Consumers and the Internet of Things: one connection too many?

Liz Coll, Head of Digital Advocacy at Consumers International, takes a look at recent trends in the global uptake of connected devices and considers what these trends can tell us about consumer attitudes towards the Internet of Things.  

Last year our report on ‘Connection and Protection in the digital age’ explored the impact of the rapidly expanding trend of the Internet of Things (IoT) – with more and more everyday objects connecting to the internet. As with any ‘next big thing’ topic, the figures looked astounding with some commentators predicting 50 billion IoT devices to be connected by 2020.

New reports in 2017 have not been quite so bold with their predictions. According to analyst firm Gartner, the total number of IoT devices deployed by 2020 is more likely to be just over 20 billion. As with any forecast about the future of the digital economy, there are no certainties – but this drop feels significant. Could it be that consumer attitudes and concerns about connected devices are, at least partly, behind these more reserved predictions in 2017?

Our 2016 report suggested that security concerns and the invasive nature of connected technology would potentially hold back consumer engagement in this next deeper, more personal phase of digital technology. The focus of our work with G20 governments to help ‘Build a Digital World Consumers can Trust’ makes the case that unless consumers can trust digital technology, they won’t readily accept it into their everyday lives.  Getting trust right is therefore a key part of creating a vibrant demand side for the market.

So does it look like this is the case for the consumer market for IoT devices? A report released by Deloitte in 2016 points to an uneven uptake of consumer IoT devices in more developed economies. Connected entertainment devices such as games consoles and smart TVs have maintained a steady growth but sales of Fitbit devices failed to meet expectations.

Some research indicates that this limited take off is because of a failure to meet people’s needs, both in terms of pricing and also the difficulty of use and maintenance. As shown in the MEF Global Consumer Survey from April 2016, the levels of privacy and security were also problematic for consumers, with 62% and 52% of those surveyed reporting these as the biggest concerns, respectively.

Another example of the noticeable consumer resistance to connected devices has been the move by some Fitbit users to turn off the smart elements of their devices off only months after purchasing the products. With novelty seemingly wearing off so quickly, does this mean that penetration of IoT devices won’t happen as all those excited articles predicted?

In reality, it is hard to prove or predict that people won’t buy internet of things products because of a lack of trust. As privacy and technology expert Gilad Rosner somewhat ominously predicted that business momentum will mean that “The Internet of Things will happily march along with lousy privacy and security, and we will be the poorer for it”. 

Connected technology seems to be one of those things that creeps into products – an alarm clock on a smart phone that suddenly wants to become a ‘sleep tool’ to help you enjoy a restful night. An insurance provider that offers a subsidised fitness trackers, for as long as you keep active.

But with high profile internet of things problems such as the #Toyfail and the development of devices such as fertility trackers collecting and analysing sensitive information about one of the most private aspects of people’s lives, perhaps people will start to demand technology that is not just helpful but safe, ethical and human-centered.

How can consumer organisations play a leading role by working with businesses to ensure that connected devices can be safer, less invasive and prioritise consumer interests? Our member Consumer Reports’ new digital standard initiative is an excellent example of how the global consumer movement can evaluate and test the safety of digital products and services, empowering consumers to make informed choices about whether they want to invest in IoT devices. This week, Maria Rerecich of Consumer Reports will speak at an SXSW event that considers how a consumer organisation can include privacy, security, and data practices in its testing protocols.

As consumer organisations continue to monitor ongoing developments in the connected world, it’s vital that the global consumer movement advocates for businesses to build security and privacy in at the design stage. It’s not just the right thing to do but could be a smart business move as consumers look for products they’re sure they can trust  – for your child’s next birthday would you buy a smart toy classed as ‘espionage equipment’?

We are co-hosting the G20 Consumer Summit in Berlin on WCRD this week which will provide an excellent opportunity to engage in a dialogue with governments, business leaders and key stakeholders about the most pressing concerns that consumers face and how to work together to create a better digital world.

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. 

WCRD 2014: How consumers are tricked into joining high cost 'text clubs'

As we head toward World Consumer Rights Day on March 15, Boštjan Okorn, head of testing and technology expert at Slovene Consumers' Association (ZPS – Zveza Potrošnikov Slovenije), explains how consumers in his country are being  tricked by mobile companies. 

The advertisement is inviting - you just need to send an entry after completing the crossword puzzle and you will have the chance to win 1,000 Euros.


One consumer, Mrs Vidmar, saw this ad while she was finishing up a crossword puzzle in her favourite newspaper. She decided to enter and was asked for her mobile phone number.

Mrs. Vidmar did not win  - what she was not aware of though is that when she sent out her completed raffle entry form, she instantly became a member of an “SMS club”.

Not long after she sent her entry form, her mobile phone started to receive unwanted commercial  messages.

Although irritating, she ignored these spam messages  since the only messages she reads are those from her family and friends.

When her phone bill arrived, she was surprised that it was much higher than she expected. Commercial services charged her as a result of her automatic subscription to the SMS club.

Sadly, the number of mobile consumers who are being tricked and misled into being members of an SMS club continues to shoot up in Slovenia.

Indeed, automatic subscription to SMS clubs has been one of the major concerns of mobile consumers in the country.

The Organisation for Economic Co-operation and Development (OECD) describes this consumer right violation as cramming. According to OECD, cramming is the collective term for consumer abuse in which the consumers are billed with products or services they did not purchase or products or services they did not receive or when they are charged at a higher fee than the fee that was advertised.

Consumers International aims to highlight and address this sort of abuse for World Consumer Rights Day 2014: Fix Our Phone Rights.

In the CI's five-point WCRD agenda, it calls for providers to “provide consumers with fair and transparent billing”. This encapsulates consumers' demands for fairness and transparency in billing and protection from fraud.

As the number of mobile consumers continues to increase, ZPS is advancing its campaign against the automatic subscription of consumers to any commercial service or product like SMS clubs.

Apart from being more active in writing advice and warnings to mobile consumers to avoid being tricked by SMS clubs, ZPS launched a campaign to ban costly commercial messages being sent without the consumers' consent.

Although the telecommunication operators and regulators in the country rejected the ZPS' call, mobile consumers in Slovenia still had a reason to celebrate for pushing the campaign which ZPS led.

Through the campaign, mobile users can now terminate their membership simply by returning an SMS with the standard word 'stop'.

Since this consumer movement success in Slovenia, the SMS club, in return, became more aggressive in their marketing strategies which in effect continues to mislead mobile consumers.

With support from CI, ZPS aims to convince operators to change the existing SMS club system from opt-out to opt-in.

ZPS believes that such reform will significantly improve the level of transparency in the telecommunication industry. Consumers will be provided adequate information with regard to the service they avail.

ZPS calls for regulators and market inspectors to have a proactive system that will address consumer complaints on misleading advertising that leads to unwilling SMS club membership.

Providers should be more transparent in advertising the price of commercial messages and consumers should always be given the option to stop being a member of the SMS club.