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.

CI work on mobile banking standard ISO 12812

Robin Simpson and Sadie Homer, Senior Policy Advisors at Consumers International report on their work preparing the new international standard on mobile banking.

  

Back in January 2012, the International Organization for Standardization (ISO) asked for experts to join the working group preparing a new international standard on Mobile Banking/Payments, in particular asking CI if we could represent the consumer stakeholder group, providing expertise, particularly in the field of consumer protection.

Four years later our efforts have borne fruit in the form of  ISO 12812 Core banking – mobile financial services. It takes the form of an international standard on the general framework for these services (Part 1) and is supported by four technical specifications on specific sectors of the business (parts 2-5 see below).

Achieving an ISO standard was not a smooth passage, two rounds of voting by national standards bodies were needed to gain approval. The second only succeeding on the basis that papers 2-5 do not have full international standard status. Nevertheless, CI felt able to support the final standard but it was not an easy process. Consumer experts encountered resistance to some basic consumer protection issues being included at times, even when they were optional (and bearing in mind that international standards are voluntary).

Ably assisted by experts from our members we fought for limits on how much consumers would be liable for, in the case of unauthorised or fraudulent use of their payment systems. We secured greater transparency in remittances sent between countries and we gained important safeguards on logging transactions and receipts, with electronic logs being kept available. One specific issue that was not considered until our intervention was the treatment of dormant assets, in particular in the event of the death of an account holder.  This is a major issue where consumers do not have an individualised mobile phone contracts, such as in much of Africa.

How worth-while are such exercises? After all, standards are not legally binding, they are voluntarily adopted by companies and cannot be enforced in court. CI expended scarce resources travelling to Paris, Chicago, Boston, also taking part in many teleconferences, and drafting in great detail.  These factors are important considerations. But without our participation the consumer voice would not have been heard at all. The alternative, legislation and binding regulation, can only be applied at national level one country at a time, and legislation may be even slower to develop than standards, if at all. 

Even if it will require another review for our conditions to be fully met, the applicability of this standards is potentially global. And in many countries, the standards adopted today can form the basis of regulation tomorrow. Standards can also be used by consumer organisations as a sound basis to compare businesses and to support those that offer best practice terms to consumers. They can also be used to hold transnational companies to account to provide an equal level of service to all consumers, in all countries they are doing business.

Papers 2-5 will be reviewed in two years’ time and CI would also support a review of ISO 12812, given the speed of development in this sector. At that point we hope to be able to strengthen the standard further and make the case for all parts to be given full International Standard status. The mobile payment and banking sector is fast evolving, and so the standards that keep consumers safe must also move with it. 

You can read more about the Standards here. 

Spain leads the charge to limit bank card fees

Banks say banning card fees would increase costs for the consumer. David Ortega, of CI Member OCU, explains why Spain and the EU disagree.

The Spanish government, as part of a package of measures to boost the economy which should enter into force on 1 September, has decided to limit the fees for payments with credits or debit cards: to 0.3% for credit card payments and 0.2% for debit card payments.

As an additional constraint, a maximum fee of seven cents is foreseen for debit payments, to avoid cases where the new scenario could generate higher commissions than today.

For small payments, of up to 20 euros, these commissions are set at a lower level: 0.2% to 0.1% for credit and debit cards.

These regulations shall apply to all payments made at points of sale in Spain in which at least one Spanish provider of payment takes part. This also includes e-commerce transactions.

Business cards, corporate or cash withdrawals at ATMs are excluded.

Spain  is effectively  putting into practice the proposed regulation of the European Commission on interchange fees, which aims at regulating maximum fees as a measure to promote the internal market.

The current economic context, the gradual economic recovery and the need to invigorate consumption across all channels - including the electronic one - call for the availability of safe, efficient and competitive electronic payments.

But how does this work? A multilateral interchange fee (MIF) is a fee that a retailer's bank must pay to a consumer’s bank for each card payment.

MIFs typically involve four parties: two banks, a consumer (the cardholder) and a retailer (merchant accepting a card payment). For every individual card payment the retailer pays a charge to its bank called a Merchant Service Charge (MSC), most of which the retailer’s bank passes on to the consumer’s bank under the name of a MIF.

As a result, the final amount received by the retailer is less than the amount paid by the consumer. To compensate this loss of income, retailers usually add up these fees to the final price paid by consumers. Hence the consumer detriment.

Through the legislative process at EU level, there has been heavy lobbying by some card issuers and some banks to stop this initiative.

According to the evidence presented by these groups, the proposed limits would indefectibly lead to an increase of bank fees in general (e.g. in the form of card issuance fees).

Part of the evidence used by these companies would be based on Spanish figures.

According to them, since Spain adopted the first MIF limitation measures back in 2006, bank fees have not ceased to increase. Perhaps.

However, nobody has been able to substantiate that such increase is solely or mainly due to the MIF limitation measures.

In the meantime, the credit crunch and the burst of the real estate bubble in Spain have ravaged the Spanish banking system.

In this context, can anybody seriously argue that the reason why Spanish banks have consistently increased their fees is due to the MIFs limitations?

How can that be deducted from the banks’ accounts?

Moreover there are still commission free cards on the market, which proves that the alleged causal link is hard to prove.

OCU and BEUC reject these arguments and support the European proposal which should  boost the internal market for consumers.

Spain is the proof that such a ban or limitation is possible, without the catastrophic consequences for consumers that some lobbyists seem to find so inevitable.