Page 12 - ITU-T Focus Group Digital Financial Services – Consumer Experience and Protection

ITU-T Focus Group Digital Financial Services
Consumer Experience and Protection

1 Introduction

Digital Financial Services (DFS) in this report refers to the use of an electronic device or system to access
financial services such as storing funds, making and receiving payments, applying for credit or for insurance.
Due to the inaccessibility and high costs of formal banking for low income and rural communities and the
increase in access to mobile phones, DFS has become a viable way for the unbanked to access formal financial
services (Potnis, 2014). Increasing access to formal financial services and thus reducing financial exclusion is
seen as an important development goal as it has been argued to stimulate economic growth, thereby increasing
welfare and reducing poverty (Kundu, 2015).

The legal and regulatory frameworks which govern DFS play a critical role in creating an enabling environment
for low income and unbanked populations to become financially included. One important aspect within
regulation is how the rights and interests of consumers are protected and promoted. Consumer trust is the
foundation for achieving sustainable uptake and active usage of DFS. This includes protecting consumers
from fraud, safeguarding personal data and consumer funds, ensuring transparency and ensuring recourse
mechanisms are available.

Financial consumer protection has gained increased attention since the global financial crisis, which increased
pressure for providers to be transparent in their business conduct, disclose key information about their products
and services, and treat consumers fairly and ethically (Tiwok, 2013).

An effective consumer protection framework within DFS can increase consumer confidence thereby increasing
adoption and active use of the services. This is even more important for unbanked users who may not have
prior experience with formal banking services (World Bank, 2014). While the interests of consumers (and
especially low income consumers to increase financial inclusion) are important it is also imperative that the
legal and regulatory framework remains fair and balanced for all stakeholders (World Bank, 2015).

2 Methodology

The study involved a desk review of key issues for consumer protection in digital financial services. This involved
reviewing the key publications and research conducted by leading international organizations and experts
within DFS on the consumer risks and consumer protection approaches.
The methodology did not, however, attempt to analyze the feasibility of implementation or enforcement
of the identified issues. It also did not aim to identify which consumer protection issues are best addressed
through industry action, and which are best addressed through regulation. Therefore, a more detailed analysis
is necessary before regulators take action on any of the point listed below.

3 Key themes in Consumer Protection for Digital Financial Services

The publications, reports and focus notes from leading DFS organisations and research groups such as AFI,
CGAP, GSMA, and the World Bank were reviewed to determine the key themes for consumer protection. These
organisations were chosen as they are at the forefront of driving financial inclusion in low income countries.

Good consumer protection practices protect the interests of consumers, creating trust in using digital financial
services, while preserving the commercial incentive to provide these services at scale. Developing a regulatory
framework requires regulators to analyze the roles of players in the value chain (banks, MNOs, non-banks,
agents, e-money issuers, etc.) and consumer risks. DFS in many emerging economies are driven by innovations
in mobile technologies, so the mobile network operators that provide the telecommunications infrastructure
are critical players in the ecosystem.

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