Putting Mystery Shopping to the Test in the Philippines

Typically, mystery shopping is associated with consumer market research. Companies would spy on their competitors by sending secret shoppers pretending to be customers, perform surveillance and report back with intelligence information. Indeed, mystery shopping can be a very effective tool for companies to see what their rivals are doing which will guide them in improving their products and services in a hope to get a bigger slice of the market.

It is fascinating that the usefulness of mystery shopping goes beyond marketing. Even financial regulators are employing this approach, but of course, in a completely different context. Mystery shopping can also serve as a tool to check if supervised institutions are complying with the regulations. This was what the Bangko Sentral ng Pilipinas (BSP) did to see the impact of enhancements in the Truth in Lending Act (TILA) on credit products targeting base of the pyramid consumers.

Residents in the Philippines use boats to visit shops
Residents in the Philippines use boats to visit shops. Photo by Raniel Jose Castaneda.

With the help of the Consultative Group to Assist the Poor (CGAP), the BSP embarked on a “natural experiment” to determine if there was improvement in loan transaction transparency and disclosure practices after the revised rules enhancing the implementation of TILA were issued. Different types of financial service providers were visited, including banks, lending companies, pawnshops, cooperatives and microfinance non-government organizations (NGOs). The experiment was conducted in two phases: one month before the regulation took effect (“Pre-TILA”) and a year afterward (“Post-TILA”), to measure how things have changed in the interim.

One of the main takeaways from our mystery shopping experience is the importance of careful design and planning before the actual field visit. This does not necessarily imply complexity in implementation, though. In fact, simplicity is key to successfully implement a mystery shopping exercise. It is also important to ensure clarity in every aspect of the project particularly in constructing the scenarios and feedback questionnaire, and in conducting the training for mystery shoppers.

Here are some tips: The scenarios and backstories that the shoppers will follow should be simple and believable. The questionnaire should be straightforward because having complicated questions will likely confuse the shoppers who may not be very well-versed in the financial service industry. During the training, the intentions and main features of the regulation should be explained in such a way that the shoppers can appreciate how they can benefit from it as financial consumers themselves. Use of colloquial language and simple examples can help in clarifying financial jargon. Orienting the shoppers about market context and peculiarities will also widen their understanding of the different types of credit providers that they will visit.

These tips appeared to have worked because during role playing (which was one of the most amusing scenes during the training), the shoppers acted like pros! Perhaps their previous experience in mystery shopping was also a factor, but it was really impressive to see how shoppers were able to effectively portray their chosen character and follow the guide questions as indicated in the questionnaire which they need to fill-up after the interview with the loan officer.

Speaking of the questionnaire, it is interesting to note that aside from asking the shopper if specific information was provided by the loan officer, the feedback form also probed whether the information was provided spontaneously or upon request, whether verbal or written, and whether explained or mentioned only. This was deemed necessary in order to measure the quality and extent of transparency and disclosure. The task could have been easier if shoppers can record their interview, however there is an Anti-Wiretapping Law in the Philippines that prohibits the use of information through undisclosed recording. So we had to rely on faithful note-taking and document keeping.

Overall, the project was implemented successfully – thanks to the effective collaboration and coordination among the BSP, CGAP and the contracted survey firm. As to the results, the mystery shopping exercise revealed positive yet modest changes in loan transparency and disclosure practices after the revised truth-in-lending rules were issued. For instance, while most institutions are still using nominal interest rate and “flat” method of computation, the percentage of institutions using EIR and declining balance method increased. For many key product features, disclosure of information during Pre and Post-TILA only varied slightly. The findings highlighted the importance of reinforcing the rules on truth and transparency in lending because even if positive changes were observed, there is much to be desired.

This is the first but, hopefully, not the last time that we are having a mystery shopping exercise. Consumer research tools like mystery shopping can play a key role not only in checking compliance with regulations, but also in better understanding the markets we want to serve.



This Technical Guide is designed to enable policy makers with jurisdiction over market conduct issues, consumer protection organizations, and development agencies to conduct mystery shopping exercises.

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