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Payments and Social Media Payments and Social Media J. Dax Hansen, Perkins Coie LLP Seattle, WA September 6, 2012
Payments and Social MediaPayments and Social Media
J. Dax Hansen, Perkins Coie LLP Seattle, WA
September 6, 2012
Dem|oDem|o--crat|iccrat|ic
1. of, belonging to, or upholding democracy or a democracy2. of, for, or popular with all or most people3. treating persons of all classes in the same way; not snobbish
Webster's New World Dictionary
How Do These Rank?How Do These Rank?
Cash
AMEX Card
Facebook Credit
Bitcoin
Mobile Billing
"The democratization of currency that "The democratization of currency that we're witnessing is about innovating we're witnessing is about innovating
monetary systems that are more efficient monetary systems that are more efficient and valuable for use at times when and valuable for use at times when
government currency is suboptimal."government currency is suboptimal."
David Wolman, David Wolman, The End of MoneyThe End of Money
A Few Statistics A Few Statistics
Facebook Payments Revenue:
2011 – $557 million
2010 – $106 million
2009 – $13 million
Karen the Bus Monitor Vacation Campaign on Indiegogo Raised $702,684 ($697,684 over goal)
Cisco Survey:
14% would use a FB reloadable prepaid account
8% - FB checking account/debit card
5% - FB savings account or online bill-payment service
4% - FB line of credit
1% - FB for all banking services
Discussion TopicsDiscussion Topics
Recent Trends and Legal Implications
Crowdfunding
Sophistication of Financial Services Offerings
Development of "Social Currencies"
Mobile Expands Scope of Payments and Data
Common Payments Questions
Closed-Loop vs. Open-Loop Virtual Currencies
Unclaimed Property
CrowdfundingCrowdfunding PowerPower
Vacation Campaign for Karen the Bus Monitor:
Indiegogo Goal: $5,000
Raised: $702,684
Pebble Smart Watch:
Kickstarter Goal: $100,000
Raised: $10,266,846
Yellow Jacket iPhone Stun Gun Case
Indiegogo Goal: $100,000
Raised: $102,001
Perks: Thank You, T-Shirt, Early Bird, Special Edition . .
Legal IssuesLegal Issues
Payment Processing Model
Amazon Payments' Suspension of Unglue.it
Payment Association Rules
Products Liability
Tax
Commercial Fundraising
Commercial Co-Venture
Campaign Finance
Securities / JOBS Act
International
Sophistication of Financial Services OfferingsSophistication of Financial Services Offerings
FB Shifts From Credits to Local Currency Accounts
Developers - price in local currency by year end
Use your own in-game currency
FB Obtains Money Transmitter Licenses
Facebook Payments Inc. / Facebook Payments Ltd.
California Credits issued by ITC Financial Licenses, Inc.
Foreign Banks Link FB Profiles to Banking Profiles
Foursquare users sync accounts to AMEX cards for discount offers
Sophisticated Offerings = Complex Sophisticated Offerings = Complex Regulatory Issues Regulatory Issues
Deposit Taking
State Money Transmission
Federal MSB & KYC
Financial Privacy & Security
Payment Association Rules
Gift Certificate
Unclaimed Property
Recordkeeping & Reporting
Coupon
Credit
Credit Reporting
Bill Presentment/Statements
Collections
Customer Dispute Resolution
Permissible Investments
Consumer Protection
Tax
Compliance Audits
International
New "Social Currencies"New "Social Currencies"
Bitcoin
Distributed (decentralized) cryptocurrency
Cap of 21 million bitcoins
Exchanges
Alpaca Socks and Silk Road
Local Coupons
Groupon, LivingSocial, AmazonLocal, Facebook Offers
Exist because of group buying potential
Gift certificate and coupon laws don't exactly fit
New breed?
Decentralized Decentralized CryptocurrenciesCryptocurrencies
FinCEN Prepaid Access Rule
State Money Transmitter Laws
Securities Laws
Commodities Laws
Gambling Laws
Aiding and Abetting
Who is the issuer or provider in a decentralized system?
Who needs licenses?
Is recordkeeping and reporting even possible?
Remember the quote at the beginning of this presentation about a democratic response to inefficient systems?
Local CouponsLocal Coupons
Usually Gift Certificates
Paid
Promotional
Sometimes Tickets (almost)
Rarely Coupons
Possibly a New Breed
Class ActionsClass Actions
Dozens of Class Actions Filed Against Groupon and LivingSocial
Also name participating merchants as co-defendants
Filed most commonly in states with gift certificate statutes
Contain nearly identical allegations focused on expiration of vouchers
Claims Regarding Voucher ExpirationClaims Regarding Voucher Expiration
Violation of Electronic Funds Transfer Act
Distinction b/w purchased value & promotional value irrelevant because value of “entire voucher” expires
Violation of State Gift Certificate Statutes
Violation of State Consumer Protection Laws
Expiration dates unlawful under federal and state law
Deceptive advertising/misrepresentation (expiration)
Breach of Contract
Expiration date clauses unenforceable because consumers never "click" their assent
Additional ClaimsAdditional Claims
Oppressive, Hidden Terms Violate State Consumer Protection/Anti-Fraud Laws:
Voucher must be used in single transaction
Only one voucher per transaction
Residual value of voucher not redeemable for cash
No refund if merchant fails to honor voucher
Restitution/Unjust Enrichment
And On and On . . .
Mobile Expands Scope of Payments and DataMobile Expands Scope of Payments and Data
Direct Carrier Billing
NFC - Online Apps Can Support POS Payments
NFC Wallets - Online Service Providers Can Collect Data Regarding Physical POS Payments
Foursquare Walgreens Coupon for Arizona Iced Tea, 31% Redemption Rate
Convergence of Two Highly Regulated IndustriesConvergence of Two Highly Regulated Industries
Financial ServicesEFTA/Reg ETILA/Reg ZBSA/AMLMoney Transmitter LawsGift Certificate LawsFederal & State Consumer
Protection LawsPayment Association RulesDebt Collection Laws
WirelessTruth in BillingPUCCPNICTIA Best PracticesMMA Best PracticesGSMAApp Store Developer Terms
You got your chocolate in my peanut butter You got your chocolate in my peanut butter !!
Who regulates NFC payments?Who regulates NFC payments?
NFC Chips:
FCC, for interference potential (§302a of Communications Act; Part 15 of FCC's Rules)
Payment Cards in Secure Element:
It depends on:
type of payment card
who has jurisdiction over the card "issuer"
Mobile Self Regulation and StandardsMobile Self Regulation and Standards
Global Platform (technical specifications)
CTIA Mobile Financial Services Best Practices
GSMA NFC Specifications (UICC, handset software)
EMVCO Contactless Standards
Payment Associations
Visa Best Practices for Mobile Payment Acceptance Solutions
Testing and certification process for handsets and SEs
Payment network rules (including PCI DSS)
Card Present vs. Card Not Present determinations
MMA Model Mobile Application Privacy Policy
Common Payments QuestionsCommon Payments Questions
Closed-Loop vs. Open-Loop Virtual Currencies
Unclaimed Property
What is Virtual Currency?What is Virtual Currency?It is all over the map, but …
Virtual Currency is:
A proprietary medium of exchange (contract based)
An electronic promise to provide goods or services
Often characterized as a limited license to use a digital good
Virtual Currency is not:
Legal tender (i.e., "valid and legal offer of payment" — no further contract required)
Primarily a virtual good
Virtual Currency can be:
Stored value in an online account
Completely virtual or evidenced by a physical record
Paid or promotional or in between
Closed loop or open loop
Positioned as a gift certificate, coupon, ticket, jackpot or promotions prize
ClosedClosed--Loop DefinitionsLoop Definitions
Federal: "Prepaid access to funds or the value of funds that can be used only for goods and services in transactions involving a defined merchant or location (or set of locations) . . ."
State: "Redeemable by the issuer in goods or services" or "redeemable by the issuer for goods or services provided by the issuer or its [corporate] affiliate."
OpenOpen--LoopLoop
Features to Watch
Widely-accepted means of exchange
P2P transfers
Over $1000 day/person
International
Reloadable (non-depository sources)
Cash out
Significant Regulatory Requirements
Detailed compliance obligations
Costly and time-consuming licensing requirements
Civil and criminal penalties for non-compliance
Gift Certificate LawsGift Certificate Laws
Generally, apply to promises to provide goods or services of a certain value to the bearer of a record
Restrictions and requirements:
Expiration dates
Inactivity or service fees
Conspicuous disclosure of key terms
Cash back
Exemptions for "promotional" gift certificates
Unclaimed Property LawsUnclaimed Property Laws
Generally, apply to intangible property (including money, consumer credits, stored value, etc.) held by a company that is abandoned or unclaimed by the owner after a statutory dormancy period
Requirements:
Pay the value of "unclaimed" property to states in accordance with established jurisdictional rules
Track it (administrative effort)
Unclaimed Property LawsUnclaimed Property Laws
Unique Issues in Social Media:
Build vs. buy (developer terms)
Identifiable vs. anonymous
Friends
