Page 104 - ITU-T Focus Group Digital Financial Services – Recommendations

ITU-T Focus Group Digital Financial Services
Recommendations

Title of recommendation Transparent disclosure of digital credit costs using standardized definitions
Working Group Consumer Experience and Protection

Theme Digital credit
Audience for recommendation Regulators

Regulators should establish standard definitions for the cost of digital credit including all bundled services (and
including all interest, credit-related fees, and fees for bundled products), and require clear, conspicuous, and
understandable disclosure of the cost, as well as financial and other consequences of early, partial, late, or
non-repayment of the loan.

Terms and conditions for DFS, especially more complex services such as credit, are often poorly disclosed
according to CGAP research. Lack of transparency standards may result in disclosures and agreements that
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are difficult to comprehend, provided piecemeal, or received at the wrong time to be useful. Conversely,
establishing and enforcing a consistent regime for disclosing the cost of products could help to improve the
quality of customer decisions and may promote comparison shopping. Competition may in turn lead to
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overall reductions in costs .
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The World Bank’s Good Practices for Financial Consumer Protection specify basic transparency standards
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for all types of products, such as being as concise as possible, using plain language and easily understandable
terms, and giving prominence to key features so customers are more likely to notice and seek clarification
with the staff or agent if needed. The Good Practices also state that regulations should allow providers to
use digital means of providing terms and conditions, and establish the timing of disclosures, especially during
the sales and the pre-signing periods. Going a step further, it is important to specify that all digital products
provide the full cost of the loan, including interest, fees, and bundled services, prior to the execution of the
transaction on the digital delivery channel, as was recently mandated by the Competition Authority of Kenya .
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Digital credit creates unique transparency challenges. Information is provided mainly on a small screen
with limited room for text. There are few opportunities for customers to ask questions in person, and some
information may only be posted online even if the customer is using a mobile handset to access the product.
For example, M-Shwari in Kenya, which offers instant access to credit without a previous banking history,
provides terms and conditions through a web link, even though many users lack access to the internet. In
practice , many M-Shwari applicants skip this pre-purchase step to avoid the hassle, and may not know the
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cost or repayment conditions of the loan. With a 7.5 per cent facilitation fee for a 30-day loan, this can be an
expensive mistake.

Standard definitions should be used to communicate the cost of digital credit. Regulators should design the
calculation and disclosure using a consistent metric that reflects the total cost, so that digital borrowers do not
pay more than the amount advertised and understand the full cost of the product. The standardized method
for determining total cost should include all interest and credit-related fees. Disclosing fees and requirements
for tied and bundled products, such as insurance or deposit accounts, may be especially problematic due to
the limited space available and increased complexity of the offer.

69 CGAP The Proliferation of Digital Credit Deployments (2016) https:// www. cgap. org/ sites/ default/ files/ Brief- Proliferation- of-
Digital- Credit- Deployments- Mar- 2016_ 1. pdf
70 Mazer, R., USSD Access: A Gateway and Barrier to Effective Competition (2015) http:// www. cgap. org/ blog/ ussd- access- gateway-
and- barrier- effective- competition
71 Mazer, R., Rowan, P., Competition in Mobile Financial Services: Lessons from Kenya & Tanzania (2016) http:// www. cgap. org/
publications/ competition- mobile- financial- services- lessons- kenya- tanzania

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