When a company faces regulatory uncertainty, it can do one of two things: Either hunker down and wait for a new law or rule to pass, or put out a proposal for how it would prefer to be treated.
There's little to lose from the latter strategy. Tim Cook did it when Apple came under the microscope for its creative accounting practices, proposing a system that would allow it to bring more revenue back to the United States without paying a hefty tax. Uber did it when state regulators sanctioned rival ride-sharing services, putting out a white paper pleading for a more consistent approach.
Paypal, EBay's market-leading online money transfer service, is facing a similarly unsettled landscape. Mobile payments are almost entirely unregulated at the moment, and they fall within the purview of three different agencies: The Federal Reserve, which this year began looking at mobile payments more closely; the Federal Trade Commission, which has started worrying about data privacy and security, and the Consumer Financial Protection Bureau, which seems to think that new "rules of the road" might be necessary as well. (The Federal Deposit Insurance poking its head in once in a while too.)
Everybody says that regulations need to be updated, but at the moment, nobody's quite sure how.
Paypal just charged into that morass of uncertainty, putting out a 31-page report on what's wrong with the mobile payments space, and how government ought to address it. Naturally, the company also thinks its approach could work for government writ large. In short: Be more like a tech company.
"We recommend that regulators use the same data analytics techniques that
have transformed the payments sector, as well as the healthcare sector, and the getting-a-taxi sector," writes vice president for public policy and government relations Tod Cohen, in the document's introduction (which opens, in total seriousness, with a reference to Paypal's plan for intergalactic domination). "These techniques rely on collaboration and iteration; they use technology and data to measure performance and deliver results."
They've even got a catchy title: SMART Governance. For Securing data on performance, using Machines to organize databases, creating Algorithms to derive insights, Reassessing results, and Targeting insights.
The report uses a lot of words to advocate a few simple concepts.
- Make rules based on outcomes, not processes.
- Use data to drive decisions.
- Collaborate with experts, industry, consumer groups, and the crowd.
- Make policy through modeling and simulations, improving upon a prototype until you get to a satisfactory final version, in what sounds a lot like the old waterfall-vs. agile debate, but which the authors give a fancy title: The "Boyd Loop."
Other than calling out a couple policies it dislikes -- the CFPB's remittance transfer rule and screening requirements that place high fees on overseas transactions -- Paypal doesn't say what this new regulatory regime should look like. It just says that it would like the regulators to basically throw out their traditional ways of doing things in order to come up with it.
Mark Egerman, who used to oversee mobile payments at the CFPB before leaving to start a mobile payments company of his own, points out that his former agency is doing a lot of these things already -- incorporating data, running trials, inviting innovation, getting input from a wide range of players, etc. But he thinks Paypal's opus is a forward-thinking, realistic piece of work -- not something they would've put out a few years ago.
"Paypal is maturing," Egerman says. "Old Paypal was the Peter Thiel, cyberpunk, let's be our own nation state, forget banks. New Paypal is a multibillion dollar company. They want the rules to be reasonable, clear, and responsive. And who could argue with them?"
Having totally reasonable ideas is one thing. Getting the Fed to change centuries-old habits, of course, is entirely something else.