Consumer Protection in Digital Credit

30 Aug 2017

Digital credit is a fast-growing phenomenon in many emerging markets. These tiny loans are having a large impact, allowing millions of low-income consumers to borrow money with just a few taps on a phone menu or clicks on an app screen. But digital credit also raises serious consumer protection concerns. Will borrowers really think through their decisions to borrow or just borrow on impulse because access is easy and payment instant? Do we really know enough about consumers to make sure we are sending the right offers to the right borrowers, and not encouraging reckless borrowing? Are we okay with loans that have annual interest rates above 100 percent?

This publication presents both the consumer protection risks and the opportunities for improved consumer use of digital credit. There is not enough being done to implement minimum standards in consumer protection for digital credit, and this exposes the industry and consumers to risks such as credit bubbles and mass-blacklisting of consumers in credit bureaus for just a few dollars of debt. Yet there is also a growing number of providers that are developing innovative new approaches to consumer protection for digital credit products. This Focus Note highlights evidence from CGAP experiments with a diverse range of digital credit providers, and provides clear and direct evidence that consumer protection is not only the right thing to do, but often a wise business decision.

This publication was originally published by CGAP.

Paving the Way for Digital Financial Services in Jordan

30 Aug 2017

CGAP engaged DMA to research the Jordanian remittances market to inform development interventions and pilots aimed at improving access to financial services for low-income Jordanians and Syrian refugees living in Jordan, leveraging international remittance flows into and out of the Kingdom.

Research took place between April and September 2016 and focused on assessing the supply of services for both the domestic and international payments market. Using the Committee on Payment and Settlement Systems (CPSS)-World Bank General Principles for International Remittances, a general assessment was completed on the market structure, regulatory and competitive environment, transparency and consumer protection. A detailed analysis of eight corridors, selected based on their size and potential for digitization, was also completed to assess the viability of launching a digital pilot in one of these corridors to test an end-to-end digital solution for international remittances. The five inbound corridors were from the UAE, Saudi Arabia, Qatar, the United States, and Germany to Jordan; three outbound corridors were from Jordan to Egypt, Palestine, and the Philippines.

The main findings are as follows. In the domestic market, the innovative new payments system of JoMoPay sits alongside a highly cash-based society. While the infrastructure and regulatory framework are sound and offer the potential for the rapid uptake of mobile payments, a concerted effort is needed to drive this uptake, both from a consumer and a service provider perspective. Consumer protection also needs to be addressed in the near term.

Opportunities and Risks in Digital Financial Services: Protecting Consumer Data and Privacy

31 Jul 2017

Responsible digital finance has continued to be a cross-cutting priority of the G20 Global Partnership for Financial Inclusion (GPFI) since 2014. A cornerstone of the Universal Financial Access (UFA) goals of the World Bank Group by 2020, responsible digital finance also seeks to help achieve the United Nations’ Sustainable Development Goals (SDGs) by 2030.

Representing the G20 Presidency in 2017, Germany heightened the importance of digitization, and the topic of data protection/privacy and security was embraced by key implementing partners and all four Sub-Groups of the Global Partnership for Financial Inclusion.

The Responsible Finance Forum (RFF VIII) in Berlin focused on Opportunities and Risks in Digital Financial Services: Protecting Consumer Data and Privacy. The event probed more deeply into the dimension of the G20 High Level Principles for Digital Financial Inclusion (G20 HLP), endorsed under China’s G20 Presidency in 2016.

Access Key Takeaways

This year, the Forum delved into the following areas:

Identifying opportunities, risks, and policy approaches needed to address data-enabled digital financial services (DFS). The Forum provided participants with the opportunity to discover the perspectives of diverse stakeholders, for example, retail providers, FinTechs, regulators, policy makers, consumer advocates, development partners. Discussions revolved around how to most effectively address the risks and opportunities of DFS as the basis for identifying common ground, and defining the roles and responsibilities for each stakeholder profile.

Unpacking big data innovations and the role of industry. The question of how various stakeholders (for example, industry, financial providers, FinTechs, banks, Mobile Network Operators, and so on) can acknowledge and respect consumer privacy while simultaneously advancing innovation and inclusion, was explored during the Forum’s meetings.

Translating insights into action. Focus Sessions captured participant insights and priority actions across four areas: Policy and Regulation, Industry Standards, Consumer Perspectives, and Development
Partners. These areas were addressed in relation to issues of privacy and data protection as linked to digital financial services. Remaining gaps in these focus areas were noted, particularly from the various stakeholder perspectives and roles.

Focus on shared goals and forging partnerships in moving forward. With increasing digitization, members of the G20, GPFI, and all stakeholders must promote measures that ensure responsible financial inclusion as applied to digital financial services.

We hope this report will serve as a call for action that will resonate among Forum participants and beyond. We invite new and ongoing partners to join us and stay engaged in advancing responsible digital financial inclusion.

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Digital Financial Inclusion: Emerging Policy Approaches

01 Jul 2017

This report examines how countries are implementing measures in line with the G20 High-Level Principles for Digital Financial Inclusion (HLPs) published in 2016—aiming at catalyzing government actions to drive financial inclusion through a focus on digital technologies.  Digital financial services, together with effective oversight and supervision, can expand the scale, scope and reach of financial services, and are essential to closing the remaining gaps in financial inclusion. Digital technologies also offer affordable and convenient ways for individuals, households and businesses to save, make payments, access credit, and obtain insurance.

Responsible Digital Payments Guidelines

21 Jul 2016

The Better Than Cash Alliance ‘Responsible Digital Payments Guidelines’ identify eight good practices for engaging with clients who are sending or receiving digital payments and who have previously been financially excluded or underserved.

The focus of the Guidelines is on the common types of digital payments services provided to the financially underserved such as electronic money transaction accounts. For clients to adopt and use digital payments, they need to feel protected from risks such as loss of privacy, exposure to fraud, and unauthorized fees. This means that service providers need to proactively take steps to protect their clients and that regulators should ensure a sound consumer protection regulatory framework.

This is especially true for financially excluded and underserved clients and those with low financial and technological capability who are participating in a world of rapid innovation involving new types of financial services, providers, partnerships, and distribution channels. In an inclusive digital payments ecosystem, it is important for all the stakeholders to do their part to ensure that digital payments are made responsibly.

The Guidelines’ aim is to provide a helpful tool for all stakeholders supporting responsible practices in the move from cash to digital payments in order to reduce poverty and drive inclusive growth.

Payment Aspects of Financial Inclusion

30 Jun 2016

The CPMI-World Bank Group Task Force on the Payment Aspects of Financial Inclusion (PAFI) started its work in April 2014. The Task Force was mandated to examine demand and supply side factors affecting financial inclusion in the context of payment systems and services, and to suggest measures that could be taken to address these issues.

This report is premised on two key points: (i) efficient, accessible and safe retail payment systems and services are critical for greater financial inclusion; and (ii) a transaction account is an essential financial service in its own right and can also serve as a gateway to other financial services. For the purposes of this report, transaction accounts are defined as accounts (including e-money/prepaid accounts) held with banks or other authorised and/or regulated payment service providers (PSPs), which can be used to make and receive payments and to store value.

The report is structured into five chapters. The first chapter provides an introduction and general overview, including a description of the PAFI Task Force and its mandate, a brief discussion of transaction accounts, and the barriers to the access and usage of such accounts. The second chapter gives an overview of the retail payments landscape from a financial inclusion perspective. The third chapter forms the core analytical portion of the report and outlines a framework for enabling access and usage of payment services by the financially excluded. Each component of this framework is discussed in detail in the report.

Digital banking in emerging Asia – progress and prospects

22 May 2016

Personal finance trends across emerging Asia have seen a visible shift towards digital banking over the past five years. The region’s favourable demographics, high mobile adoption rate and deepening internet penetration have opened opportunities for banks to leverage on technology for bridging a widening financial inclusion gap. Convenience banking has assumed priority, with banks offering a gamut of financial services through web portals and mobile apps while redesigning their backend technology architecture. However, still at an incipient stage, EM Asia’s digital banking transformation process has led to a new set of challenges for policymakers in terms of redefining the regulatory framework; and traditional banks are striving to convert customers to the digital platform in the wake of stiff competition from new age ecommerce companies. Against this backdrop, this watch examines the current state of digital banking transformation across emerging Asian economies, the challenges it presents for various stakeholders to overcome and its future prospects, especially in light of the region’s efforts to deepen financial inclusion.

The Status of Financial Inclusion, Regulation, and Education in India

29 Apr 2016

India’s financial inclusion agenda has witnessed a paradigm shift over the last decade, away from an emphasis on credit to a more comprehensive approach toward financial services (e.g., opening bank accounts and offering basic financial products, such as insurance). This paper describes the structure of banking and microfinance institutions in India relevant to the developing model of financial inclusion, as well as relevant regulatory structure and modes of delivery. It explains the current state of financial inclusion, as well as regulatory changes necessary to make the new architecture for inclusion viable, including a critique of some of the recommendations of the Mor Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households. The paper then reviews modes of delivery and the regulatory structure being contemplated or recently introduced. It assesses the suitability objective envisaged as critical for inclusion, associated challenge of revamping consumer protection laws, and imperative of improving financial literacy. The paper also discusses the case of micro, small, and medium-sized enterprises in the given context

Digital Field Applications: Case Study

22 Apr 2016

The objective of this study is to address these issues by providing clarity on the impact of DFAs by examining the business case, implementation process and effects for three MFBs around the world. Additionally, we provide lessons learned from the DFAs reviewed which could serve as guiding principles for other financial institutions.

Another major goal of this study was to develop and analyze the business case associated with deploying a DFA. To achieve this, we reviewed implementation costs and assessed the benefits that accrued to each institution. We then created a business case which is explained in detail, and is also available as a standalone tool.

The study of these three early DFA adopters revealed that although the primary motivation for implementing DFAs was to improve effciencies and processes surrounding loan processing, the institutions also experienced a variety of benefits that went beyond their core objective. While all three MFBs recognized that DFAs can be used to support activities such as savings mobilization, social impact measurement, and insurance coverage, their initial usage focused on credit offerings. Therefore, this study reveals findings associated with the impact of DFAs on loan application processing. The study breaks down this impact across the dimensions of client and institutional benefits, and uses these as a foundation to outline the business case.