Tuesday, 13 September 2016

What do evolving digital financial services mean for consumers? CI co-chairs ITU working group

Jami Solli, Senior Policy Adviser at Consumers International (CI) reports back on CI's involvement in the UN International Telecommunications Union (ITU) Focus Group on Digital Financial Services.

Consumers International is participating in the United Nation’s International Telecommunications Union (ITU) Focus Group on Digital Financial Services, which convened telecommunications and financial sector regulators; financial services providers, consumer advocates and other stakeholders beginning in January of 2015.  The Focus Group meets regularly and has the overarching objectives of 1) sharing knowledge; 2) researching good industry practices and; 3) making recommendations which lead to increased uptake of digital money services and thus greater financial inclusion. Consumer trust and consumer protection are inherent and essential to increase consumer use of digital money services globally.  Thus, there is a working group dedicated solely to the topic of the Consumer Experience and Protection.

Participation in the ITU process is normally limited to member state organizations. CI however was invited to join and to co-chair the working group on consumer protection due to its unique status as the only body for consumer interests globally. The Consultative Group to Assist the Poor (CGAP) is also co-chair of this group and has actively supported the initiative by utilizing its internal resources to aid research in a variety of countries on related digital money topics. (see www.CGAP.org for related research on digital money)

The next meeting of the four working groups which comprise the ITU’s Focus Group on digital financial services will be in Dar es Salaam, Tanzania from September 19 – 22nd, hosted by the Bank of Tanzania (the central bank of the country).

Thanks to support from the Bill and Melinda Gates Foundation, CI has been able to provide a travel grant to support the participation of several of CI’s African members in the upcoming meetings. Members will attend from Nigeria, Zimbabwe, Kenya, and Namibia, as well as from the host nation Tanzania. For 2016, the Bill and Melinda Gates Foundation has also been supporting CI’s participation in the Focus Group.

The discussions have been complex and in depth over the past year and a half. While the advent of new mobile money products and, more importantly, increased competition from new financial services providers like telecoms, has definitely shaken up the status quo for under served and previously unbanked consumers, it has also served to highlight that many consumer protection challenges remain; albeit in new forms.  Old problems like a lack of transparency, limited access to redress and over reaching by providers (e.g. when defaults occur on credit products) still linger.  With the advent of new technology, new problems have emerged such as increased risk of fraud and thus loss of funds by the consumer and poor data protection and privacy. Just to provide two examples, consumers and their PINS are easily separated leading to fraud. Second, where ponzi schemes used to be based on individual face to face transactions with charismatic sellers, now with mobile money one transaction can defraud a much greater volume of victims. A further problem reported to us by African colleagues is the death of an account holder leading to the freezing of the account due to loss of the PIN number. 

In countries which have seen a surge in mobile money products and usage, frequently the market leaders are telecoms. These early market leaders, such as M-Pesa in Kenya, M-Pawa in Tanzania, G-Cash in the Philippines and B-kash in Bangladesh have had initial success providing primarily over the counter, cash in and cash out services through a dense network of agents, who may or may not work exclusively for the financial services provider. Consumers in these countries find mobile money to be extremely useful and economic for person to person (P2P) transfers and bill payment, such as in Kenya where two-thirds of the adult population uses mobile money on a regular basis. In Tanzania, where M-Pawa got off to a later start, the figure is 50% of all those with mobile phones using mobile money. Lately Governments such as Peru and India have also started to use mobile money for government benefits payments, thereby cutting down on consumer queuing and graft.

Clearly, mobile money products are popular and useful to consumers. However, the legacy of financial consumer protection abuses mentioned above, paired with the new problems associated with delivery of services by agents and increased potential for fraud and data privacy breaches, require an even closer eye by regulators and consumer advocates. Further, cross sector regulatory collaboration needs to improve (often financial, telecommunications and competition authority mandates are simultaneously implicated, but action is taken by none).

Regulators therefore must work individually and in collaboration with one another to establish equal coverage of different digital money provider types, and ensure consumer protection provisions apply to all financial products that use e-money. Regulations should require that the intended consumer protection outcomes for digital money are at least as good, or dare we say better, for consumers than for traditional banking.

Additionally, Regulators should put in place appropriate supervision and market monitoring measures as the basis for holding providers accountable. These should include standardized reporting requirements. Regulators should also consider using consumer research, such as mystery shopping and SMS surveys, for diagnostics, market monitoring and supervision. Regulators should consider partnering with consumer bodies to keep many eyes on this new market.

Thus, the upcoming meeting in Dar es Salaam will serve to discuss and finalize the consumer experience and protection recommendations to the Focus Group at large.  

Specifically we will be finalizing recommendations on the following topics which exist in draft form at present:

1. Contracts and Disclosure/Transparency
2. Quality of services (QoS)
3. Fraud Prevention & Risk of Loss of Funds
4. Agent Conduct
5. Recourse Mechanisms 
6. Data Privacy
7. Recommendations specific to Credit Products

Please let us know if you have any questions or insights from your organization’s research or work on the issue of consumer protection and digital money.  You can direct your input and inquiries to Jsolli@consint.org. Ms. Solli is a senior policy advisor at CI and is the present co-chair of the ITU consumer protection working group.

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