WASHINGTON — Your smart phone already serves as a portable office, media player, newspaper, GPS, camera and social network hub. Now it can replace your wallet, too. In fact, the technology already exists to let you buy a grande soy latte through your phone, simply by saying your name out loud at the register.
As the number of neighborhood bank branches dwindles, Americans increasingly use their mobile phones to manage money and shop. Payments made via mobile devices in the United States are expected to total $90 billion by 2017, a big jump from the $12.8 billion spent in 2012, according to Forrester, a research and advisory firm in Cambridge, Mass.
Privacy advocates worry that the emergence of "mobile wallet" technology will leave consumers more vulnerable than ever to identity theft and invasive data collection.
"All of a sudden the mobile phone is about to be transformed beyond a spy in your pocket to your bank, your mortgage lender and your landlord," said Jeffrey Chester, of the nonprofit Center for Digital Democracy. "In a way, it's kind of a privacy tipping point, because one single device knows wherever you go, your geographic history, your social media connections and your financial behaviors."
One of the most popular mobile payment systems, Square, enables sellers to accept credit cards through a small device attached to a cellphone or tablet.
Consumers who install the Square Wallet app on their phones can pay for an item at participating businesses like Starbucks without ever having to pull out their wallets — or even their phones. Instead, they can just say their names to pay. A photo and the name of the customer pops up at the register, and the cashier taps the picture to authorize the sale.
Walla.by, a cloud-based wallet app, allows consumers who input their credit card information to see which card will get them the most rewards or cash back for each purchase. The app also helps consumers take advantage of special offers from banks and merchants.
PayPal, Google and other companies offer similar digital wallets.
Such technologies offer convenience and real-time deals to consumers while allowing companies to better track customer behavior and test marketing strategies. But the Federal Trade Commission warned in a report this month that these mobile technologies come with hidden costs and risks.
Advertisers, retailers, operating system manufactures and app developers can use the data collected from mobile devices to build more comprehensive consumer profiles, including shoppers' personal contact information, details of their purchases and their physical locations, the report said.
"At the end of the day, this is about exposing your financial behaviors to a daisy chain of financial and other marketers who will have a very detailed understanding of where you are, where you spend your time and how you buy," said Chester.
For now, consumer protections for mobile payments aren't really on policymakers' agendas, said Chris Jay Hoofnagle, of the Berkeley Center for Law & Technology at the University of California, Berkeley. "Going to mobile payments — unless rules are put in place — will be zero privacy," he said.
In response to a letter of inquiry from Democratic Rep. Hank Johnson of Georgia, Google said that it discloses in its Google Wallet privacy notice "that we may share your personal information with third parties as necessary to process your transaction and maintain your account."
Most consumers don't expect that their personal information will be sent to app developers whenever they make a 99-cent video game purchase, said Ashkan Soltani, an independent researcher.
"The fact that a random 22-year-old software developer in the Ukraine that wrote the app in their bedroom gets your name, address and email when you purchase an app will be surprising to most people," he said.