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.

Amanda Long: how our G20 campaign is improving financial consumer protection

This weekend marks a significant moment in Consumers International’s advocacy and campaigning on financial consumer protection. CI Director General, Amanda Long, explains.

The financial crash in 2008 highlighted the appalling way that consumers of financial services were being treated by the banks, not just in the major economies but around the world. 

Unfair contracts, hidden fees and charges, putting profit before basic consumer protections. For developing countries this was a serious concern as tens of millions of consumers were joining the market for financial services for the first time. CI members had been reporting this for years, but it was the financial crash that made it global headline news. 

However, when the crash came it was the stability of the banks that received the attention of world leaders. It was not until CI and our members launched our campaign in 2010 that consumer issues were addressed.

Jump forward to November 2014, and the report on the latest international developments in financial consumer protection that G20 Finance Ministers and leaders will receive this weekend. It marks a major change in international efforts to support a better deal for consumers. 

There are now a set of High Level Principles on Financial Consumer protection and a full set of ‘effective approaches’ to support their implementation. A first peer review of implementation is also in progress. FinCoNet (the international network for financial supervisors) is now a formal organization with staff, members and a work plan, and the Financial Stability Board has acknowledged the link between consumer protection and stability of the sector. 

We have travelled a long road to get here.

When CI launched our campaign in 2010 we made a global call for G20 leaders to take action  to strengthen financial consumer protection. Specifically we called for minimum standards relating to:

• Fair contract terms and charges for financial products and services.
• Information design and disclosure on financial products.
• The governance and functions of national financial consumer protection bodies.

In addition we called on the G20 to make recommendations for:

• The promotion of effective competition in markets for financial consumer services.
• The development of a permanent organisation for international standard-setting and coordination with regard to financial consumer protection. 

Four years later significant progress has been made, quite an achievement at the international level. 

The G20 and OECD have agreed the ten High Level Principles and a set of effective approaches to support their implementation. And we will shortly see how that work translates into action for consumers as the first voluntary peer review is underway, with the Central Bank of Ireland becoming the first financial conduct authority to be reviewed. The Netherlands Authority for the Financial Markets (AFM) is undertaking that assessment.

And in relation to another of CI’s demands, FinCoNet, the international network for financial consumer protection, is now a formal organisation with a strong membership and a good work plan including areas that CI has championed, including responsible lending and mobile payments. 

Inclusive engagement by FinCoNet means that CI is an official observer to the network we are have been able to push for greater consumer protections by demonstrating consumer detriment in irresponsible lending and sales incentives.

Of course CI still wants to see much more effective consumer protection nationally and providers changing their policies and practices so the market offers products and services that are safe, fair and appropriate for consumers needs. This is a big challenge but one that consumer organizations are committed to delivering.

Whilst there is still much more to be done (and we may never be able to say that this work is complete) it is important to recognise that none of the international architecture was in place when CI launched its campaign in 2010.

Empower financial consumers with CI's latest e-learning course

CI's financial services expert Nicola O'Reilly outlines our new e-learning course on basic financial services – a great way to help consumer advocates campaign for better protection.

Our aim to develop a stronger consumer movement will be taking a major new step over the next couple of months with the launch of our second e-learning course.

Free to staff of CI Members and CI Supporters, our second course looks at how consumer groups can use, understand and influence policies and practices in financial services.

We have partnered with the SMART CAMPAIGN to deliver this course which is based on their Client Protection Principles.

With an estimated 150 million consumers entering the financial services market each year, we also need many more consumer advocates working in this area to ensure the way consumers spend, save, send and receive money is secure and reliable and clearly and competitively priced.

You can receive updates on how to register by downloading the application form on the CI website.

The course is made up of five one-hour sessions, taken over a five week period starting on 18 June 2014.

The seminars are conducted online via our Adobe Connect service, with an offline alternative for those with unreliable internet. This e-learning experience will give consumer advocates the knowledge and confidence to:

• Understand what financial consumer protection looks like in practice
• Explain to others the need for financial consumer protection and the role of consumer advocates
• Show how good practices in financial services can improve the consumer experience
• Find tools and resources needed to develop advocacy campaigns in financial services    
• Know how to use consumer advocacy to improve financial consumer protection.

This course is specifically designed for those who know about consumer protection and are looking to apply that knowledge to financial services. Each seminar will include a tutorial, with a speaker from CI and an expert from our partners at the SMART CAMPAIGN and a Q and A session.

Participants who complete the course can expect to earn a certificate, signed by CI, giving them the confidence and credibility to engage their national standard body on consumer issues within the international context.

Why is CI doing this? Consumers International exists for two reasons: to campaign for consumer rights at the international level and help develop consumer rights protection where it’s needed most.

On the first issue we are working with our Members and Supporters in every region of the world – and with international decision-making bodies such as the G20 – to stand up and demand a better deal for consumers.

On the second issue (what we at CI call Organisational Empowerment) we are putting tremendous efforts into improving consumer protection in countries and communities where it is poor or non-existent.

Financial services is used by consumers all over the world on a daily basis, those consumers need representation, so we are providing this e-learning to support more consumer advocates to work in the area.

We hope that our financial services e-learning course (together with others we have planned on campaigning, business development and communications) will help our Members and Supporters effectively serve and protect consumers.

Don’t forget to email e-learning@consint.org if you want find out more or simply download an application from the CI website. 

CI steps up campaign to improve financial consumer protection worldwide

CI, together with  our Members Which? and Consumer Reports, took the consumer voice to the G20/OECD Taskforce on financial consumer protection consultation event on 15 April, explains CI's financial services expert Nicola O'Reilly (pictured left with Norma Garcia of Consumer Reports).

This was the first event of its kind for the Taskforce which is good news for consumers as we had the opportunity to input into its work.

The occasion revealed new regulatory practices and emerging challenges in consumer protection. The subjects discussed were mobile and online payments, behavioural economics and Treating Customers Fairly (TCF).

Dominic Lindley of Which? provided an excellent presentations on TCF where he set out problems and solutions around sales incentives in financial services.

He also noted that the liabilities resulting from of misconduct such as misselling of payment protection insurance must be factored into risk and stability assessments. 

Norma Garcia of Consumer Reports (who has spent the past month based at the CI Office in London) made a really well received presentation on mobile payments.

Norma called for the uneven protections, and the privacy and security concerns relating to mobile payments, to be addressed to promote financial inclusion and improved consumer protection.

We commented on how behavioural approaches can be used to deliver effective consumer protection.

We welcomed the use of behavioural economics to gain insight into consumer behaviour – what moves and motivates consumers to act. It is a real step forward. 

We also noted that this should be built upon to deliver significant change by using behavioural approaches in a systematic way.

A one-size fits all approach is ineffective, but using segmentation to recognise distinct behavioural groups can support the development of a suite of interventions that can be used in combination to deliver effective consumer protection which benefits individuals and society.

Social marketing and behaviour change has been delivering benefits in public health for decades cutting road deaths and reducing hospital admissions, tackling addictions and reducing crime by taking a consumer-centred approach. It is great that this is being introduced into financial services too.

The day in Paris was a good opportunity to get our views heard in advance of the written consultation that the Taskforce will issue next month.

This will inform its final report to the G20 Finance ministers which will be delivered in June this year. This will be an ideal opportunity to push for further action on financial consumer protection.

We made the most of the trip to Paris where we met the Chair of FinCoNet who was very positive about increased engagement from CI in this area. We also met colleagues from UniFinance who we will be working with in our forthcoming work on sales incentives.

A tool for better relations between consumers and banks launched by CI

CI consumer protection expert Antonino Serra Cambaceres explains how a new project is aiming to improve banking for consumers.

On February 6, Buenos Aires provided the backdrop for the official launch of the Self Assessment Guide for Banks.

CI’s Latin American Office and Fundación Avina Argentina developed the guide - a tool for banks to evaluate themselves from a consumer perspective and assess how they are implementing their internal policies.

It is designed to help banks identify both policies that are working well and those that need changing, updating or a different approach.

During the launch at the headquarters of the Argentine Institute for Normalisation and Certification (IRAM), Juan Trímboli, CI Director for Latin America and the Caribbean, addressed the audience of consumer associations, banks, regulators and experts.

He highlighted the importance of financial services in CI’s work, and, in particular, in the Latin American Region since 2007.

Pablo Vagliente, National Representative of Avina Argentina, spoke about the work they are doing on ethical and responsible finances and the strong relationship that they have with CI in this field.

The launch marked the culmination of an 18-month partnership with Fundación Avina Argentina to develop the guide.

The next step will be to use it to influence financial institutions so that their policies meet consumers' needs, ensuring a respect for their rights and putting in place practices that are aligned with ethics and transparency in business conduct and financial education for consumers.

As we take forward our work on the guide, we will focus on promoting the tool with banks so that they can apply it and develop better relationships with consumers and the market.

The guide was developed with excellent support from an expert group including CI Members ADELCO and Unión de Consumidores de Argentina, IRAM and  Profaess - an NGO that works on ethical finances.

They helped us to develop a high-quality product with their knowledge and expertise. The development phase included interviews with: banks, banks’ associations, academics and financial experts; global research on benchmarking and best practice in banking and other related areas; and standards in management and policy.

The most important phase of the Banking Self Assessment Guide has begun - to have banks take the self assessment.

We hope that in a short time we will be able to report the first results of this interesting experience that will facilitate a better relationship between banks and consumers.

The guide is available on CI’s Spanish website. 

How will lawsuits targeting banks affect Brazil's economy?

In February, Brazil's Supreme Court plans to rule on lawsuits brought by bank depositors affected by banks' adherence to government policies to fight hyperinflation two decades ago. 

The suits could cost the banks, which include market leaders Itaú Unibanco and state-held Banco do Brasil, a total of $65 billion (USD)  - more than a quarter of the banking system's equity. 

What is at stake in the case for Brazil's banking sector and the country's economy? Which way is the court likely to rule? What precedent could a ruling in this matter set for future cases related to other sectors or industries?

Walter José Faiad de Moura, partner at Moura Lamounier Advogados in Brasília and Marilena Lazzarini, president of the board of directors of the Brazilian Institute for Consumer Defense (IDEC), give their assessment. 

There is no doubt that the Brazilian government's measures in the 1980s were intended to reduce currency inflation.

However, in July 1987 and January 1989, banks applied a lower indexation to saving accounts, on their own and without any statutory command.

As a consequence, the amount deposited by individuals was reduced.

Banks were not bound by any legal norm to proceed in that way.

Brazilian savers sued banks to recover the values they lost. In addition to the individual lawsuits, IDEC has led class actions under Brazilian law to defend collective interests.

During 25 years of litigation, courts including the Supreme Court ruled that the central bank and the government had no liability because banks had a private relationship with consumers.

The amount owed by the banks is considerable. However, it is far less than $65 billion because banks ignore that many savers have died.

Also, many savers had very little deposited and have not sought justice. The Supreme Court could rule in favor of the plaintiffs without creating a major impact on Brazil's economy nor increasing economic risks.

Any money awarded to savers would return to the economy and in many instances may be deposited in banks.

Responsible lending in Australia: Cause for cautious optimism

Kim Busuttil of CHOICE Australia introduces CHOICE's chapter from our Responsible Lending publication.

With the introduction of national licencing and responsible lending provisions at a federal rather than a state-based level in 2009, Australia entered a new era of credit regulation.

This report highlights the nature and potential implications of these reforms. The new credit laws and responsible lending obligations were generally seen as a vast improvement on the state-based schemes and were widely welcomed (in most respects) by the consumer movement.

At the heart of the reforms is the threshold test that credit providers have to meet. After making enquiries and taking reasonable steps to verify a consumer’s financial situation, the credit provider is obliged to make an assessment that the loan is ‘not unsuitable’.

Under the new credit laws, a loan is considered to be not unsuitable if it meets the consumer’s requirements and objectives, and most importantly, the consumer has capacity to repay the loan without experiencing substantial hardship.

As the reforms are relatively new and untested, however, the full effect of the laws remains unknown. Questions remain as to:

•    How responsible lending obligations will stack up to challenge unsuitable credit and credit products; and
•    If the obligations are enforced or strengthened, whether this will result in further financial exclusion for some groups within our community, such as self-funded retirees or low-income earners.

There has also been uncertainty as to whether the responsible lending obligations will be able to address the growing payday lending industry that provides short-term, high cost loans to consumers.

Whilst the credit reforms do mandate maximum charges and interest rates on the loans, payday loans are still an expensive option usually only accessed by low-income, financially excluded consumers.

More recently, in October 2013, a $40 million class action was commenced against the biggest payday lender in the Australian industry.

This means that the legality of the lender’s responsible lending practices will be tested, for the first time, by the Australian courts. Watch this space!