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Apple, PayPal Enjoy Uncharted Mobile Payment Legal Issues

April 11th, 2012

The data collected by these third parties—be it Apple, Google Wallet, PayPal or some other entity—can be mined, cross-referenced, utilized or sold. It also is subject to subpoena, discovery and attack.

Take a simple example of a mass transit system like New York City’s subways. For years, to ride the subways all you had to do was to buy tokens. You gave the Metropolitan Transit Authority cash, and it gave you a small round coin with a cut out “Y” in the middle that you could store and later use to ride the subway. It was, in essence, a stored value device. Later, the MTA moved to stored value cards, where you would purchase a card either with cash or by credit card, and use that card in the same way you would use a token.

As we move to a more universal and, therefore, a more attributable payment system—be it direct withdrawal from a credit card, withdrawal from an iTunes account, payment by text message or SMS, or any other form of payment—we are restoring a connection between the use of the service and the individual paying for the use of that service. As a result, the MTA would now have a record not only of the fact that you had purchased a token or a fare card but also a record of every time you got on the subway, where you got on the subway, with whom you got on the subway, when you got off the subway and, again, with whom you got off the subway. These records could be cross-referenced with surveillance videos both in the subway and on the streets to create a comprehensive database of ridership.

Because of this system, the MTA could be transformed from a subway system to a massive surveillance and data gathering system. If you want to know where John Smith was on the night of June 25, just log in to the MTA’s database. If John Smith wants to establish an alibi for some crime, or simply demonstrate to his divorce attorney that he was not in a particular place at a particular time, it is simply a matter of subpoenaing the MTA for that information.

Similar attacks on databases would occur for anyone who collects intimate personal information about consumers. Retailers would be consigned to being co-conspirators in creating, storing and even utilizing this massive database.

Internet service providers, search engines, online merchants and even providers of gaming systems have found that, while they are providing the services, they are daily receiving subpoenas, search warrants and other discovery demands from law enforcement, intelligence agencies and private litigants for information about users of their systems. The more data we have, the more people want the data we have.

For retailers who have privacy policies promising their consumers that the data collected will not be shared, this puts them in a quandary. Technically, the retailer is neither collecting nor disseminating this information. Rather, it is the consumer who decides to use the iWallet technology, who is making a conscious choice to give up that information to Apple. It’s much the same as consumers who use a credit card knowing that their information will be given not only to their bank but also to Visa, MasterCard, American Express and any third-party payment processor— such as First Data Corp.—who may collect that information.

On the other hand, information about the consumer’s purchases at a retailer ultimately may become public. And the consumer is not likely to be happy about that.

It remains to be seen which, if any, of these technologies will end up ruling the world. What is certain, however, is that the line between who is a retailer, who is a technology provider and who is a bank is getting blurrier all the time. And blurry lines promote litigation.

If you disagree with me, I’ll see you in court, buddy. If you agree with me, however, I would love to hear from you.


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Most Recent Comments

Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

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