Educating digital financial services (DFS) providers to understand that consumer protection is a core business strategy is as important – if not more important – than consumer protection regulation supervision if we hope to ensure that vulnerable consumers are well protected. For this reason, as I articulated in my last post, I would like to see DFS providers and their managers take the lead when it comes to driving consumer protection, and that consumer advocates and regulators’ efforts are aligned to make sure this happens.
There are many possible reasons why DFS managers are not taking the lead, however, beyond a general lack of awareness of consumer protection and its importance:
- They might be driven to achieve short-term targets with limited resources, prioritizing their time, budgets and activities to meet high ROI expectations. Or they might be under pressure to launch innovations and take advantage of the “next big thing” like digital credit or data monetization.
- They could lack the necessary knowledge and experience in their teams to properly address consumer protection. Such know-how involves truly understanding customers’ needs, developing intuitive user interfaces, designing appropriate sales incentive structures, assessing customers’ loan affordability, and implementing effective internal control frameworks to address security, loss of privacy, or fraud risks.
- Or perhaps the technology they have implemented does not have the required functionality to properly implement basic consumer protection requirements – like those of data security, for example. In such a case, it is left up to the individual DFS managers to make specific technical developments to address consumer risks. Such an institution-by-institution approach increases the overall cost of consumer protection to the industry and decreases the likelihood that it will be implemented as these measures compete with other priorities.
I would like to see regulators increase the priority of consumer protection among DFS providers by insisting that board members and senior executives attend consumer protection awareness training courses. They already require AML training, for example, before they issue licenses. It would also be great to see supervisors focus more on a DFS providers’ culture and incentive structures, as opposed to the more technical aspects, encouraging goal alignment with consumer protection issues. Finally, it’s critically important for regulators to start providing guidance on the emerging priorities of over-indebtedness, cyber security threats and privacy concerns, encouraging DFS providers to consider long-term sustainability over short-term gains as they take advantage of new technologies and revenue opportunities.
Consumer protection interest groups like the Smart Campaign should increase the drive towards industry level codes of conduct, together with their associated training and certification programs, highlighting the direct link between consumer protection risks, their controls, and achieving DFS business goals. It will help a lot to have more “open source” guides and best practice models created, showing providers how to properly perform customer research to truly understand their needs, or how to implement best practice incentive structures, for example. Guidelines on how to perform digital loan affordability tests, and how to build privacy and security into smartphone apps, should be created as soon as possible. The CGAP Customer Centric Guide released in September 2017 is a good example of this.
DFS technology vendors are in a good position to help set some standards, by making consumer protection requirements a part of their standard product builds instead of waiting for individual clients to request them. The industry can benefit from user groups getting together and defining requirements for standard functionality like “advice of charge”, “name lookup”, “intuitive menu structures”, “terms and conditions disclosure”, and ways to ensure informed consent. These are not necessarily competitive issues as they build the market for all participants. Perhaps we can see another donor industry initiative to help drive this, such as the Level One Project, or the GSMA Mobile Money API Project.
But what about the DFS providers themselves. Where should they start? There is already a very strong intuition here due to the alignment of consumer protection goals and DFS business goals. However to truly succeed at both we need to clearly verbalize this intuition, and give it a name. Consumer protection as a core DFS strategy must be called out and embedded into the culture of the company, driven from the top down. Asking How will we protect our customers? must become as natural as What is our revenue model? when launching new products. Understand that consumer protection is a driver of revenue, and not a regulated compliance cost, and that your most important long-term KPI will always be customer activity rates. Then figure out what is restricting these rates from growing by asking your customers What are your fears? Why are you confused? How can we make you feel more in control?
A good place to start will be in the data that DFS providers already have, through their customer care or field research records. For each customer interaction providers should ask whether that particular customer is more or less likely to choose to buy the service, or more or less likely to continue using the service. Quantifying the size of each category that makes customers less active will tell providers where to focus their efforts on protecting their customers while increasing their revenues, thus creating a process of continuous improvement.
I have spent the last year putting together a course for the Digital Frontiers Institute (DFI) on consumer protection in DFS. To share what I have learned about consumer protection and how it relates to DFS business strategies, DFI is offering my four-week online course on Consumer Protection as a Business Strategy, which will first be available in February 2018 and then again later in the year.
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