Page 107 - ITU-T Focus Group Digital Financial Services – Recommendations

ITU-T Focus Group Digital Financial Services
Recommendations

Title of recommendation Regular market consultations to understand new products and consumer
experience and risks

Working Group/Work Stream Consumer Experience and Protection
Theme Digital credit

Audience for recommendation Regulators

Regulators should engage in regular consultations with digital credit providers, consumer organizations, and
other stakeholders to stay apprised of market developments, including new digital credit products and services
being offered, the types of providers offering them, and consumer experiences and risks associated with them.

Monitoring the growth, business conduct, and lending practices of an increasingly diverse set of digital credit
providers is challenging for regulators. Some models are scaling very rapidly and serving many lower-income
consumers who are new to DFS or to formal credit. The arguments for balancing protection and market
development considerations are strong: While the product fills a potentially important gap for consumers and
can help drive eco-system development, there is potential for consumer detriment and even bubbles and the
models are relatively untested.
Borrowers may be particularly vulnerable to the risks associated with high-cost consumer credit due to their
lower, variable incomes and lack of familiarity with these products and their risks. In addition, the speed of
delivery, confidential nature of the offer, and payment digitally rather than in cash, may affect consumer
behaviour by making the borrowing decision less intentional and reducing attention to the loan’s full cost,
68
affordability, and the consequences of late or partial repayment. Indeed, according to AFI and CGAP ,
68
67
consumers may behave differently when presented with “instant” loans compared to a conventional lending
process. Some will test out the system without actually needing the loan, racking up fees and negatively
affecting their credit history if they have trouble with repayment. The instantaneous and impersonal nature
of the transaction also precludes a cooling off period where customers can make sure that increasing their
debt is a wise choice.

Therefore, it is important for providers to test their products and digital communications to minimize the risks
of suboptimal behaviour by digital borrowers. There is emerging evidence how methods such as lab testing ,
77
interactive SMS , user testing of messaging scripts , qualitative research combined with data analysis can help
73
78
digital lenders understand and address these behavioural challenges. These types of research and behavioural
insights are currently being used by digital lenders to improve approaches to disclosure, consumer education,
repayment, and understanding of digital data trails.
Regulators and providers need to maintain an open dialogue to enhance their understanding of the specific
consumer protection issues that stem from digital credit features, such as how products are underwritten,
marketed, disclosed, priced, and collected. Regulators could establish working groups, conferences, and
newsletters to share information with each other on emerging digital credit risks and encourage providers
to do the same. CGAP reports that Bangladesh, Pakistan, and Tanzania have formal DFS industry discussion
10
and coordination processes, and Kenya holds forums for stakeholders to share and discuss market trends and
issues. These forums could be an opportunity to monitor trends and identify concerns in digital credit markets
as they rapidly expand.

77 Mazer, R., Vancel, J., Keyman, A. CGAP, Finding “Win-Win” in Digitally-Delivered Consumer Credit (2016) http:// www. cgap. org/
blog/ finding- %E2%80 %9Cwin- win%E2%80 %9D- digitally- delivered- consumer- credit
78 Kaffenberger, M., Mazer, R. CGAP, Simple Messages Help Consumers Understand Big Data (2014) http:// www. cgap. org/ blog/
simple- messages- help- consumers- understand- big- data

101