The Emergence of Responsible Digital Finance

> Posted by Jamie M. Zimmerman, Senior Policy Consultant, CGAP

Achieving financial inclusion by 2020 will depend in large part on the proliferation of fast, affordable, and accessible digital financial services (DFS). Indeed these effective, scalable models were a clear theme at the FI2020 Global Forum hosted by CFI last fall. Yet as excitement for DFS dominated much of the public discussion, a small and diverse set of financial inclusion leaders convened a private side-meeting to discuss an often-overlooked question: what are the consumer risks to these new, innovative digital models?

The meeting, co-hosted by CGAP and UNCDF’s Better Than Cash Alliance, introduced the concept of “responsible digital finance” and revealed heightened awareness of and interest in an array of issues related to the potential consumer risks of digital financial services, including:

  • Fraud types that have potential negative effects on customers, such as SIM swaps and card skimming.
  • Breaches of data privacy and protection, as inadequate data handling can trigger other risks such as identity theft, misuse by government, sale of one’s data without knowledge or consent, etc.
  • Agent misconduct that causes financial loss, poor service quality, or mistrust in the agent network.
  • Ineffective or inadequate consumer recourse and its effect on consumer trust as well as financial services uptake and usage.
  • Customer risk implications of the predicted rapid transition to smartphones in BOP markets.

Despite the fruitful discussion of what risks may exist, the only consensus among this group was that the field knows far too little about a) nature, incidences, and consequences of these emerging risks, b) how they may vary by market or segment, and c) how best to mitigate them.

The group raised several critical questions on the meaning and direction of responsible digital finance. Here are some highlights:

  • Which risks are the greatest, where and for whom and why?
  • Who is responsible for mitigating consumer risks to DFS? For example, which problems are best attacked through regulation versus improved industry practices versus customer awareness/education?
  • What are the costs of responsible finance? How do we ensure appropriate protection and responsible practices while supporting innovation and sustainability?
  • Where do clients get their information on services and risks? Who is their sensitive information given to? What is the data trail?
  • How does digitization affect current approaches to consumer protection? Are digital models uniquely more or less risky?

That small FI2020 side-meeting has inspired an array of activity around responsible digital finance. In fact, in August the 5th annual Responsible Finance Forum will focus exclusively on responsible digital finance. It also inspired an initiative of the same name at CGAP, which aims in the short run to address the pressing need to understand the global landscape of perspectives and experiences around consumer risks in digital financial models. In order to have a constructive, global, multi-stakeholder conversation around how best to balance mitigation of consumer risks with promotion of innovation in the DFS market, this understanding is crucial.

To bolster the discussion and gather preliminary data on the global state of play and court of opinion on responsible digital finance, CGAP recently launched a Global Pulse-Taking Survey on Responsible Digital Finance. The stocktaking will help the growing digital finance field to explore some critical needs by:

  • Identifying particular consumer risks that arise when financial services are delivered digitally.
  • Exploring how leaders in the private, public, and non-profit sectors have addressed (or prefer to address) incidences of risks.
  • Shaping the global dialogue on collective action and practical next steps to advance digital finance, responsibly.

To share your experiences and perspectives, and guide the digital financial inclusion agenda down the right path, access the brief, confidential survey here. The survey closes August 8th, and results will be shared on this blog. Stay tuned!

Jamie M. Zimmerman is a senior policy consultant at CGAP and is supporting CGAP’s recently-launched Responsible Digital Finance Initiative. 

Image credit: Gates Foundation

Have you read?

Helping Consumers Understand Their Digital Data: Initial Experiences from Tanzania

Electronic G2P for the Poor: Does Electronic Social Protection Need Better Consumer Protection?

The Kenyan Journey to Digital Financial Inclusion

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