clarification was extremely helpful, that paypal also operates in an escrow mode, because the transaction information flows into paypal, and then paypal processes the payment transaction in a way thats lots more like an escrow than many people believe. That is not true of every app that might be available. Which is one of the reasons why i said, when it comes to security and indeed to privacy also, it really depends on who the provider is whether its a Branded Company like paypal and samsung, whether its an app for another purpose. The manner in which tokenization is employed is also very random at this stage. So there are a number of alternatives that do not have the same levels of security and or customer privacy as samsung and paypal have. You know, my experience with these kinds of things is that they ask you to accept the deal, and that is preceded by a lot of stuff on a very small device that you have to figure out in legalese whether or not you push accept. I would challenge almost anyone whether or not they really carefully scrutinize those things before pushing i accept. And then moving on to use. Im just wondering, if since there are alternatives, some more secure than others, should there be some standardization . Should there be some requirements to protect Consumer Privacy . Well, i have mentioned earlier that i am a privacy hawk, but i believe very firmly that everybody should have the Privacy Protections that congress and many states have already provided, particularly congress has provided. I believe that everybody should have the same access to those Privacy Protections, but i also believe that one of the Dynamic Forces in mobile payments is the ability to compete to provide better than other people do. So the companies that are working with multifactor authentication, working with tokenization, that are doing as mr. Muller suggested, continuing to run their risk platforms which are oldfashioned Artificial Intelligence operations in the background of their monitoring the payments transactions that are coming through their systems, those are, though as long as there is a floor, then i believe people should be able to compete to offer better tokenization, more extensive or unique thats something were going to have to consider, if we think competition based on level of risk and protection for consumers is a legitimate way to compete. I have actually run out of time, so im going to yield back. Would you like me to answer the question . Please respond. So i think the answer is right now, among the various Payment Systems in the United States, there is already a broad array of risk that relates to privacy and security. And because we have silos around different kinds of payments, this has been the constant in the markplaet place back to the 1970s or early 1960s. Efforts to harmonize that were not successful in the past. And whether they can be successful in the future remains to be seen. Can i just say, i am not talking about necessarily harmonizing the method or the technology, but i am talking about setting a level of risk that is acceptable in the marketplace. Im going to i need to move on. Chair thanks the gentlelady. Chair recognizes the vice chair of the full Committee Miss blackburn for five minutes. Miss schakowsky might be moving on, but ill kind of put a comment to the end of her words. We have had a privacy and Data Security working group here at energy and commerce. And we all are focused on making certain that consumers are safe in the marketplace. Mr. Welch and i have worked on a Data Security bill, and we continue to try to push this forward so that we can do some preempti preemption, establish some breach notification and bring some certainty to bear. So i appreciate the questions that are being asked around this issue this morning. And we hope that you appreciate them too. Miss dekinger, i want to come to you. Those of us who appreciate the virtual marketplace and want to see people in it, and then we see articles like this. And it makes you go, ouch okay. It is the apple pay rival and walmartbacked mcx hacked, user emails snatched. And this is was in your beta test period. It was october 2014. It was a forbes article that was written written about this. And mr. Chairman, i am going to pass this down so miss schakowsky can see it because i know she is like me on this privacy issue, very concerned about that. I want you to provide some information about that hack and what you did on resolving it. Yes. Thank you so much for the question. Sure. So our a subcontractor of mcx, not mcx itself, had a security incident where some emails were released. That subcontractor was terminated as a partner of how long did it take you to isolate the hack . Immediately. We also opted to notify folks within hours of finding out, very rapidly after finding out that this occurred. We have taken extensive precautions, security is very important to us. Obviously its very important to our users. We have taken extraordinary precautions to address that he issues that we found with that subcontractor with additional subcontractors. We have continued to evolve our security platform. There are always as someone mentioned cleverer and creative criminals out there who will seek to look for data and no security is perfect, but we are working very hard to achieve a as perfect let me pick up on that evolution and this process. Talk to me about what precautions you are taking around Data Security when it comes to the multifactor authentication or tokenization . What are you moving toward, and are you pleased with those advances . And im coming to each one of the rest of you on this panel, so get ready. Okay. So we have clock is ticking. 30 seconds. We have a crossfunctional security counsel and we meet to discuss the latest technology and security innovations. Were always evaluating whats possible to make things for secure for consumers and merchants and for the app. Were always, always implementing the stateoftheart technology that we can, whatever is available for us to implement and well continue to do so. Obviously the trust of consumers and their feeling of security when using an app is of the utmost importance and we recognize that. So weve worked to make sure that we are always staying on the cutting edge. Mr. Muller. So i think, for all of us, youll probably hear the theme that its constant battle and constant investment in security because the fraudsters are out there also continually changing their methods of attack. So we try to make that investment, and its certainly a huge part of our cost base. And then we also try to do what we can, first of all, to minimize data collection, because frankly, if we dont have the data, then even if we were somehow to be breached, it would be less vulnerable. Okay. Mr. Ahn, im going to come to you. Talk about the Fast Identity Online Alliance and your protections. Sure. So the security protocols we put in place are quite extensive. We think about putting multiple walls up so they have to hop over many steps to reach the authorization. At the integrated chip level, the microprocessor alone has a way for us through knocks, our proprietary solution, to shut down in the event of a routing event. T if the phone is lost or stolen we have the ability to remotely turn off payment credentials completely and turn them back on. When the Card Networks so hold on. You have three tiers of encryption before you get to we have multiple ways to protect consumer information. Also the Card Networks and Credit Card Companies we work with themselves have the ability to remotely turn on and off tokens. And so what happens the most important piece is we have purposely architected our solution to not store personal information. We only pass along a token. So, for us, there is no Central Point to hack. Only information thats available temporarily is transaction history for the last ten transactions on your device. This one device is not a rich enough target for fraudsters. Thats how we view security. Thank you. Yield back. Chair thanks the gentle lady and recognizes the gentleman from new jersey. Ranking member mr. Pallone for five minutes. Professor hughes, a consumers ability to dispute unauthorized charges on a mobile payment varies depending on the Payment Method being used. For example, a consumers liability for unauthorized charges on a credit card after a certain date is lower than on a debit card. Could you tell me, what protections are available to consumers who do not have access to a credit or debit card and choose to link a mobile payment to their mobile phone bill . I believe mic. Your mic. I did it again. There we go. I believe representative pallone, that you have hit upon the single greatest challenge from the consumer perspective. And this particularly affects unbanked and underbanked individuals. So the persons who are using credit cards and debit cards have access to two federal statutes that have been in place in one case for more than 40 years and in the other case for 37plus years. The fair credit billing act and the Electronic Fund transfer act. You are correct that their standards are slightly different. You have to report faster on eft transactions than on a credit card transaction. And your liability can be different, although, visa and mastercard on the credit card side, have a no liability policy, paypal, as i remember, since i am a paypal user, does have a noliability policy. And there are other opportunities. The consumer, however, who is billing to a mobile phone statement as opposed to using a Financial Institution for the clearing and settlement of the payment theyre making does not have the same level of protections because those are both either because there is a credit card present or a bank account present. And so, the credit and debit parts are access devices to those two different kinds of accounts that many people who are unbanked certainly they wont have debit cards, although they may have prepaid or payroll cards. And the prepaid and payroll cards are increasingly being brought under the Electronic Funds transfer act. So the key gap at the moment is the person who is billing something to their mobile phone account without some other Financial Services provider doing the clearing and settlement for the payments. And that is the gap that exists in federal legislation right now and that is a gap that also exists in the states. So you said that, with prepaid cards and what about gift cards there is some protection. Thats correct. Not all of the Electronic Fund transfer protections currently extend to gift cards. Some of the issues about dispute resolution do not extend all the way through the gift card family at this stage. So that the and payroll cards have better protections than regular gift cards do in the same environment because of efforts to bring them under the Electronic Fund transfer act. What do you suggest that we do legislatively, agency action, whatever, to have the strongest protections for all of these Different Things . Particularly the ones that have the lesser protection based on what you said. Well, one issue which this committee doesnt have is jurisdiction. So the federal trade commission doesnt have jurisdiction over carriers for that purpose, for example, and i dont believe the cfpb does either. The states because of the strength of the federal communications act, i dont think the states have authority to do all of this work. If you wanted to do that, i think it would be up to congress to instruct the federal communications commission, giving them some Additional Authority to play in that realm or to extend the reach if you felt it was important to extend the reach to persons who do not use Financial Institutions and access devices to accounts, either credit cards or debit cards, to have comparable protections. I havent thought about exactly what those would look like, but i think its an extremely interesting topic. All right. I have just a little time. With so many vendors and third parties involved in some of the mobile Payment Transactions i was concerned that consumers could be given the runaround, each vendor pointing the finger at another. You want to comment on that . We only have a little bit of time. I think that the consumers may go to vendors for that purpose but i think consumers largely go to their Financial Service providers, whether its samsung and paypal or their bank, for to get resolution of disputes. The one gap you have identified, sir, is the one where theyre not having to have that person to help them. Not in the same fashion. Thank you. Thank you, mr. Chairman. Gentleman yields back. Gentleman thanks the gentleman. Chair recognizes the other gentleman from new jersey, the vice chair of the subcommittee mr. Lance, five minutes for questions. Thank you, chairman burgess. Miss dekinger, it is apparent that one of the biggest hurdles to getting consumers to adopt a certain Payment Method is scale. What steps need to be taken in order for a Payment Method to be accepted with enough ubiquity that consumers find it to be beneficial and, from your perspective, are there any legal impediments in order to make sure that this is the case, that we can move forward . Thank you so much for your question. We believe fundamentally that you have to have what i mentioned earlier, which is muscle memory for consumers. Theyre very comfortable with their current forms of payment, going to a store and swiping a credit card and its not difficult for them. Getting them to change that behavior we believe requires having a presence at places where they shop every day multiple times. We believe that our Network Includes that kind of scale and has that great reach, consumers are gassing up at fuel stations several times a week, if not once a week. Theyre at coffee shops. Theyre at big retailers doing their grocery shopping. We feel like having that scale will drive that adoption and regular usage that will create the muscle memory for users to get used to using a new form of payment. I dont feel there are any legal restrictions to prevent us from gaining that scale. I welcome other input. Anyone else on the panel . Professor hughes . I would degree with miss dekinger that there are no legal impertives or hurdles to the greater adoption. As i mentioned earlier in response to a question from the chairman, i believe it is one which may involve Consumer Education more than anything else. And i think that the it may also be generational. And so, i think its its millennials are more likely to use mobile payments than other older people. My mother who was very clever never used an atm. Not because she didnt feel like it. But because she wasnt a particularly mechanical person. Is the current options available, is a difference between us and other parts of the world where the Banking System is not as robust, where the penetrations of the samsung and paypal style opportunities are not as great. And where, in the case of some, you have to have a smartphone and a new enough smartphone to use it. Youre going to see, in older generations and in less affluent generations, lots of smartphones but not everybody has one. And so the mechanical barrier may be, depending upon the nature of the service being offered, the mechanical barrier of what kind of device you have available for this purpose, which is something that just takes a maturation of a marketplace. Thank you. Mr. Muller, you said how many transactions from paypal is year . A billion, did you say . A billion in 2014. There will be believe thmore because it was 350 million in the last quarter . What percentage are in the United States and what percentage are in europe and what percentage are in asia . So our largest markets overall in the world are by and large the englishspeaking countries, u. S. , uk, canada, australia. Also germany. And in all of them we see pretty comparable rates of mobile payment as a proportion of total payment. So getting towards a third of all of our payments are on the mobile device, again, usually either a phone or a tablet thats used where five years ago they would have used a laptop or a desktop. Thank you. Mr. Ahn, explain samsungs latest device in your testimony. What did you say that samsung is doing next . Samsung card . Samsung the question is with respect to our product . Yes. Ecosystem. Today we have flagship devices by we call galaxy and note. We are looking at future devices in a broader ecosystem where we can put samsung pay onto them. Whether there are additional mobile devices or even wearables. We are looking at a broad ecosystem. A wearable would be a watch . A watch. And you could then purchase items or pay for items from that device. Thats part of our thinking. Has that occurred yet, or is that still in development . Were evaluating and developing now, as we speak. Thank you. Thank you for making new jersey your headquarters in this part of the world. Were deeply appreciative of that. I have been at your World Headquarters in seoul and have been deeply impressed. I yield back. Chair recognizes the gentlelady from new york, miss clarke, for five minutes. Thank you, mr. Chairman. And i thank our Ranking Member. Transparency. Unlike simple cash transactions, using a mobile Payment System can bring in unseen third parties. So professor hughes, it seems like there are often many entities involved in mobile Payment Transactions than consumers may realize. How can we ensure consumers know who is involved in their mobile payment transaction apart from themselves and the service that they are directly interacting with . Representative clarke, that is a very interesting question, and i believe it is one to which we do not have a very clear answer. So i think that there are systems that operate particularly apps, not services of the kinds being offered by paypal and samsung. And where the app is involved it is much more likely that there are unknown third parties involved in processing for the merchant, particularly because merchants use a lot of thirdparty payment processors. And thirdparty payment processors are among the least regulated entities in the payment space today. Theyre not very well regulated by the states. Some are regulated as money transmitters, some are not and theyre not particularly well addressed by congressional legislation to this point. Asking the merchant, for example, or the app provider, to make that kind of disclosure could possibly be more burdensome than it would be worth. So i think its more important to ask and each of these groups and others do for people to engage in robust supervision of the choice of providers that they use along a track that may be involved and to supervise them appropriately for Risk Management purposes. The members of this panel might not be excited, but you might care to read a study that was issued in august of 2015 by the Clearing House Payments Company on the which i would be happy to provide to your staff, if someone tells me to which person it should be sent. That study talks about this issue in particular in greater depth than i have time to do this morning or you do. And so i would suggest that it might be something that you would read on that particular narrow subject, which is quite an important one. So let me i urge you not to make it too complicated because People Choose providers based on their history with them, and it would be very difficult to make new disclosures constantly if you had to abandon a provider because they didnt behave appropriately and choose a new one i think were concerned more about breaches. You know, youre then dealing with many more entities that are holding the data. Right . So but let me move to ask about lack of transparency and consumer consent. The notion of consumer consent. How can consumers consent to business relationships with entities that theyre unaware of . Well, representative clarke, thats a very complicated question. And i think that, as there are already lots of payment processors operating in the United States where were not getting were not seeing a lot of transparent consent, i think that it may be the necessary level of consent may be the consumer who chooses the Payment Method and the consumer who chooses the merchant at this point. And i firmly believe that the mechanics of this are such that we should put the primary focus on the merchant to choose wisely and on the payment provider to choose wisely and to ask them to perform the functions that are currently present in federal and state law. To supervise them. Do you believe that Greater Transparency could encourage more consumer use of mobile payments, because certainly consumers who are unwilling to use mobile Payment Services may feel unsure will who will have access to their data afterward. That too, representative clarke, is an excellent question. And i think there is i think the more that consumers understand how mobile payments work, as a general as opposed to a specific proposition but perhaps both, the more theyre likely to use them. Just like with atms years ago, there was a period of adoption, and it made a difference but atms dont have a third party. You can walk into some do, actually. Right. Kiosks in stores and other places have a landscape and an ecosystem that is very much like mobile payments today. So the answer is, but there youre talking about your bank and youre talking about the place where you used the machine, assuming you remember where it is, and its usually on your receipt. Im not sure that is so much different than what consumers are already dealing with with a fair amount of comfort. I just think they need more education. I yield back. Chair recognizes the gentleman from mississippi, mr. Harper, for five minutes. Thank you, mr. Chairman. Thanks to each of you for being here. I guess i would have to say that i never envisioned that the title of mobile payments would be exciting. So its an incredible topic. And it is affecting our lives in so many ways as we look at this. And so i am all in. This is a great topic. Mr. Muller, if i could start with you, in your testimony you mentioned that paypal has been involved in mobile Payments Innovation since the palmpilot devices. What have been some turning points that you have seen in the development of mobile payments from paypals perspective, and what are the next big applications that we should be on the lookout for . So, you know, like most companies, there have been some successes but also some learning opportunities. One was, as i mentioned, the switch away from the palm pilot as the focus towards email and internet connection. A Second Generation really starting, i think, in 2006. We launched a mobile payment feature available to users to make payments mostly intended for person to person, but a few also businesses that signed up using text message and just sending a text message with a certain with the amount and a certain code in it. And that, frankly, was not very successful. I think largely for some of the reasons that have come up about security and many consumers just feeling a little bit too uncertain that just by pushing a text message, that the money would go to the right place and be credited correctly. So that does that mean it was too simple to give does that mean it was too simple to give confidence . Well, i think perhaps to some degree, i dont know if too simple or just too unclear, too Little Information associated with the actual transaction itself. And this was at a time before, just before the iphone. So were still talking about flip phones and other types of phones with very small screens. So the whole texter of the experience to some degree was not as comforting as is available today with smartphones and larger screens. So i think we have learned that lesson. And the big part of what weve done that got us to the 1 billion transaction number i mentioned is not just building mobile apps and experience on the consumer side but also helping our merchants who are by and large mostly small and mediumsized businesses optimize their website and their checkout pages for mobile devices so their experience is as good as it can be on the smaller screen. So whats the next big thing to look for until where are we headed . Well, so one thing that is already live for us, and its an experience, again, that many other Payment Companies are also, in their way matching or trying to is what we call the onetouch experience, taking advantage of the information that the consumer has chosen to share with us, recognizing them the next time they go shopping, even at a different merchant than theyve shopped at before. We can recognize them, so they dont have to type in information on a small screen. We can recognize them if theyve chosen to opt in to this feature and improving the Shopping Experience and the merchant checkout. And the other set, say is at the point of sale where today certainly paypal is less prominent, but finding that right match of convenience and Merchant Acceptance. And speed and security, something all of us are working on. And thats coming. Just who unlocks the right combination is yet to be seen. You know, our times almost up, but i do, one phrase that was of interest was in your testimony you note that 17 of the most unbanked places are in mississippi. How do you envision increasing options in those communities . So thats another challenge for the industry as a whole that were eager to take on and do more. Today id say really the primary vehicle of linking the unbanked to mobile transactions is through prepaid cards or prepaid accounts of different kinds that different providers are offering. You know, and there are, of course, starting with baseline that many of the financially underserved today do have smartphones, and so i apologize, my time is well over. Mr. Chairman, i yield back. Thank you. Gentleman yields back. Chair recognizes the gentleman from mr. California, mr. Cardenas. Thank you mr. Chairman and thank you to all the witnesses here enlightening us on what has been, what is and what may be coming in the future. But i think the main concern of this to me is the safety and security of americans and people in our country, whether theyre visiting or what have you, making sure that they feel comfortable and confident that we have a system that actually works and works for as many people as possible. Speaking of as many people as possible, there are still communities here in the United States of america that are underbanked and underserved by Financial Institutions, et cetera, so they tend not to see the safest and best technologies, and unfortunately, sometimes actually are subject to more problems, because they dont have the best systems available to them. That being the case, when it comes to these kinds of communities, how can mobile Payment Providers better reach minority communities and underserved or poor communities and ensure that these consumers also enjoy the safe and communic commerce that everyone else expects or can experience . The main thing there is certainly, if theres a community with a lot of wealth and a lot of activity and probably a bigger contributor to the billion transaction mark, you have other communities that want to be participate, yet at the same time, how do we make sure that those, that we have an even system that is available to them, really . Professor . Well, i think this is a true, truly important challenge. And i think that mobile payments are an enormous opportunity to help unbanked and underbanked individuals. Unbanked individuals dont have Bank Accounts. Underbanked individuals may just not have a bank very close by. And if we think about the use, the ability of someone to make a payment remotely or to take a payment from an employer or to pay their rent using their mobile device and not having to take time off from work to do that or to take time to go to the bank to deposit checks and the like, i think that the underbanked communities that have Bank Accounts or other credit union accounts et cetera, but may not have time to get there during reasonable work hours are among the communities that will benefit the most from mobile payments. I think the opportunities in those markets are huge. I think they will help the citizens of mississippi and california and the other jurisdictions that are here. They will help inner city people as well, people who no longer have a Corner Branch of a bank to help them, and, because, as mr. Muller suggested, there are opportunities to use prepaid cards, including payroll cards and to spend money out of them, using devices of this kind, the opportunities for unbanked and underbanked persons and minority individuals residing in rural or very urban communities expand. The last thing i would say, sir, is that the least secure thing on the face of the planet in the United States, at least, is cash. So if you have a way to link to some form of an account and to use it as if you were using your bank account through a mobile payment, you may level the field for lots of people to participate in commerce, both the recipients of payments and as people who can make payments on time and therefore avoid late fees and charges that are associated and that these opportunities are enormous for helping a lot more americans have a lot better access to Payment Options than they have had in the past. My last question, because our time is limited, is its interesting that 60 minutes talked about this Payment System in kenya that you talked about, mr. Muller, that has to do with the texting, and it doesnt have to be a smartphone, et cetera. The thing that concerns me about that isnt that its kind of cool. Its that the safety of those individuals in those transactions are a lot more vulnerable than perhaps that americans that were not as vulnerable with the systems we have. Id like to know as quickly as possible due to constraints of time. We do have regulations and benchmarks and Push Industries to make sure they have safeguards, is that something helpful to the industry . Or is that something you can do without . Id say, certainly, its helpful in general. Of course the right kind of regulation. But in general, regulation is certainly one component that leads to consumer adoption. And, as you said, if people viewed these kinds of transactions as really the same as cash with no purchase protection or no protection against unauthorized transactions, they would be much less inclined to use it. So regulation is one component of addressing that issue. Industry efforts like visa and mastercard and paypal, zero liability all come together to relate to the Global Mobile adoption for all of us. Thank you. I yield back my time. Gentleman yields back. Chair recognizes the gentleman from kentucky. I was reading a biography of andrew jackson. Its amazing, moving an army, all the other things he did, one of his biggest things was how did he pay people. Was it going to be barter. So were talking about how to move it in the best and safe, efficient way. I was watching a Football Game this weekend. And samsung had their advertisements. I remember seeing the app were talking about here today. And i grew up in a rural grocery store. So i always view things through rural. It seems like anywhere you can pay with a credit card you can pay with the phone. If you can pay at a pump, your phone works in all applications like that . So if any merchant takes a credit card you have the ability to use your application in. Congressman, thank you for the question. When we say virtually anywhere, what were talking about is a very high percent able of locations and terminals that accept a credit card or debit card. There are instances such as dip readers, gas stations, atms, and a small percentage of merchants where the technology, Software Needs to be upgraded for us to get to everywhere. So were not there yet, but were ahead of the competition. My first question was mixes of security. You answered that with ms. Blackburn, i think. So does it prevent the consumer from doing it to themselves, i guess . Does your social security, are there things the Consumer Needs to do once they use your phone, your phone can the consumer, like, the old days when youd swipe a card and you didnt throw the receipt away and somebody took it out of your garbage, is there something the consumer is essentially protected by password protection and fingerprint thats required to open up the app. Everything theyre doing is sitting behind that level of protection. We dont publish that information. Its not easily accessible. And the consumer has full control over that. To that extent, it is secure. In terms of userability, i think all have issue. And so its going to take the ecosystem to Work Together to help educate consumers about the advantages of having more secure payments and a new way of tapping, a new way of paying. This is happening in different parts of the world. Western europe is more tap sen trick payment countries. In the u. S. , were further behind. However, as a technology company, were very optimistic about technology advances. Five years ago, the smartphone penetration was very different. New applications and services are quickly adopted if theyre helpful and make an impact. Were hopeful theres enough utility, security and a better experience to encourage consumers to move toward this technologycentered way of paying. I understand paypal utilizes the cloud for storage of consumers Payment Information. Why did you choose to use the cloud instead of the phone or the app. Is it more secure . Well, for us, it was partly out of necessity in that we dont have the same access to mobile phone hardware and operating system that some of the other companies that are operating point of sale payments through mobile device do. But also we do think there is some advantage of storing the information in the cloud. And not, certainly not storing any of the information on the device. I mean, thats clear. Thats undesirable. But also, we dont have the same access to the device as the hand set manufacturer might. So being in the cloud, youre obviously, paypals not a device. Youre not device specific then. Yes. So what innovations have you seen over the last year or two that would make online payment data more tie namic and less useful for criminals . Well, certainly tokenization continues to develop. Its just started. So its certainly not static by any means, but the first really live implementation of tokenization in a practical way that weve seen is a big step forward. And the controls that can be built in for onetime use of the token. Merchantspecific use of the token. All those are certainly step forward compared to where we have been with the primary account number being stored or transmitted in many ways. So thats probably a major recent development. There are new ones coming out all the time that we read about, so its an exciting field with certainly dynamic codes. Sort of the three digit or fourdigit code on the back of your card that youre used to entering. Now companies coming up with a way to generate that and change it for every transaction. New developments coming out, and there will be more to come. Thank you. I only have 15 seconds. Im not going to ask another question. I yield back. Thank you, mr. Kenzinger. Thank you mr. Chairman. The innovation of mobile payment is at the forefront of many consumers minds, including those thinking about purchasing a new smartphone and all those who want to make sure their transaction are safe and secure. Its subject to some suspicion before adoption, and many Consumers Want to know if their personal information including financial and personal Health Information will remain protected and private. Certainly, no system is foolproof. In the Technology World we frequently read about cyber hacks. Consumers have a right to be excited about new technology, but im hopeful todays conversation will showcase some of the Great Strides we have made and what its future can look like. Mr. Muller, the number of smartphones in the u. S. Continues to grow. And obviously mobile payments are increasing in popularity. Over the course of paypals involvement with consumers, what has been the keys to adoption, and what have been your Biggest Challenges . Certainly one of the keys is the one you mentioned, which we certainly cant take credit for, which is the proliferation of the smartphone and the affordable smartphone through the work of the hand set manufacturers and mobile carriers. And thats probably, thats the baseline for all adoption that weve been talking about. And then, really, there is just the passage of time as weve seen with other payments, devices. Professor hughes mentioned the atm card, the credit card, the debit card as a purchase device. Consumers get comfortable through word of mouth, through, theres always early adopters, and thats one of the things were lucky to have in the u. S. Is people who are eager to try new things. And if it works for them to spread the word. So, and then ultimately another important factor has been the Merchant Adoption and getting the merchants to realize this is something thats good for them as well, creates a good experience for their buyers and ultimately more transaction for them. And so just that extra nudge from some of the merchants to encourage their consumers to try their app on the mobile phone. That can be the deciding factor for many consumers. And you also, you know, you obviously described when you started up, you called it basically an early form of tokenization. Very like 50,000 foot level. Can you describe how your security methods have evolved over the years from 16 years ago to today. The basic component, what we were referring to as that early form of tokenization is just not, not creating a process where the merchant receives the card number in the first place. So with paypal, they receive news of the payment in the form of either an email or for some more advanced merchants, they might receive an automated notice to their systems, or they can just go look at their account to see that the payment is there. But in any case, theyre not receiving the consumers card or Bank Account Information to start with. So thats a similar concept to what tokenization is now achieving more broadly. That, of course, makes it incumbent on us. We are receiving the account information, to protect that account information. We have the good fortune as one of our founders was, and still is, a Computer Security expert and designed the system in a solid way. And of course, as i said earlier, continuing to make investments on that foundation for both encryption of the data and limited access, even by employees to the data. Well, mr. Ahn, i hope i said that correct. Some of the security concerns ive heard raised with the nfc mobile payments are eavesdropping, interception. You discussed that these are real concerned or misconceptions and perhaps how the samsung pay approach addresses some of these. Some of the concerns you mentioned are real. Some are misconceptions. The real concerns are related to device theft and loss. They relate to relay tax. There are a number and host of ways that fraudsters can steal information. And our job is to be ever vigilant and put the most and best security features in cooperation with our partners with issuing banks, the visas, mastercards of the World Networks and make sure we have as much fortification as possible. With regard to samsung pay, we have looked at every possible angle of security, and it starts at the baseline level and moves all the way up. We are very, very concerned about security. As a matter of background, samsung is one of the mostrespected brands around the world. We have a very strong relationship with a large base of consumers. That relationship and trust in brand is sacrosanct to us. We will index heavily toward security. And yet, a viable consumer solution, you have to have it usable and simple. Thats our challenge and burden to bear. So we take that very, very seriously and would be happy to share more information in detail. Thank you, mr. Chair, i yield back. Thank you very much. Congresswoman brooks. This past august i had the opportunity to visit tanzania, africa, where i saw the majority of the population utilizing mobile payments. And paying for everything from cabs to our, to a dinner tab to the hotel stays, and so the mobile Payment Technology, i think, is incredibly advanced in africa. And we know that a large part of subsaharan africa, traditional bankings been hampered by a lot of infrastructure problems and transportation, and we now know that so many people worldwide, approximately 2. 5 billion people dont have accounts at Financial Institutions. Its allowing these communities for the unbanked and underbanked to conduct business. Im curious how it is that africa in many ways has leap frogged over the United States in using this technology. And it was being used in the smallest of shops and to the large hotels. So im curious, particularly for anyone with companies with the international background, how and why did that happen . Mr. Ahn . And what should we be thinking about in seeing that, you know, other countries and im talking about visiting with people in huts. And that didnt even have significant access to electricity at times. And so a lot of them were charging their phones with solarpowered devices and so forth. But how is it that africa has, i think, advanced so much faster than we have . So congresswoman, one thing i would add is the examples in africa highlight that necessity is the mother of invention. In africa, the Financial Institutions and the infrastructure for typical banking is at such a state of underdevelopment that those in need of payment remittance, access to funds needed to find some other way to move money around, pay each other and to conduct commerce. So these Payment Solutions in kenya and in other applications leap frogged Banking Institutions in such a way to provide viable payment commerce. And what we learned for developing countries and us is we were asked how we serve our underbanked populations and provide access to as many people as possible for these Payment Solutions. For us, our view is that mobile changes everything. Mobile does not tie you down to location or place. As ms. Hughes was saying, you can, at your own time, at your own choosing of location, conduct transactions and services that are important to you and have access on a more equal Playing Field than if you were tied to time and place. With mobile coming into the picture we believe our job now is to open up access to the services and products for consumers. We have a large device footprint. We want as i mentioned in my testimony, we have plans to evaluate broader ways to provide it on more devices. When previous generation phones are in market, they come down making it more accessible to different consumers. In addition, we know from our own data that samsung as an oem has one of the highest percentages if not the leading percentage of share of market as well as in lower income populations. The way weve constructed our solution is to be, to open our doors for all payment types. What that means is that we can support credit cards. We will roll out gift cards. Thats how we think about this. Thank you and professor hughes, im curious what you believe the impact is going to be for this type of Payment Method for the, is there going to be any burden of entery for entrepreneurs . Or tung this will be beneficial to them . Congressman, i think this is oh, i did it. Just didnt happen. Thank you. I think this is a boon to Small Business. And arts ogss and charitable causes around the country. It will allow them to take payments they may not have been able to take before in a speedy and secure environment. We should be optimistic about the future to serve banked and Small Businesses. I have a challenge for you. In preparing my questions for this morning, this system, i relied on advice from people here in d. C. , lots of folks back home and two of my own personal experts. My two teenagers. 18yearold daughter and my 15yearold son. They are all about mobile. Thats all they know. Can you explain how your mobile technology works, that i can explain to my daughter and son, hey, samsungs got this great vision. How can you explain it in english . So, apparently, previous testimony was that was good. The young population is important demographic to follow what they do and what their habits are leading indicators of what new Consumer Trends will be. For them, whats important is the ability to focus their life around services and xwoods that revolve around the mobile device. We want a future where consumers have the ability to pay in a store, offline, inside an application, in app, uber or in a mobile web context. Anywhere you are in any space that you are, we want you to be able to pay with a secure credentials youve loaded and so, we have that opportunity as weve billed out our product road map. It allows you the take a credit card or debit card or any other payment instrument, put it into the phone and make a secure payment at the terminal. Over time, we expect to create more Intelligence Services that create more consumer impact. Things we cant discuss today, but over time, we expect the ability to pay with a phone allows us to actually personal identifying information after a transaction with your mobile system . You know that the phone belongs to a certain user, but no Additional Information is left. Same question. Explain to my kids how does paypals system work and is there any pii involved after the transaction . Paypal system works differently or is not as tied to the physical device. It does involve working through an account that has to be set up to start with. Either by the individual themselves if theyre over 18 since thats one of our rules. Or by their parent as. We offer a student account where parents can control an account on behalf of the student. But there is that step of setting up an account