Do Mobile Money Clients Need More Protection?

On this year’s World Consumer Rights Day, Consumers International (CI) has chosen a timely target: mobile phones. Through their global campaign, this worldwide network of more than 240 member organizations in 120 countries is advocating to make mobile phone products and services accessible and fair globally. They ask: “As the number of consumers using mobile services nears 7 billion grows, what sort of service are they receiving? Are they being treated fairly?” According to CI members, too often the answer is no.

Even if this general finding is correct, does it hold true for the millions of users of mobile financial services in developing countries? From the evidence we have seen, the Consumers International finding gives too little weight to the benefits, particularly for poor people around the world given the significant advances in access to, and use of, mobile phones. This includes huge gains in financial inclusion that have been achieved in some markets as a result of mobile financial services.

In 2007, when Safaricom launched the M-Pesa “Send Money Home” service in Kenya, many were skeptical of its potential and few imagined its phenomenal success. Today more than 70 percent of adult Kenyans are using this service, and there are over 120 mobile financial services businesses reaching 197 million people in other developing markets worldwide. While sending money to a relative, paying a bill, or saving money securely may have once required an all day journey, today it can be done in the palm of your hand. This is innovation and progress that the CI campaign should acknowledge.

Yet the focus of this year’s World Consumer Rights Day also rings true: in the exciting world of digital finance, we have perhaps asked too few questions about rights, risks and fairness. We need to systematically explore the risks of new financial inclusion models, particularly to consumers who are poor, economically and social excluded, or otherwise vulnerable. What can go wrong? How often do these problems occur and with what consequences? How does this compare to the risks of the informal options? What steps can be taken to reduce those risks and help consumers who are often unfamiliar with formal finance make better-informed choices?

In recognition of WCR Day 2014, we flag five emerging consumer risks from mobile phone-based financial services that merit more attention and action:

1. Fraud Perpetrated on Consumers: Mobile money users are less likely to be aware of the risks or attuned to the warning signs, making them more susceptible to fraud schemes. According to GSMA, Vishing/Smishing scams – tricking customers into sharing personal information such as a PIN – is a particularly common fraud risk. These scammers capitalize on the fact that few users understand the concept of a PIN, and how valuable and important it is to protect. According to research conducted by InterMedia, 29% of registered active mobile money users in Tanzania have shared their PIN in order to access a mobile money service. GSMA concludes, “this is a concerning statistic for operators because customers who are defrauded will not only lose their savings but will also lose trust in the service.”
2. Mobile Money Agent Misconduct: Agents play a critical role in most mobile money models and are often trusted intermediaries for low-income people who are using formal finance for the first time. But, do agents always deserve that trust? Research by MicroSave, InterMedia, and others including CGAP, has documented the prevalence of agents charging unauthorized fees. Female customers in some markets report reluctance to provide their phone numbers to agents for fear of harassment. Delayed, lost and stolen payments are also reported. Service quality and trust in the agent network is critical to the long-run value to customers and viability of the digital finance business.
3. Threats to Data Protection and Privacy: Recent events in developed markets such as the data theft from 40+ million Target customers have raised awareness about data security risks. A recent GSMA study documented that approximately 80% of mobile users desired privacy of their personal data. Only recently has a conversation begun around consumer rights to, and awareness of, data privacy and protection in mobile money services. A companion blog by CGAPer Rafe Mazer explores this complex issue and shares initial findings from an experiment to help base-of-pyramid customers of an innovative Tanzanian credit scoring business understand and make meaningful decisions about how their data is being used.
4. Unclear or Inadequate Consumer Recourse: Some mobile money operators have set up exemplary call center operations with specialized staff who deal expeditiously with customer queries and complaints. This is not always the case, however, and we need to explore the extent to which consumers know where to turn, how accessible those recourse channels are, and whether their concerns are addressed in a timely and fair manner. A related area that needs attention is whether it is clear which financial service provider is ultimately responsible for resolving customer problems, when multiple businesses are involved in delivering the service as is increasingly common in the digital finance space.
5. Beyond Payment Products: To date, mobile money services largely revolve around payments, but new mobile-linked services like credit and insurance are coming on stream and are growing rapidly in some markets. While having access to additional financial services has potential to benefit mobile money users, we must also consider the inherent consumer protection issues that these products raise when delivered or accessed via a mobile phone. For example, how much do mobile insurance customers understand about the product they are purchasing and how they will make a claim if the covered event happens? Should we be concerned about how the more “instant” and impersonal nature of mobile-delivered credit will affect borrowers’ judgment and repayment behavior?

At this point, we know little about the incidences and consequences of each of these risks in different markets or for different populations. We would do well to acknowledge the potential down sides, build a solid evidence base, and find practical solutions that mitigate consumer risks while strengthening the digital finance eco-system. Fortunately, this agenda is beginning to gain momentum in our field. We are confident that the benefits of mobile financial services to low-income and unserved people around the world will far outweigh the risks outlined here and others that might prove to be salient. But when we apply the World Consumer Rights Day fairness question about mobile phones to financial services, let’s work together to be sure the answer is a solid “yes.”