Consumer Protection CGAP

An Ecosystem Approach to Consumer Protection: What, Why and How?

The explosion of digital financial services (DFS) is bringing low-income people into the formal financial sector. While DFS unlock life-changing opportunities by helping consumers save, borrow, and receive remittances, CGAP’s research shows that the nature and scale of DFS are evolving and growing. Is it time to step up financial consumer protection? We think so, and we believe that implementing a responsible digital finance ecosystem vision is the way forward.

CGAP and other industry players have already developed various solutions that can help address DFS consumer risks. We believe that implementing a responsible digital finance ecosystem vision is the way forward.

What have we learned so far about consumer risks in digital finance?

Consumer protection efforts have struggled to keep track of a fast-evolving DFS market where risk exposures are growing faster than the increase in DFS usage and faster than the remedies. The Global Findex 2021 uncovered concerning insights into potential users’ lack of trust in financial systems and existing users’ financial worry. CGAP has identified more than 60 kinds of consumer risks facing DFS users around the world. Digital consumer credit is of particular concern, according to CGAP’s research. Also, with financial services providers rapidly expanding consumers’ digital footprints to develop and deliver new products, people are increasingly exposed to risks, such as data misuse and cybercrime. 

Why is effective consumer protection rooted in building a responsible digital finance ecosystem?

Despite all the progress made in the past few years in the consumer protection space, the rapid digitization of financial services, the arrival of many new types of providers, the limited financial and digital literacy of consumers, and loopholes in the regulatory and supervisory frameworks require a more holistic framework. 

Consumers, DFS providers, financial and non-financial authorities, consumer representatives, market facilitators, funders, and global bodies are all important actors in a digital finance ecosystem. They all play key roles by interacting in ways that safeguard consumers from potential harm and ensure positive outcomes for customers using financial services, especially vulnerable consumers. While a responsible digital finance ecosystem requires regulatory and supervisory foundations to ensure its success, CGAP calls for action around four key components (4 Cs) that we believe are necessary to building this ecosystem: a Customer-centric approach, where all actors have the necessary Capability to ensure customers are served responsibly, facilitated through structured Collaboration mechanisms, and a Commitment from all actors to take action towards responsible digital finance.  

In addition to the 3 Cs, CGAP aims to explore different kinds of solutions leveraged by different actors within the ecosystem that aim to address key stages of consumer risk management, such as prevention, identification, and mitigation. While many new tools are available to assess the situation and mitigate consumer risks in digital finance—and notable progress has been made by all the key actors—we believe we need to connect all the dots, rather than continue with a piecemeal approach. We began piloting this approach in the region of West African Economic and Monetary Union (WAEMU)  through a Digital Finance Consumer Protection Lab that has started work in Côte d'Ivoire, Senegal and Burkina Faso. 

How can we foster a responsible financial ecosystem and monitor progress?

Ensuring the success of a responsible digital finance ecosystem entails integrating consumer voices into financial regulations, particularly the voices of vulnerable consumers, which can be accomplished by engaging consumers associations, analyzing social media, and setting up consumer panels within regulatory authorities. It also entails new approaches to data privacy and protection in addition to monitoring collective progress and measuring success. A customer outcomes-based approach is emerging as promising consumer protection frameworks where the regulatory focus shifts from provider compliance with prescriptive check-the-box rules to customer results or outcomes achieved through provider actions.  

CGAP works with financial authorities to help them understand the risks generated by service providers through market monitoring tools and collaborates with the providers on monitoring customer outcomes throughout the customer's financial journey. We also work with DFS providers who have a critical role to play—either individually or through industry associations—to adopt customer-centric business models that create more value for customers while improving their bottom line. Our collaborations with several international funders as well as international partners, such as AFI, FinCoNet, SPTF, GSMA, Toronto Centre, Dvara Holdings, and the Responsible Finance Forum, are essential to enhancing knowledge and supporting capacity building in the ecosystem.   

Additional Resources

Blog

DFS users in Burkina Faso face significant risks. A national survey revealed key challenges: poor network quality, fraud, and user difficulties. The most vulnerable—women and rural populations—struggle the most.
Blog

This year, the Findex database provided new information on the quality of customers’ journeys in accessing and using financial services, including some of the risks consumers face, and the outcomes they experience - we break down the numbers.
Blog

CGAP has identified dozens of consumer risks facing digital financial services users around the world, and emerging evidence suggests women are more at risk than men. Here are some ways to mitigate these risks for women.
Blog

In this World Consumer Rights Day blog, we discuss the ways consumer associations can make digital financial services more responsible, especially for women and vulnerable customers.
Blog

Recent qualitative research in Uganda conducted by CGAP and MicroSave Consulting (MSC) identified good practices for responsible agents in safeguarding their customers’ data and the role that providers can play in promoting these practices.
Blog

Emerging evidence shows digital finance consumer risks are increasing and, if not mitigated, could undermine users’ trust. We highlight risks that affect digital financial services users in Sub-Saharan Africa and measures to mitigate them.
Blog

As big techs and other platforms ramp up their financial service offerings in emerging markets, regulators can look at developments in advanced economies to get a glimpse into the data protection issues they will need to consider.
Blog

For digital financial services providers looking for a competitive edge in developing economies, better data privacy features could be the answer, according to CGAP research from India and Kenya.
Blog

Last year, news reports emerged of aggressive debt collection amid India's digital credit boom. New research shows that early warning signs on social media preceded the reports, highlighting the value of social media for consumer protection.
Blog

CGAP and Accenture LLP (Accenture) launched a pilot to help Peruvian authorities assess their consumer listening mechanisms and determine the necessary steps to design an integrated financial consumer protection platform.
Blog

For financial inclusion to work for the poor, it’s time to move beyond consumer protection frameworks that are more about protecting providers than customers.
Publication

This Focus Note explores consumer risk in digital finance—-particularly through the lens of lower-income and less-experienced consumers.