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Considering Mobile Payments? 5 Legal Tips

By Brett Snider, Esq. | Last updated on

Mobile payment services like Square and LevelUp are all the rage with pop-up cafes and micro-businesses, but are they right for established small businesses?

Attaching a portable credit-card reader to your smartphone or tablet may seem like the right call, but doing so also raises a few legal concerns -- such hackers potentially swiping customers' credit-card info.

Here are five legal tips for any business owner considering mobile payments:

1. Be Aware of State Laws.

Many states have particular regulations about how money can be transmitted in legal sales or transactions, and the restrictions allow each state to keep a close eye on whether a business is paying taxes.

If you choose to use Square, for example, make sure the state (or states) your business resides in does not ban its use, as Illinois did prior to Square paying for a license to operate.

2. Identity Theft Worries.

Customers are becoming more and more comfortable paying by smartphone, but sophisticated identity thieves are just as comfortable with stealing their information.

Whether you choose to use your own service or a pre-existing one, be alert and verify that the servers which store customer data are secure.

3. Keep Your Taxes in Order.

If you use any third-party payment-processing company, including mobile payment services, remember that you have to include a 1099-K form when you report your taxes next year.

But this only applies if you use a third-party company to handle more than 200 transactions totaling $20,000 or more in a calendar year. Any third-party service you use for mobile payments should send you a 1099-K form by January 31 of the following year.

4. Choose a Service That Protects Privacy.

Your customers will appreciate a business that uses a payment service that protects their privacy, and the Federal Trade Commission agrees. In a recent report, the FTC noted that the need for privacy and transparency in the mobile payments marketplace was among its top concerns.

5. PCI Compliance Is Mandatory.

Double-check that your preferred mobile payment provider is PCI compliant. This standard method of security for processing credit card information is adhered to by most mobile payment companies, including LevelUp and Square.

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