Despite fueling significant gains in financial inclusion over the last decade, the acceleration of digital finance has brought with it a number of consumer risks – particularly for women and other vulnerable consumers. A new CGAP report points out several new types of consumer risks emanating from digital financial services (DFS) as well as notable increases in fraud, misuse of data and lack of transparency financial service providers (FSPs). Perhaps even more concerning are data trends showing the pace of consumer risk increase outgrowing adoption of technology-enabled financial services. For example, mobile app fraud incidents in South Africa’s banking sector saw an increase nine times higher than that of smartphone user growth over the same period.
This year, in response to growing alarm over harmful practices by DFS providers and increased consumer risk, the consumer rights movement is convening around World Consumer Rights Day (March 15, 2022) with a focus on “fair digital finance.” Increasing risks call for a new approach to better protect and empower consumers of DFS. As part of this approach, we believe that collaborative action among marketplace actors is critical to ensure consumers have the outcomes they expect throughout their financial journey. Consumer associations can play a constructive role in supporting digital finance, making DFS more responsible, especially for women and vulnerable customers.
What consumer associations can contribute
In collaboration with Consumers International, whose membership includes 97 consumer associations from low-income countries, we carried out research looking at the role of these organizations in bolstering consumer protection. Through interviews with 32 associations from low-income countries, we found that consumer associations employ a range of innovative strategies to protect consumers of digital finance. For example:
Consumer associations can influence regulations by raising the collective voice of consumers. For example, in the Philippines, the consumer association Laban Konsyumer collects and shares consumer complaints with the regulator. In Indonesia and Brazil, consumer associations have influenced regulations related to payments and credit.
- They can also raise consumer awareness and knowledge. This is particularly important for women who have lower levels of financial education than men in many countries. Traditional and social media can be employed for such awareness-raising, as well as formal and informal training. For example, in Brazil, IDEC brought attention to the issue of over-indebtedness by organizing a case study focused on one consumer, a professor, whose income was 20 times the national minimum wage but was so highly indebted that he had committed 120% of his income to loan repayments for four years.
- They can also help consumers file complaints when they have problems with financial services providers. This typically happens through in-person counselling or by referring consumers to dispute resolution mechanisms offered by governments. In some cases, consumer associations will file complaints on behalf of consumers. For example, in Peru, ASPEC helps consumers file their complaints with national consumer protection authorities and to providers directly.
Opportunities for growth
Despite these encouraging findings, there remains great opportunity for consumer associations to strengthen their role in DFS consumer protection.
Several new solutions are emerging that could make consumer associations more impactful in ensuring a responsible digital finance marketplace. They include:
- The CGAP Market Monitoring Toolkit, which can help consumer associations to identify, understand and track market-level consumer risks. These tools, available to the public, include social media analysis, mystery shopping and phone surveys. With improved data and knowledge, consumer associations are much better equipped to advocate for regulatory change or corrective actions from authorities when things go wrong for consumers.
- The Fair Digital Finance Accelerator (FDFA), launched on March 14, 2022, at Consumers International’s Fair Digital Finance Forum, will strengthen channels of engagement between consumer associations, regulators and providers. The FDFA will build a unique and vibrant community of consumer associations in low-and middle-income countries as well as a platform for collaborative action, learning and collective influence on digital finance to shape the future for consumers. The FDFA will also provide consumer advocates with training and tools to enhance their knowledge and advocacy work and build bridges with DFS regulators and providers.
- Other measures can be taken to help consumer advocates better understand how to interact with regulators and supervisors, such as knowledge exchange between consumer associations in a region or through direct training. For example, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)’s project with the Association of Southeast Asian Nations (ASEAN) organized peer learning for organizational development and financing through the emerging ASEAN Consumer Associations Network.
These new solutions will enable associations to further contribute to existing mechanisms put in place by regulators, such as consumer advisory panels. While these institutionalized bodies are more common in high-income economies, such mechanisms are becoming increasingly prevalent in low- and middle-income countries as well. For example, South Africa’s Financial Sector Conduct Authority is in the process of establishing an advisory panel as part of a pilot supported by CGAP.
Consumer associations are powerful actors with the ability to make change materialize. To give them a better seat at the table and ensure their voices are heard in the digital finance sphere, broader collaboration is needed between the key actors. Events such as the Fair Digital Finance Forum are one way of bringing the right voices together to demand change.