More and more low-income customers around the world have access to digital loans that promise improvements to their lives. At the Smart Campaign, we believe that financial service providers and their customers can both benefit from transparency and fair treatment in financial services. Customers need to be confident that they can trust their provider and its products.
With an emerging consensus around the importance of responsible digital credit, demand is rising for a shared set of criteria to assess the practices of digital lenders. Investors and regulators want a way to evaluate consumer protection practices among the financial service providers they invest in or regulate. Digital financial service providers also want guidance to improve their practices and demonstrate that they are committed to putting responsible finance into action.
This is why the Smart Campaign has been working to develop a revised set of Client Protection Standards that address the risks involved in digital credit. Today we are releasing a set of draft standards that reflect input from consumers, researchers, financial service providers and on-the-ground testing.
We’re releasing a set of draft standards that reflect input from consumers, researchers, financial service providers and on-the-ground testing.
To prepare these standards, the Smart Campaign has engaged in research to understand emerging risks to clients (see, for example, “Tiny Loans, Big Questions“) and mapped these risks to the Client Protection Principles through CFI Fellow John Owens’ work on responsible digital credit. We have learned about the state of data security through the work of CFI Fellow Patrick Traynor. In collaboration with MFR, the Campaign has worked with providers, including Jumo, 4G Capital, and Tala, to conduct research and field assessments to ensure that the draft Client Protection Standards for Digital Credit would be practical. We have had extensive discussions with providers who are members of the Fintech Protects community of practice. We have benefitted from and built upon the high quality research produced by institutions including CGAP, GSMA, Microsave, Financial Sector Deepening, and the Better than Cash Alliance.
These draft standards consolidate what we have learned about good practices and where to set the bar. They provide a starting point for further inquiry and discussion across the industry.
Familiar and New Territory for Financial Consumer Protection
The Standards for Digital Credit are anchored in the Client Protection Principles (CPPs) that serve as the north star of Smart Certification. We found that many of the standards already in place for traditional forms of lending apply equally to digital lending. In other cases, standards remain the same, but practices differ. For example, the principles of transparency have not changed, though in practice standards must be adapted to products that interface digitally with customers. For example, clients must be able to access terms of service agreements and receive provider notifications in a local language whether the channel is a loan officer, an app, or a chat bot.
More important changes involve areas at the heart of digital business models, notably data privacy, data protection and digital underwriting. The sections on these topics have been greatly enlarged, and we are especially eager to receive input on them. For these areas in particular, we recognize there is more to learn to strike a balance between the benefits and risks of new data-rich business models.
Now, we’d like to hear from you, so we’ve opened this initiative to public comment.
Per ISEAL’s Codes of Good Practice on standard setting, we will collect feedback over the coming six weeks and incorporate these ideas into an updated set of standards. We will host a public webinar to discuss the standards and field questions on Tuesday, February 26, in addition to hosting a feedback form on our website (see “How to Give Feedback” below).
As you comment on the new standards for digital credit, we ask you to approach them as a minimum viable product (MVP). In much in the same way as an MVP is the starting point for product testing, iteration, and improvement, so we expect to iterate these standards quickly to develop standards backed by industry consensus. We are also hopeful that during this public comment period providers will evaluate their own practices against these standards. We would love to hear the results, and we would be even more excited to hear if providers upgrade their policies and procedures to reflect the standards.
We’d like to hear from you, so we’ve opened this initiative to public comment.
Following the public comment period, we will revise the standards based on input received and integrate them into our Smart Certification program as a roadmap for digital lenders. Smart Certification has been a catalyst for improvement of consumer protection practices at more than 110 financial institutions, and we expect to offer Smart Assessments and Smart Certification to digital lenders shortly after revised standards are published (exact date TBD). To support providers to implement the standards, we will develop publicly available tools for providers, investors, and others, as well as products for more formal assessments offered through our expert network of trainers and certification bodies.
Ensuring trust in the next generation of digital financial services is an effort that involves all participants in the sector. We can all work together to ensure that clients remain at the center.