Today there are close to 700 million mobile money accounts registered worldwide — a number that, if it were a population, would rank as the world’s third-largest country. East Africa continues to lead in digital financial innovations as well as account usage, with two-thirds of the combined adult populations of Kenya, Rwanda, Tanzania, and Uganda actively using mobile money. With the proliferation of mobile financial services, particularly among underserved populations, it is vital that users be treated fairly and with dignity. In the momentum to define responsible digital finance and recognize providers of high-quality financial services, the industry must not forget the consumer.
<h1>Client Voices: Why We Listened</h1>
<a href="/about/what-we-do/the-smart-campaign/">The Smart Campaign</a>, a global initiative to create an environment in which financial services are delivered safely and responsibly to low-income clients, has long recognized that client perspectives are often underrepresented in consumer protection discussions. With the Client Voices Project, the Campaign questions whether the industry’s assumptions about what constitutes problematic treatment rightly reflect what clients themselves worry about.

The dual objectives of the project are to solicit input from low-income clients about what they consider good and bad treatment in their interactions with financial service providers and to assess the prevalence of consumer protection problems among these clients, using quantitative surveys. The project is designed to act as a catalyst for financial service providers, regulators, industry associations, consumer advocacy groups, and others to improve client protection in ways that are grounded in client feedback.
<h1>Major Findings</h1>
Based on a survey of over 1,200 people in three districts in Rwanda, this report delves into the experiences of individuals who use digital financial services (DFS), the main client protection issues they are concerned about, and the impact and prevalence of negative experiences. We find that mobile money enjoys a high degree of satisfaction and trust from clients in Rwanda, even though 40 percent of clients report being targeted by fraudulent schemes, which have become increasingly sophisticated.
<blockquote>Customers report wising up to scams and fraud, but with a continuous influx of new mobile money users and fraudsters who innovate quickly, the threat is real and constant. Fraud represents the greatest potential to damage customer trust and engagement with mobile money in Rwanda.</blockquote>
However, there are many ways that DFS operations and practices can be improved to better protect clients and strengthen trust. Client recourse mechanisms, for example, represent an important area for improvement: many clients shared that they feel helpless and unsure about what to do after realizing they have been duped. Additionally, for business models that rely more on the mobile interface than on human interaction, clients increasingly rely on agents for information and guidance. This presents an opportunity to provide better service, as well as a risk for poor client treatment.

We hope that providers, industry associations, support organizations, regulators, consumer protection advocates, and clients can benefit from these findings to create a stronger, more inclusive client protection ecosystem. We offer specific recommendations for many of these stakeholders.

Client Voices: Rwandans Speak on Digital Financial Services

Laterite Ltd

Mastercard Foundation

The Smart Campaign

Rwanda

Sub-Saharan Africa

Keeping Clients First

Agent Banking

Appropriate Product Design and Delivery

Client Treatment

Complaint Resolution

Consumer Protection

Credit

Credit Provision

Delivery Channels

Digital Credit

Digital Financial Services

Financial Service Providers

Mobile Banking

Payments

Privacy

Telcos

Underserved Groups

Report

Digital lending has the potential to close the credit demand gap for unbanked, low-income customers, but the rapid growth of the sector has raised consumer protection concerns.

In Kenya alone, a leading testing ground for the digital credit sector, there are more than 50 providers and an estimated<a href="https://www.cgap.org/blog/kenyas-digital-credit-revolution-five-years"> one in four</a> Kenyans have taken a digital loan. With <a href="https://www.gsma.com/mobileeconomy/wp-content/uploads/2018/05/The-Mobile-Economy-2018.pdf">mobile phone ownership saturating</a> developing markets, we can anticipate similar acceleration in the digital lending space globally.

<a href="https://www.cgap.org/blog/its-time-slow-digital-credits-growth-east-africa">Recent findings</a> have generated debate over whether or not these new products are translating into real benefits for base of the pyramid consumers. Demand is rising from investors, regulators, and providers for ways to demonstrate responsible practices in digital lending.

To fill the gap, the Smart Campaign has undertaken research to better understand risks and benchmarks for responsible digital financials services. In partnership with <a href="https://www.mf-rating.com/">MFR</a>, we’re working with providers to conduct field assessments that identify best practices and help us to determine where to set the bar for responsible behavior. These field assessments, industry research, and engagement with DFS providers in Smart’s <a href="https://www.smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a> will lead to standards for responsible digital credit that are sustainable for the industry while keeping client needs as the central focus.

<a href="http://www.4g-capital.com/">4G Capital</a>, a digital MSME lender in East Africa and a member of Fintech Protects, recently <a href="https://africanbusinessmagazine.com/company-profile/4g-capital/4g-capital-together-with-the-centre-for-financial-inclusion-smart-campaign-defines-standards-for-client-protection/">partnered with the Smart Campaign</a> to conduct a field assessment. We asked 4G Capital CEO Wayne Hennessy-Barrett for his take on responsible digital lending and the value of industry standards for consumer protection.
<h4>Q: Tell us about the origins of 4G Capital and its products.</h4>
WHB: We began operations in Kenya in 2013, starting with microloans for enterprises using only mobile money. As our relationship with our customers grew, we began informal coaching and mentoring of clients to improve their performance. This evolved quite quickly into a program of enterprise-skills trainings packaged with each loan. We now have a number of different working-capital credit products which are the right size and timed according to the specific needs of the business user, and we’re also scaling with partners to reach tens of thousands of new clients each month.
<h4>Q: What was your motivation for joining Fintech Protects and inviting the Smart Campaign to work with 4G in a field assessment of responsible practices?</h4>
WHB: We have always been a mission-driven business. As a fintech lender, Fintech Protects was the perfect forum to share our experiences and learn from others to find ways to close the finance gap, which leaves so many businesses and families excluded.

The field assessment was a rigorous, end-to-end audit of whether we were able to ‘walk the talk.’ It is nearly impossible to self-assess with the right level of accuracy. Either you’re too hard on yourself, or you get distracted by successes and don’t zero in on the things that need to be fixed.
<h4>Q: What did the field assessment confirm about your business? What surprised you?</h4>
WHB: I was delighted, but not surprised, by the level of professionalism and rigor exercised by Smart and MFR. It was encouraging to get positive feedback on the positive customer outcomes we continue to see consistently – that really is the most important thing that we need to reinforce and protect.
<h4>Q: How do you think about scale and growth of your business in the context of a blended high-touch/high-tech model?</h4>
WHB: Accounting for inflation, forex risk and future value of money, this is the $64 Billion Question!

We need to scale to reach more excluded people, catalyze more value chain growth, and, of course, grow our own business. Our transformation program (which is a continuously evolving cycle) sees our AI and technology developing to continue to improve predictive underwriting to further deliver value to our clients as part of supporting their overall financial health. This should free our people to really focus and excel at what they’re good at: relationships, customer care, and contributing their own experience and knowledge to help us evolve with our clients’ needs.
<h4>Q: Of all the areas that the <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> cover, what do you think will be the single most important issue digital lenders must contend with over the next five years?</h4>
WHB: It has to be data protection. There are a ton of fintech lenders who are trying to do good things at the moment, but where data can sometimes be gathered in a way clients, if fully aware, would find really intrusive. We need to reset the conversation about data and the way businesses conduct themselves so that even the most remote and excluded have digital self-sovereignty and power over their own data.
<h4>Q: How do the client protection standards provide value to you as a business?</h4>
WHB: Happy clients = happy business. It really is that simple.

Partnering with Providers to Set DFS Standards for Client Protection

Kenya

Responsible Digital Finance

Blog Post

This webinar features CFI Fellow Patrick Traynor — Professor in the Department of Computer and Information Science and Engineering (CISE) at the University of Florida. Our conversation will provide an overview of data privacy and security issues in online lending, highlight specific deficiencies as identified in our three-pronged analysis of over 50 digital finance providers, and provide recommendations for providers so they can ensure that consumers have the best possible protections of their personal data.

This research raises important concerns about how digital finance companies currently address data privacy and security issues and points to areas for improvement when creating strong defense mechanisms and privacy policies that protect consumer data. By examining digital lenders’ privacy policies, the mechanisms for securing the connections between customers’ mobile devices and the internal servers that process and store that data, and the terms of service of their offerings, Patrick's report aims to identify how well providers are addressing these data privacy and security vulnerabilities and lays the groundwork for future research that can assist companies, consumers, and regulators in improving security standards for digital finance.

Webinar: Digital Finance and Data Security

CFI Research Fellows Program

Data Analytics

Financial Technology

Fintechs

Webinar

Mobile phones and networks are transforming the world of finance, creating opportunities  for widespread financial inclusion, especially among neglected regions and groups. Security and privacy should be among the most important considerations when building digital finance systems.
Credit decisions are often based on sensitive information and online finance offerings are no exception. The sensitivity of this information gives rise to a series of critical questions for customers:
<ul>
 	<li>To whom am I giving my data? And who else do they allow to access it? For what purposes?</li>
 	<li>How do the companies protect data so that people who do not have legitimate access cannot use or steal it?</li>
 	<li>What rights and options do I have if something does go wrong?</li>
</ul>
The goal of this research, conducted by CFI Fellow Patrick Traynor, is to examine how well digital lenders are responding to these questions.

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&nbsp;

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Digital Finance and Data Security

Consumer Credit

Nano Loans

<em>This post was originally published on the <a href="http://www.cgap.org/blog/financial-inclusion-glass-half-empty-or-half-full-pt-2">CGAP Blog</a> and is re-published here with permission.</em>

As I stated in my <a href="http://cfi-blog.org/2018/08/09/financial-inclusion-is-the-glass-half-empty-or-half-full-part-1/">previous blog</a> on the debate over the latest <a href="https://globalfindex.worldbank.org/">Findex</a>, we continue to make important progress toward the goal of universal financial access. Progress is uneven and the timeline uncertain, but we have a pretty clear idea of what to do. Unfortunately, the picture is less clear on the important question of usage, and CFI is right to raise high dormancy rates as a concern in its report, “<a href="https://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/996-financial-inclusion-hype-vs-reality">Financial Inclusion: Hype vs Reality</a>.” As with the access data, however, disaggregating the figures on account usage reveals differences across countries that offer more encouraging signals than the aggregated figures, albeit with one very important caveat.

Findex shows we still have a lot of work to do on usage: 25 percent of account holders in the developing world haven’t used their accounts for a single deposit or withdrawal in the past year (as shorthand, I will refer to these as dormant accounts). Part of the challenge in the Findex data, however, is that backsliding or slow progress in a few big markets is drowning out progress in the rest of the world. The primary reason is India, which is skewing the account dormancy figures significantly because of its large population and extraordinarily high levels of inactivity — at 48 percent of account holders in 2017. If we take India out of the equation, the percentage of inactive account holders in the developing world comes down from 25 to 16 percent.

If, however, we look at the change in dormancy rates for individual countries, rather than the aggregate, a more nuanced picture emerges. Findex collected data on dormant account holders for 87 low- and middle-income countries in 2014 and 2017. Of these countries, 46 saw their dormancy rates go down by an unweighted average of 14 percentage points, 12 saw their dormancy rates go up by an average of 10 percentage points, and 29 had no discernable change (as the difference was within the 3.5 percent margin of error in either direction).

<img class="size-full wp-image-32066 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/gretabullchangesininactivityrates-1.png" alt="" width="632" height="318" />

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But here’s where the caveat comes in. Findex’s dormancy and usage numbers are not quite what they seem. To ensure greater accuracy in capturing mobile money accounts, respondents are not asked if they have a mobile money account; they are asked if they have used a mobile money account in the past year. In other words, Findex counts only active mobile money accounts. For financial institution accounts, respondents are asked if they have an account and then whether they have used it in the past year, so a clear distinction can be made between active and inactive accounts (see the Findex glossary for details). The net effect is to understate the number of account holders added in Sub-Saharan Africa and to overstate the activity rates for these accounts.

Given the prevalence of mobile money in Sub-Saharan Africa, this has a significant impact on Findex’s activity rates for the region. A back-of-the-envelope exercise using GSMA’s supply-side data (which correlate closely with those of Findex), helps illuminate the degree to which this affects Africa’s dormancy data. According to GSMA, there were 338 million registered mobile money accounts in Sub-Saharan Africa in 2017. If we add these accounts to the 195 million financial institution accounts from Findex, we can infer that there are roughly 533 million registered accounts in the region (the number of account holders will be lower because of people holding both mobile money and financial institution accounts, which Findex accounts for). This means that roughly 232 million accounts have been added since the last Findex, not the 72 million that you would get from doing the math with the Findex data.

That’s potentially good news, but with this increase in number of accounts comes an increase in the overall inactivity rate in Africa. Roughly 64 percent (216 million) of the mobile money accounts reported by GSMA were considered inactive. If we combine the GSMA and Findex data on inactivity, the 2017 dormancy rate in Sub-Saharan Africa shifts from 13 percent of account holders (in Findex) to 49 percent of accounts (combining the two data sets). This adjusted dormancy rate is now roughly equivalent to dormancy rates in India and represents a significant increase from the inferred rate in 2014 of 41 percent (again, based on accounts, not account holders). This adds approximately 129 million dormant accounts back into the global total, raising our developing country dormancy rate sharply back in the direction of the 25 percent mark.

<img class="size-full wp-image-32067 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/greta-bull-financial-accounts-dormancy-rates-1.png" alt="" width="629" height="255" />

The point of this exercise is not to provide an exact estimate of dormancy rates in Africa, but to demonstrate that we have a pretty serious usage challenge and that it is concentrated in India and Sub-Saharan Africa, where the denominator of new accounts has grown the most. Not coincidentally, they are also the two regions with the highest rates of extreme poverty. India increased access to accounts from 53 to 80 percent of adults from 2014 to 2017, adding 290 million account holders. In Africa, we have inferred that 232 million accounts were added in the same period. If the Africa data are normalized for inactivity, then India and Africa together would account for roughly 77 percent of all people accounts added between 2014 and 2017. But a large portion of them are inactive. It seems intuitive that, with the addition of accounts at this pace, there might be a delay between opening an account and using it, but we will have to wait until the next Findex to properly test this assumption.

CFI is right to point out dormancy as a problem, but it missed a big part of the challenge in its analysis: high dormancy in Sub-Saharan Africa, which barely registers in Findex, and the fact that mobile money accounts are measured differently means it is difficult to compare inactivity rates across regions. But I am not sure this means we should ignore the registered account numbers entirely, as CFI suggests. They are important because they show progress in giving people access to accounts. But activity rates matter, too, and the clear challenge now is to stimulate usage of those accounts in Africa and South Asia. This is a more complex undertaking because it involves behavior changes for new account holders and the testing of different value propositions for providers — and both of these challenges take time to address. But there are hints about how this can be done. GSMA, in its latest <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2018/05/GSMA_2017_State_of_the_Industry_Report_on_Mobile_Money_Full_Report.pdf">State of the Industry Report on Mobile Money</a>, focused on four factors that are closely associated with high activity rates: a robust agent network, enabling mobile money regulation, a digital account-based model and providers serving as integrated platforms for the wider payments ecosystem. It provides the example of MTN in Ghana, where activity rates went from 7 percent in June 2012 to 73 percent in June 2017. Understanding the factors that created the change at MTN in Ghana will provide valuable insights into what it will take to move inactivity rates, which have been stubbornly sticky in the mobile money industry since 2011.

Beyond overall account dormancy, the CFI report raises interesting questions about important use cases that deserve brief examination — savings, credit and payments.

On savings, it is disappointing that the number of survey respondents in developing countries who reported saving in the past year came down from 53 percent in 2014 to 43 percent in 2017. Unfortunately, Findex doesn’t tell us why this might be happening. While customers not perceiving the value of their accounts is one possible explanation, factors like inflation, the availability of alternatives, economic stagnation or other disruptions could be affecting the amount of money people are able to save. What is encouraging is that more of those who did save used a financial institution: this figure grew from 42 percent in 2014 to 47 percent in 2017.

On credit, I am more sanguine for a couple of reasons. First, we can’t draw any real conclusions from the Findex data. For developing countries, the number of respondents who reported borrowing in the previous year dropped from 47 to 44 percent, which is just outside the margin of error for the sample size and not a particularly strong signal. And Findex may or may not capture data on credit provided via mobile money accounts, depending on whether people consider this a loan, so it is potentially missing some digital credit borrowing. But more to the point, credit is a financial product where more isn’t necessarily better. The main constraint to accessing credit shouldn’t be whether someone has an account. It should be whether they can afford it.

Digital payments are the real story in Findex, and it is no surprise that this number is going up. Many accounts in places like India and Africa were established expressly to facilitate payments. In the developing world, the proportion of respondents who reported sending or receiving a digital payment in the past year went from 32 to 44 percent, and this growth was consistent across all markets. It makes sense. Just think about the way you use your bank account: you might save, and you may or may not have a loan for a house or a car, but you almost certainly make regular payments from your account. A mobile or low-value bank account in many ways mimics a current account. It is a store of value from which payments can be sent and received. You don’t expect to get a return on it, but you might use it to help establish a credit rating.

Payments seem to me to be a foundational product, especially for people with very little money, who may not have enough to save consistently and may not be creditworthy. Comparing payments usage in developing countries to high-income OECD countries puts this issue in perspective. In high-income OECD countries, 92 percent of respondents reported making or receiving a digital payment in the past year. The figure for low income countries was only 26 percent, a gap of 66 percentage points. The usage gaps between OECD countries and low-income countries was less pronounced for both savings and credit (45 and 49 percentage points, respectively). This is primarily because credit and savings products were not as widely used in rich countries as payments: only 56 percent of account holders reported saving in a financial institution in the past year, and only 20 percent borrowed from a financial institution (although this rose to 57 percent when credit cards were counted). The concept of “universal usage” is best applied to payments services rather than the other financial services where customers’ needs are more varied.

<img class="size-full wp-image-32068 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/greta-bull-usage-gap-oecd-and-low-income-1.png" alt="" width="617" height="365" />

For me, the jury is still out on usage. We have seen massive growth in accounts in the past three years, but dormancy rates have remained stubbornly steady, particularly in markets with rapid account growth. The trick will now be to activate all of those newly opened accounts, and we will have to wait until the 2020 Findex (and perhaps beyond) to understand whether we are simply dealing with a time lag or whether we have a bigger problem on account usage. What I would expect to see is a gradual improvement in activity rates for accounts in India and Sub-Saharan Africa, and payments will be key to that story. Payments are a gateway use case. Over time, they can create a foundation for other use cases to emerge through improved data on customer activity and by creating trust in formal financial services.

But we should not necessarily expect to see other use cases grow in proportion to payments, not least because it takes time to build data trails and the level of trust required for more habitual use of financial services. Nor should we expect it to happen quickly. Financial inclusion, as opposed to just financial access, is and has always been a long-term endeavor.

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Financial Inclusion: Is the Glass Half Empty or Half Full? (Part 2)

Global Findex

Access Usage Gap

Enabling Environment

Resilience

Saving

Trends

The <a href="http://www.smartcampaign.org/">Smart Campaign</a> recently released a paper by digital financial inclusion expert and CFI Fellow John Owens: <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/1036-responsible-digital-credit">Responsible Digital Credit: What does it look like?</a> The paper lays out the variety of digital credit models and, using the <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> (CPPs) as a framework, enumerates emerging risks and suggests good practices and mitigating steps that providers, regulators and even clients can take.

The paper is a helpful addition to the Smart Campaign’s work on a number of fronts. First, it has sharpened our ability to distinguish various digital credit models. “Digital credit” has become a hot topic in financial inclusion, but the term is often used without understanding the diversity of credit providers. The paper defines digital credit as “loans that are accessed via a digital channel either online, via a mobile device or via a third-party agent that facilitates digital credit processing remotely.” John provides a helpful taxonomy of the types of providers, ranging from non-bank marketplace P2P lenders, to fintechs that provide tiny mobile loans; to tech giants leveraging their massive data streams to offer consumer loans; and platforms that support SME financing through purchase orders, invoices, receivables, and processes between buyers and sellers along the supply chain. The paper presents the client protection risks inherent in all these digital credit products.

It is important to understand the differences among the business models to be able to identify the best ways for providers to mitigate the risks. For example, responsible underwriting might need to look very different at an e-commerce tech giant like Alibaba versus a mobile loan provider like M-Shwari. The two businesses use different kinds of customer data, have different pre-existing relationships with customers, interface with customers differently, and operate in markets with different levels of development (for example, whether credit bureaus can be relied on). As the Smart Campaign seeks to develop practical guidance for digital credit, this diversity presents a challenge.

The paper was also helpful in validating the seven CPPs as a framework for identifying and pin-pointing client protection risks in a digital world. John proposes one significant change. He writes, “To this list, however, we add an eighth concept: security and fraud protection, which is especially salient for digital financial services.” While on the one hand, the concepts of security and fraud could be housed under the existing Principles “Privacy of Client Data” and “Fair and Respectful Treatment,” <strong>given the importance of data security and fraud protection in a digital world, the Smart Campaign will consider it as a potential addition.</strong>

The paper takes the conversation about responsible digital credit an important step forward. So far, much of industry discussion has been about enumerating risks through research. Now the time is ripe for recommending practices that can be applied in real time by providers, regulators, industry and even clients. <strong>Moving from risk identification to practical guidance is an absolutely necessary next step in making responsible digital credit a reality.</strong> Actually, this process has already begun, in various places. John cites examples of guidance from existing industry associations and regulator groups, as well as the many <a href="http://www.cgap.org/sites/default/files/Focus-Note-Consumer-Protection-in-digital-Credit-Aug-2017.pdf">solutions proposed by CGAP</a>. For example, the Online Lenders Association in the United States has requirements for its members in the areas of advertising and marketing. One such requirement is for disclosure of conditions whenever “trigger” terms such as down payment, APR, variable interest rate, and the like appear. Overall, however John’s paper notes that implementation is still at a nascent stage.

At the end of the paper, John makes recommendations, including a few specific ones for the Smart Campaign. <strong>He strongly endorses the development and implementation of standards of practice that adapt the Client Protection Principles for digital credit. Through the <a href="http://smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a>, the Smart Campaign and a group of enthusiastic digital lenders are working towards that end.</strong> The community of practice includes both mobile credit providers and tech-enabled financial institutions.

John also notes the value of recognition and certification programs for digital credit providers that meet these standards. The Smart Campaign’s <a href="http://smartcampaign.org/certification/all-about-certification">Certification Program</a>, which has certified over 100 financial service providers serving more than 42 million clients worldwide, is <strong>being extended to recognize client protection achievement for mobile credit providers, with an expected debut in 2019</strong>.

John is personally excited about the potential of new communications technologies such as chatbots to improve consumer protection in digital settings where face-to-face interactions with customers are infrequent or non-existent. He recommends this approach in the paper, and he is developing opportunities to apply digital communication tools. This is promising not only for providers, but also for regulators wishing to strengthen complaint resolution procedures or monitor a market.

As John writes, it will take a village to ensure that digital credit clients are protected with providers, consumer advocates, regulators, donors and investors all working together. The Smart Campaign is delighted to contribute to this effort.

<strong><em>Alex and John led a <a href="http://www.centerforfinancialinclusion.org/events-a-presentations/1034-webinar-responsible-digital-credit">webinar</a> in July 2018 about responsible digital credit and what providers need to do to ensure that their customers are protected and empowered—<a href="http://www.centerforfinancialinclusion.org/events-a-presentations/1034-webinar-responsible-digital-credit">check it out</a>. </em> </strong>

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Roadmap for Responsible Digital Credit—What We're Doing at the Smart Campaign

Smart Certification

This webinar features CFI Fellow John Owens and Smart Campaign Senior Director Alex Rizzi. This conversation highlights the risks that consumers of digital credit face, using the Smart Campaign Client Protection Principles as an organizing framework, identify existing best practices and standards for responsible digital credit, and provide relevant recommendations for stakeholders seeking guidance on how to best navigate the intersection of digital financial services and consumer protection issues.

<em>This report is published jointly with the Smart Campaign and was made possible by support from Mastercard Foundation and other partners.</em>

Webinar: Responsible Digital Credit

As digital credit providers have grown exponentially over the past few years, and as digital products and models have proliferated, so too have concerns around consumer protection. In the recently published report, <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/1036-responsible-digital-credit">Responsible Digital Credit</a>, I argue that ensuring that digital credit customers receive responsible treatment requires more than enhanced consumer protection laws and regulations. It also requires strong commitment from the digital credit industry. Finally, it needs consumers who are empowered to play a more proactive role in managing their digital credit responsibly.

Over the past year, I have interviewed digital credit industry associations, credit providers and their third-party data analytic providers, regulators, policy makers, and various consumer protection leaders. Many of these groups are working to develop responsible digital lending principles. With their input, my report proposes a guiding framework for responsible digital lending.  The framework uses the Smart Campaign <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> as a basis for grouping the issues. In addition, I propose an eighth principle: security and fraud protection.

Digital credit, and especially the use of mobile phones, significantly alters interactions between borrowers and lenders. Lenders utilizing the mobile channel to advertise, acquire and transact with customers must pay particular attention to the limitations of mobile interaction with customers and follow industry <a href="http://onlinelendersalliance.org/wp-content/uploads/2016/03/Best-Practices-2016-1.pdf">mobile best practices</a>. While many of the standard consumer protection practices continue to apply, new concerns, or more accurately, new faces on older concerns, have emerged. In this post, I want to highlight several of the considerations I found most important and relevant for the digital lending industry.
<h2><strong>Responsible Algorithms</strong></h2>
Many digital credit models rely on algorithms to process data about clients and make credit decisions. Because most lenders consider their algorithms proprietary, it is difficult for observers to know on what basis credit decisions are actually made. This opaque situation raises the spectre of discrimination. Attributes that are considered inappropriate bases for differentiation, such as religion, language, gender, or ethnic origin, are areas of particular concern with regard to algorithm-based lending practices. As highlighted by a Smart Campaign <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/916-smart-brief-tiny-loans-big-questions">report</a>, while credit offers may differ based on risk analysis, such differentiation should be consistently applied, stated in advance, and made with the goal of benefitting clients. To prevent discriminatory digital credit practices, some recommendations include:
<ul>
 	<li><a href="https://www.whitecase.com/publications/insight/algorithms-and-bias-what-lenders-need-know"><strong>Pretest, test and retest for potential bias</strong></a><strong>.</strong> Digital credit providers and third-party data analytics providers should continuously monitor the outcomes of their algorithmic programs to identify potential problems. Such testing could involve running scenarios to identify unwanted outcomes and developing and building controls that prevent adverse outcomes.</li>
 	<li><a href="http://www.ijmo.org/papers/43-A10212.pdf"><strong>Document the rationale for algorithmic features</strong></a><strong>.</strong> Digital credit providers should be able to provide visualization and a decision tree for the factors their algorithms analyze, as well as the justification for relying on these factors. The rationale should address how borrower debt capacity is assessed, given the importance of this concept in traditional underwriting.</li>
 	<li><strong>Independent review</strong> of companies' proposed data sets and/or algorithms.</li>
</ul>
A self-regulatory approach could be used to develop best practices guidelines for data inputs and the development of nondiscriminatory artificial intelligence systems, following the model that has been successful for the Payment Card Industry Security Standards Council.
<h2><strong>Indebtedness Monitoring</strong></h2>
Because digital lending is often based on non-traditional underwriting criteria, to prevent over-indebtedness among digital borrowers it may be relatively more important to monitor outcomes at the portfolio level. Some of the ways to do this include:
<ul>
 	<li><strong>Avoidance of debt traps</strong> by ensuring that clients are not forced into automated repeat loans.</li>
 	<li><strong><a href="http://www.responsiblebusinesslending.org/">Responsible credit reporting</a></strong> – Better compliance with reporting strengthens markets and leads to better client protection practices.</li>
 	<li><strong><a href="http://www.centerforfinancialinclusion.org/storage/documents/Smart_Brief_Tiny_Loans_Big_Questions_Final_092617.pdf">Monitoring digital credit provider’s portfolio quality</a></strong> – Industry benchmarks for portfolio quality can help to advance the understanding of risks and avoid business models that rely for their success on high default rates.</li>
</ul>
<h2><strong>Digital Transparency </strong></h2>
Digital credit platforms allow for 24/7 communications with clients that, if harnessed properly, can assist them with immediate technical support, remind them about upcoming payments and even identify counselors or resources for clients in financial stress. However, when communication is totally digital, there are heightened concerns about ensuring that clients really know what they are signing up for. Disclosure must lead to client understanding. Borrower disclosure standards should address:
<ul>
 	<li>Standards for <strong>honest advertising</strong> and penalties for misleading marketing materials of credit products. Furthermore, providers should advertise the name of the financial regulator they report to in all advertising materials.</li>
 	<li><strong>Readability</strong> and format – Disclosures need to be easy to comprehend, available in the customer’s local language, and provided in print and digital formats.</li>
 	<li><strong>Comparative tools</strong> – Standard summary disclosure documents would allow borrowers to compare credit offers, both digital and traditional.</li>
 	<li><strong>Adequate notice periods</strong> – Consumers should be notified in advance of changes to interest rates, fees or terms and conditions.</li>
</ul>
A somewhat different but related and relevant concern, often overlooked in this context, is the vulnerability of individual investors who put their money into pure peer-to-peer (P2P) lending platforms. Protections need to be extended to them as well, with a focus on ensuring that they receive the information they need to evaluate risks and that they have recourse channels when something goes amiss.
<h2><strong>Data Privacy and Usage Standards</strong></h2>
While many regulators and most industry groups agree that it is important to protect the confidentiality and security of customers’ information, data use and the level of disclosure about its use are challenging topics. In the <a href="http://ec.europa.eu/justice/data-protection/reform/index_en.htm">EU</a> and in countries such as <a href="https://www.pc.gov.au/inquiries/completed/data-access/thedraft">Australia</a>, regulators are enacting rules mandating that individuals be notified about the use of their personal data and allowed to opt out. Opt-out rules should be considered as a potential requirement for all digital credit providers, especially in markets where mobile push-marketing has become problematic.

Over the next several years it will be important for laws or regulations to be put in place to protect consumer data privacy and guide information sharing. The rules need to:
<ul>
 	<li>Provide for informed consent, such that customers explicitly permit electronic data collection prior to its collection and use, and are given the option to consent or not.</li>
 	<li>Require providers to have a clear data collection and handling policy which limits the amount of data collected as well as the timeframe it is stored.</li>
 	<li>Inform clients about their data trails and credit histories, including the ability to ensure accuracy and correct for any errors or discrepancies.</li>
 	<li>Give regulators the power to discipline providers who repeatedly allow personal data to be misused.</li>
</ul>
<h2><strong>Fraud Prevention and Security </strong></h2>
New security vulnerabilities arising from digital credit strongly point to fraud and cyber-security as consumer protection concerns. It is increasingly urgent for digital credit providers to adopt standard security compliance measures and then to regularly test and update them. Providers must also be responsible for ensuring that the third-parties they use, including lead generators, brokers, agents, and data analytics providers, also have adequate security in place. Ultimately, providers need to be responsible for the actions of their third-parties (e.g., agents, contractors, lead generators, brokers and collectors).

Consumers should be made aware of the potential for fraud and encouraged to report suspected fraud cases or security breaches. Consumer awareness campaigns on the most common incidents of fraud (via the internet, SMS alerts, signage at agent kiosks, etc.) can help with this.

While the recommendations just listed do not apply in all markets, they do point to the urgent need for regulators, industry bodies, individual providers and consumers to work together to construct the ground rules for responsible digital credit that will ensure that consumers are adequately protected.

<em>Editor's Note: This research was made possible by support from Mastercard Foundation and other partners.</em>

&nbsp;

A Framework for Responsible Digital Credit

Fraud

Over-indebtedness

Policy, Regulation and Government Initiatives

Transparency

<em>This is the fourth in a <a href="https://cfi-blog.org/tag/smart-100-blog-series/">series of blog posts</a> exploring the impact of Smart Certification on the financial inclusion industry.</em>

Since launching <a href="http://smartcampaign.org/certification/all-about-certification">Smart Certification</a> in 2013, we’ve witnessed rapid changes in the financial inclusion space driven by digitization of financial services and fragmentation of traditional business models. Nearly <a href="https://newsroom.accenture.com/news/global-venture-capital-investment-in-fintech-industry-set-record-in-2017-driven-by-surge-in-india-us-and-uk-accenture-analysis-finds.htm">$100 billion in investment</a> has flown into the global fintech market since 2010, creating an explosion of digital innovations and provider models. Our <a href="https://cfi-blog.org/2018/05/31/financial-inclusion-hype-vs-reality-deconstructing-the-2017-findex-results/">analysis of the Global Findex data</a> shows that recent gains in inclusion have been largely driven by the rise of mobile money and digital payments.

Digital financial technology is central to making financial products more accessible to underserved people around the world. This is an exciting moment for digital finance, and an equally important for time for client protection. The industry has the opportunity to marry the client-centric approach embraced by so many fintechs and the industry-accepted <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">consumer protection standards</a> to develop quality products, build trust, and encourage usage. The Smart Campaign will leverage its experience to help lead the charge on this.

As we <a href="https://www.youtube.com/watch?v=-gKZ7YIHWHQ&amp;feature=youtu.be">celebrate 100 Smart Certifications</a>, we look forward to the next 100. Looking to the future requires defining responsible practices and standards given the technological advances that allow nearly instant access to credit, payments, savings, and insurance. The standards and the certification program must become more agile, mirroring the fast pace of change. We envision an adaptable approach that takes into consideration the product and client delivery mechanism, as well as the provider’s function in the value chain. The flexibility of this framework could eventually allow any type of provider to seek certification, but the process will begin with a focus on digital lenders and expand to encompass additional business models on a demand-driven basis.

Let’s take a look at credit products to see how both access and the customer experience are changing. Just a few years ago, when a client sought a loan from a financial service provider, the provider would be responsible for all of the functions needed to deliver that loan, starting with design and pricing of credit products, to the determination of creditworthiness, disbursement, collection, and continuing customer service. The model relied heavily on in-person client interactions. Today, a client can take out a micro-loan with a few clicks on a phone, without any human interaction, and without knowing what companies – other than the one they are interfacing with – are involved in making the transaction possible. In some cases, the provider may rely on another company to handle key functions, such as assessing creditworthiness or loan underwriting.

[caption id="attachment_25643" align="aligncenter" width="799"]<img class="aligncenter size-full wp-image-25643" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/charactersitics-of-aanalog-vs-digital-credit.png" alt="Charactersitics of Aanalog vs Digital Credit" width="799" height="530" /> Image credit: Center for Financial Inclusion at Accion[/caption]

As the Smart Campaign identified in <a href="http://smartcampaign.org/tools-a-resources/1136"><em>Tiny Loans, Big Questions</em></a>, new models present new potential consumer risks. Mobile loans may unintentionally encourage reckless borrowing due to their near instantaneous speed. And when there are multiple firms involved in the value chain, there can be a lack of clarity over which company is responsible for addressing client complaints. By no means are these the only risks, but a closer look at new lending models in the digital age illustrates that client protection is as important as ever.

The Smart Campaign is conducting targeted research with digital financial service providers to adapt Smart standards in light of the new business models. Before launching Smart Certification five years ago, we collaborated closely with the industry to understand the risks and develop consensus about benchmarks for client protection. We’re replicating this process with digital finance providers, and our engagement with the <a href="http://smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a> will similarly incorporate the industry perspective into more adaptive client protection guidelines and standards.

We have already had a <a href="https://cfi-blog.org/2016/10/25/building-trust-and-growing-digital-financial-services-a-look-at-jumo/">chance to confirm</a> that the Client Protection Principles continue to offer a relevant framework for Smart Certification, whether working with fintechs or MFIs. Consumers have the same interest in transparency, prevention of over-indebtedness, and availability of complaint resolution for a digital provider as they would have for a credit union. Yet, best practices and benchmarks for digital services will differ, just as their product details and client interactions differ from analog financial services.

Many fintechs already adopt a client-centric approach in their business models, but as we’ve seen from working with socially-driven financial institutions over the years, <a href="https://cfi-blog.org/2018/05/30/the-business-case-for-smart-certification/">formalizing client protection practices in an organization’s business operations</a> cements trust between a provider and its customers, and can lead to higher retention and more sustainable portfolios. The path for building trust in this evolving financial services ecosystem is collaborating with digital providers to determine appropriate standards and best practices that protect clients while enabling the industry’s growth. The Smart Campaign invites more of this collaboration with providers as we work together to extend the impact of digital financial services for financial inclusion.

&nbsp;

The Next 100 Smart Certifications

Smart 100 Certifications

<span style="float: none;background-color: transparent;color: #333333;cursor: text;font-family: Georgia,'Times New Roman','Bitstream Charter',Times,serif;font-size: 16px;font-style: normal;font-variant: normal;font-weight: 400;letter-spacing: normal;text-align: left;text-decoration: none;text-indent: 0px">Despite the rise in mobile money in Africa, and globally, the gap between supply and demand for credit in the region remains. Surprisingly, in this milieu, start-ups are at risk of accelerating the pace of over-indebtedness in Africa. The number of start-ups reaching last mile clients is rising. The driver of this is fintechs taking advantage of a business opportunity, and the prospect that if you offer clients much-needed credit at a lower cost than the alternative, they will be better off.</span>

But is this necessarily true? Are these start-ups offering solutions to the credit needs that many small and medium African businesses have, and are clients better off with these solutions? Or is the fintech digital credit hype attracting lenders that offer credit in the wrong places – and for the wrong reasons? What is needed to ensure that digital credit is provided responsibly, for the benefit of clients?
<h4><strong>Start-ups are at risk of accelerating over-indebtedness by supplying credit to clients without conducting appropriate repayment capacity analysis.</strong></h4>
Some estimate that digital technologies have cut the cost of providing financial services by 80-90 percent (<a href="http://appgfintech.org.uk/wp-content/uploads/2016/11/MG-Digital-Finance-For-All-Full-report-September-2016.pdf">McKinsey Global Institute, 2016, PDF</a>). Africa is taking the lead in the rise of mobile technology, and the opportunities are promising. Start-ups in this space are making big strides. Those involved in digital credit either deliver digital credit directly or enable its delivery through downstream product servicing. The number of fintechs – startups offering these services – in Africa is growing daily (<a href="http://fintechranking.com/2016/12/15/63-companies-shaping-africas-fintech-ecosystem/">Mesropyan, 2016</a>).

Technology well used offers opportunities not previously available. However, two key issues need to be recognized and addressed in order to generate long-term benefits for both clients and providers.
<ol>
 	<li>Provider and client interests must be aligned. If providers profit while clients are experiencing stress in repaying, defaults will catch up with the client or the institution, and the client will no longer be able to borrow. Aligning interests requires providers to think of client benefits as well as their own, from the start.</li>
 	<li>A well-designed loan should match the ability to repay. Well-designed loans are a blessing, for example, helping a small business; yet loans that do not consider clients’ capacity to repay sets them up for failure. Even if they repay in the short term – which is often why default rates stay low – it can be at the cost of extreme hardship, making it a poor predictor of over-indebtedness. It may take some time before the debt stress of clients affects providers.</li>
</ol>
<h3><strong>"Instant": an Opportunity and a Risk for Consumers</strong></h3>
A key attribute digital lenders advertise is speed of access. Where traditional loans could take weeks for approval, with many requirements, this is a plus from the perspective of clients. But the automation and speed raises concerns: are decisions made too quickly, and are risks adequately measured and mitigated, especially from the clients' perspective?

Other aspects of digital credit lead to <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/916-smart-brief-tiny-loans-big-questions">new risks</a> compared with analog lending: start-to-finish digitization; the move from high to low touch processes; small credit amounts that grow; short-term loans; reliance on alternative data analytics; and decentralized support workforces.
<h3><strong>What Could Go Wrong?</strong></h3>
With analog credit, prevention of over-indebtedness centered on adequate repayment capacity, and on growth not taking place at the expense of quality.

In the digital context, the following major categories of risk have been identified (Center for Financial Inclusion, 2017/2018. See References):
<ul>
 	<li>Limited – if any – debt capacity analysis</li>
 	<li>Products that do not match client needs</li>
 	<li>Lack of credit reporting</li>
 	<li>Automatic renewals</li>
 	<li>Aggressive sales and marketing</li>
 	<li>Disproportionate consequences of late payments that lead to a cycle of debt.</li>
</ul>
<h4><strong>Algorithms are institution centric, not client centric. Over-indebtedness is not only reflected in default, it is first reflected by the extent of the sacrifices that the client endures to avoid defaulting.</strong></h4>
Alternative credit scoring methods – often using elaborate algorithms that predict the probability of repayment – help to include people who have thin credit files and who would otherwise have been excluded. However, these models are a poor replacement for the repayment capacity analysis previously conducted by lenders serving vulnerable excluded populations. While the algorithm may predict whether or not an institution will be repaid, it does not consider clients' situations and needs, and therefore, the sacrifices that clients might have to make in order to repay. Over-indebtedness is not only reflected in default, it is first reflected by the extent of the sacrifices that the client endures to avoid defaulting. Algorithms are institution centric, not client centric. They are meant to learn over time, becoming refined and better predictors; yet they do so at the expense of early clients who enabled the algorithm to become better fine-tuned, as they have a higher probability of defaulting and suffer dire consequences (<a href="https://www.businessdailyafrica.com/economy/Pain-of-Kenyans-blacklisted-for-amounts-as-small-as-Sh100/3946234-3374120-r0r2bfz/index.html">Ngigi, 2016</a>).

The promise of well-tuned algorithms saving costs and managing institutional risk is unfortunately skewing attention away from client risks. Over-indebtedness needs to be reframed from a client perspective: can clients afford the loan? Even if they can repay, what sacrifices are they making? Are they at risk of not being a client ever again in the future (which would hurt both the client and the provider)?
<h3><strong>Mitigating Over-Indebtedness in a Digital World</strong></h3>
Over-indebtedness is a multi-stakeholder issue, and is linked to the client protection issues summarized in the <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a>. Prevention of over-indebtedness is a particularly tricky one, in that it requires the concerted effort of a wide range of stakeholders.

Providers have a responsibility to ensure that their practices do not lead to an oversupply of credit to clients who are unable to meet their payment obligations, and digital lenders will need to adopt a more client-centric approach to understand the risks of over-indebtedness from a client perspective. Algorithms need to evolve to take this into account.

Digital lenders need to understand the risks of over-indebtedness from a client perspective, and algorithms need to evolve to take this into account. Regulation also must guide good practice for fintech digital lenders<strong>.</strong>

Because only one irresponsible lender is needed in terms of over-indebtedness to negatively affect clients, it is necessary that financial consumer protection regulation evolves to guide the practices of otherwise unscrupulous digital lenders.

Investors can, and should, use their leverage to encourage good practices by digital lenders, as they have for analog lenders. They can reward digital lenders who design and deliver appropriate products, are transparent about terms and conditions, explain to clients the risks of over-indebtedness, adopt fair and responsible practices during repayments, and help clients who cannot, but want to, repay.

Importantly, digital providers can leverage the same technology used to deliver products to educate and empower clients. Clients have rights and responsibilities. Informed consumers are better able to protect themselves and avoid becoming victims of predatory lenders.
<h3><strong>Over-Indebtedness Is Multidimensional and Dynamic</strong></h3>
In the interest of long-term mutual benefits for both providers and clients, providers need to move away from a uni-dimensional definition of over-indebtedness that overly emphasizes repayment as the proxy for whether or not a client is indebted, towards <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/201-over-indebtedness-of-microborrowers-in-ghana-an-empirical-study-from-a-customer-protection-perspective">client-focused definitions of over-indebtedness</a>.

Digital credit providers need to complement credit bureau data with disbursement and repayment data on digital loans so that a fuller financial picture can emerge for digital borrowers.

Over-indebtedness is not a steady state. As the lives of vulnerable clients evolve, so do their needs and challenges. A client who may have received a loan from a responsible lender in the past may suddenly not be in a position to repay. We need to develop ways to monitor whether clients are showing signs of financial stress. Responsible institutions should be able to identify this, and work with clients until it is resolved.

The role of responsible providers goes beyond providing loans to ensuring that clients are supported, if needed. <a href="https://www.microfinanceopportunities.org/">Microfinance Opportunities</a>, in collaboration with <a href="http://socialperformance.net/">Social Performance Solutions</a>, has been developing a stress assessment tool that enables providers to monitor whether borrowers are incurring stress after having received a loan. Such tools are extremely important to have a full picture of over-indebtedness, and a broader suite of tools needs to be available to responsible providers.
<h3><strong>Fintech Protects Against Over-Indebtedness</strong></h3>
Fintech digital credit providers need to unite and agree to collective measures to tackle the problem of over-indebtedness. This will entail defining responsible digital underwriting, leveraging technology, while learning from the past, expanding credit bureau reporting, and agreeing on common practices for the benefit of clients. Some fintechs are already taking the lead, and through the Smart Campaign’s <a href="http://www.smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a>, they are working together to define and implement responsible practice. The body of evidence around risks is growing. Now is the time to define the guidelines of good practice for fintech digital lenders and identify solutions that work for clients.

<strong>References</strong>

McKinsey Global Institute, “<a href="http://appgfintech.org.uk/wp-content/uploads/2016/11/MG-Digital-Finance-For-All-Full-report-September-2016.pdf">Digital Finance for All: Powering Inclusive Growth in Emerging Economies</a>,” September 2016.

Elena Mesropyan, “<a href="http://fintechranking.com/2016/12/15/63-companies-shaping-africas-fintech-ecosystem/">63 Companies Shaping Africa’s FinTech Ecosystem</a>,” Fintech Ranking, December 2016.

Alexandra Rizzi, Isabelle Barrès, Elisabeth Rhyne, “<a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/916-smart-brief-tiny-loans-big-questions">Tiny Loans, Big Questions</a>,” Center for Financial Inclusion at Accion.

John Owens, “<a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program/783">Responsible Digital Credit</a>,” Center for Financial Inclusion at Accion. Forthcoming, 2018.

George Ngigi, “<a href="https://www.businessdailyafrica.com/economy/Pain-of-Kenyans-blacklisted-for-amounts-as-small-as-Sh100/3946234-3374120-r0r2bfz/index.html">Pain of Kenyans Blacklisted for Amounts as Small Sh100</a>,” <em>Business Daily Africa</em>, September 2016.

&nbsp;

&nbsp;

&nbsp;

&nbsp;

Start-Ups and Digital Innovation: Are Fintechs in Africa Over-Indebting their Customers?

Customer Centricity

Alexandra Rizzi

Senior Director, The Smart Campaign 

Alex Taylor

Alexis Beggs Olsen

Elisabeth Rhyne

Eric Noggle

Greta Bull

Isabelle Barrès

Jeffrey Riecke

Jenny  Frydrych

John Owens

Mina Zhang

Mireya  Almazan

Nadia van de Walle

Patrick Traynor

Wayne Hennessy-Barrett

Benin

El Salvador

Latin America and The Caribbean

Myanmar

Nigeria

Panama

Romania

Sri Lanka

Sudan

Timor-Leste

Uganda

Vietnam

Alternative Data

Crop Insurance

Financial Capability

Human Centered Design

Human Touch

Impact Investing

Insurance

Life Insurance

P2P Lending

Payday Loans

Youth

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

Webinar: Demystifying Digital Lending

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

<em>&gt; Posted by Sola Salako Ajulo, President and Founder, Consumer Advocacy Foundation of Nigeria (CAFON)</em>

In fewer than twenty years, our concept of a market has evolved from a strictly physical location of commercial activity, to also include intangible, real-time e-locations. Research shows that up to 12 percent of all global commercial transactions now take place on the Internet - within and between countries, often across multiple currencies, and with little or no physical contact between seller and consumer.

Historically, consumer protection laws and guidelines attempted to protect consumers within physical locations and through the sovereignty of national policies. Our new worldwide market transcends physical and legal borders and confirms the maxim that the world has become a global village. It’s imperative that our consumer protection laws evolve as well.

Nigeria offers a case in point. E-commerce, enabled by electronic financial instruments, has become a reality. According to Babatunde Irukera, Director General of the Consumer Protection Council in Nigeria, research by the Council shows 67 percent of consumers in Nigeria between ages 18-40 now shop online. Online markets are increasingly important to commercial activity in the country.

Consumer protection regulators in Nigeria and elsewhere appear to be playing catch-up as the issues of online marketplaces often transcend the capacity of existing laws and regulations. The unique challenges to regulation in this space include the ubiquitous nature of many of these e-commerce platforms and the multiple sectors involved. Issues of exploitation, unfair trade practices, and sub-standard products and services now occur at breathtakingly alarming rates online. On a daily basis, consumers fall victim to issues like lack of grievance redressal, misleading advertisements, outright frauds and scams, and poor customer care with little or no regulation or intervention from regulatory agencies. Consumers International research shows that 49 percent of Internet users in Nigeria claim they are wary of e-transactions. Though a few of the more prominent online merchants in Nigeria have shown initiative by establishing their own consumer protection guidelines and structures, they are not adequately supervised by the government.

Another type of digital marketplace worth noting is informal platforms for personalized selling. Many individuals offer goods and services for sale on person-to-person platforms like WhatsApp, Instagram, Facebook, and so on. This form of e-commerce is even more challenging to regulate because it is a private transaction between two individuals. Yet the rate of fraud and scams is higher in these instances.

While comprehensive legislation might take years to materialize, the government needs to explore options that can immediately improve the standard and safety of online transactions for consumers. Here are a few options aside from regulation that should be considered.

Increased consumer education efforts could empower users with better information on the risks of e-transactions, how to identify scams and frauds, and how to insist on redress if their rights are violated. Consumer education is particularly important for person-to-person online marketplaces where it is often more difficult to verify the quality of the merchant and/or their products. Education can help consumers make informed choices on whether to take the risk of buying goods and services from individuals with weaker verification mechanisms.

Government can also work with providers to encourage peer-to-peer checks or self-regulation. When online marketplaces agree to sign up for a relevant code of conduct, digital markets become safer for consumers, which in turn builds trust and improves consumer patronage.

A good example of sector self regulation is found in the work of <a href="http://smartcampaign.org/">the Smart Campaign</a>, and its experience is especially relevant for online platforms, such Alibaba in China and Amazon in the U.S. which extend credit based on how individual merchants use their platforms. While such platforms provide much needed options to conventional banking, many consumers are wary of patronizing their services because of a lack of trust. If such providers were to become <a href="http://smartcampaign.org/certification">Smart Certified</a>, for instance, consumer confidence should improve. Government needs to encourage independent and credible sector self-regulating institutions, like the Smart Campaign, to improve consumer confidence in digital marketplaces.

Beyond these consumer protection concerns, when discussing online marketplaces it’s important to remember that there is a lack of fair access to the Internet for millions of consumers around the world. While the Internet is fast becoming an essential tool in developed countries, nations like Nigeria are still struggling to make it adequately available for the majority of consumers. With high prices for data access, it becomes a privilege reserved for those who will or can pay. This challenge becomes even more critical as essential services of governments, utility companies, and financial institutions become increasingly digitized.

This review of issues is definitely not exhaustive, but it shows the enormity of action required to keep consumers safe as they conduct commercial and banking transactions on digital platforms.

Distrust of digital marketplaces is not just about consumer protection, it has implications for economic growth. Nigeria is just one of many countries that must take bold steps to make digital marketplaces safer. Increasingly, these marketplaces will be a vital key to the globalization of local products and services.

<em>A different version of this post was published in <a href="https://www.thisdaylive.com/index.php/2018/04/19/making-online-marketplaces-safer-for-consumers/"><span style="text-decoration: underline">This Day</span></a>.</em>

<em>Sola Salako Ajulo is a Consumer Rights and Protection Advocate and President/Founder of Consumer Advocacy Foundation of Nigeria (CAFON).</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2018/03/30/why-is-financial-inclusion-in-nigeria-lagging-compared-to-its-african-peers/">Why Is Financial Inclusion in Nigeria Lacking Compares to Its African Peers?</a>

<a href="https://cfi-blog.org/2017/12/19/nigeria-needs-to-include-consumer-protection-in-its-ambitious-financial-inclusion-plans/">Nigeria Needs to Include Consumer Protection in Its Ambitious Financial Inclusion Plans</a>

<a href="https://cfi-blog.org/2017/05/09/development-bank-of-nigeria-as-inclusive-as-it-promises/">Development Bank of Nigeria - As Inclusive As It Promises?</a>

&nbsp;

&nbsp;

&nbsp;

Making Online Marketplaces Safer for Consumers in Nigeria

&nbsp;

<img class="aligncenter wp-image-24663" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/cashnetusa1.png" alt="" width="614" height="298" />I recently browsed the website of <a href="https://www.cashnetusa.com/">CashNetUSA</a>, a company that offers payday loans and related products in 38 states across the United States. The website was easy to read and presented the application process and the (very high) charges simply and clearly. But I wanted to know more. Is this company legitimate? Does it live up to its promises? Will I experience any problems along the way? More broadly, how can a consumer tell whether an online payday lender is trustworthy?

I had no peer or family member to ask about this, so I turned to online credit provider reviews and began a Google-based armchair investigation.

The first review site that popped up was <a href="https://www.consumeraffairs.com/">ConsumerAffairs</a> (not to be confused with the better-known <a href="https://www.consumerreports.org/cro/index.htm">Consumer Reports</a>*). Companies pay to be reviewed on ConsumerAffairs, and CashNetUSA had over 1,500 reviews on the site. CashNetUSA slides a few of the most favorable reviews directly onto its own website, like these:
<p style="padding-left: 30px"><em>Customer service is always perfect and always goes out of their way to help me! CashNetUSA is in my opinion the very best company with the best prices when you need a little extra help. I will recommend CashNetUSA to all my friends and family who need a little extra help, and need fast friendly service. (Rock Creek, Ohio)</em></p>
This review suspiciously resembled advertising copy. The next one sounded a bit more like a real person, with a couple of mistakes included.
<p style="padding-left: 30px"><em>Today is a good day. Thanks CashNet USA. All your representatives even the online chat did a good job in helping me pay off my old loan and re applying for another. GREAT JOB Team. Thank you for information and help you provided with a Good Altitude (sic). (Mesquite, Texas)</em></p>
Since the overwhelming majority of the 1,500 raters gave CashNetUSA 5 stars, I began to believe that actual people who have used the service appreciate its speed, simplicity and customer service quality. But what about the much smaller number of 3-star ratings, from people who are neither satisfied nor particularly angry? Many of these folks liked dealing with the company but complained about the high interest rates. The 1-star ratings were generally rants from people so angry they spluttered all over my computer screen. Clearly their reviews were a chance to vent and get a small bit of revenge. But these were a very small minority: the overall score was over 9 out of 10.

A very similar site is <a href="https://www.trustpilot.com/">Trustpilot</a>, with over 2,000 reviews of CashNetUSA, giving it an overall rating of 8.7. One wonders whether some of these reviews are provided by bots – though the site assures us that’s not happening.
<p style="padding-left: 30px"><em>Excellent customer service given by Alonda today at CashNetUSA! Thanks!!! (Johnny Kuhn)</em></p>
All these positive reviews started getting boring, to tell the truth. I spent more time reading negative ones:
<p style="padding-left: 30px"><em>CASH NET USA, IS A RIP OFF, I SUGGEST YOU DO YOUR RESEARCH AND PLEASE TAKE THE TIME TO READ YOUR CONTRACT BEFORE SIGNING, A TOTAL DISAPPOINTMENT. (Connie Head Newman)</em></p>
Another site, <a href="https://www.highya.com/">HighYa</a>, only had a few ratings, but it was curious that HighYa’s CashNetUSA score was a low 1.8 out of 10, the opposite of the high ratings on Trustpilot and ConsumerAffairs. But HighYa offered an explanation. It explained that CashNetUSA is plagued by scammers who pose as the lender. A common tactic is to request applicants to send bank account details (to “test” a transaction) before approving a loan. Examining the experiences described by the 1-start ratings on all the sites, I concluded that a great many of the low raters had been scammed.

The next few sites I checked featured reviews written by the staff of the site, rather than consumer reviews. For example, <a href="http://www.toptenreviews.com">Top Ten Reviews</a> explained the service and praised CashNetUSA for ease of use. The big buttons allowing readers to click straight through to the CashNetUSA website revealed that the site is pretty cozy with the companies it reviews. However, at the same time, the site posted a warning to consumers to avoid use of payday loans whenever possible.

<a href="https://www.supermoney.com/">SuperMoney</a> only had three customer reviews of CashNetUSA, with a mediocre 3 star rating. But this site helpfully informed that CashNetUSA is a brand of Chicago-based Enova International, which also operates in Europe and South America.

The last site I checked was <a href="http://www.simplethriftyliving.com">Simple. Thrifty. Living.</a>, which summed up the picture I was beginning to get about CashNetUSA:
<p style="padding-left: 30px"><em>In general, among payday loan lenders, CashNetUSA fares pretty well when it comes to reviews. They are generally at or near the top of any payday loan rankings, mostly because of their organized business practices, easy availability and history in the payday loans field. To some, that may seem like saying a certain restaurant is the best of the restaurants with health code violations, but for someone who truly needs a payday loan, knowing which is the best and not a complete scam can be very helpful. </em></p>
Or, as SuperMoney said, more succinctly:
<p style="padding-left: 30px"><em>The APRs are high, but it's hard to beat as a fast source of cash in an emergency. </em></p>
This exploration of the review sites satisfied my curiosity about CashNetUSA, but it was only by visiting several sites that I got the full scoop. I’d like to know more about the business models behind these sites – and how their sources of income influence the ratings they display. The reviews from individual consumers on the bigger sites convinced me of the legitimacy and service quality of CashNetUSA, but I discounted those results somewhat, knowing that companies pay to be listed and encourage customers to place positive reviews, or place such reviews surreptitiously themselves. The staff-written reviews provided helpful information about the company that helped me draw my own conclusions – including that very important insight about the scamming problem. But without corroboration from the consumer reviews, I probably would have discounted them, too. Only by consulting both consumer and staff reviews could I piece together what seemed like a reliable picture.

I wonder how many people in search of a quick cash loan actually take the trouble to scan these reviews. With so much information at our fingertips, but without much ability to verify its sources, it makes perfect sense to fall back on the old reliable method: word of mouth from people we trust.

<em>For more on how consumers try to verify the legitimacy of financial service offerings, see the report from CFI Fellow Alexis Beggs Olsen, <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program/782"><u>Uniting Tech and Touch: Why Centaur Products Are Better for Consumers and Providers, Evidence from Kenya</u></a>.</em>

<em>*Consumer Reports, possibly alone among organizations offering reviews, does not accept payment from any company it reviews, but instead operates through subscriptions from consumers. With no subscription, I was not able to access its information.</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/11/16/watch-out-unicorns-centaurs-are-the-future-of-financial-inclusion/">Watch out Unicorns: Centaurs Are the Future of Financial Inclusion</a>

<a href="https://cfi-blog.org/2017/10/26/tiny-loans-big-questions-client-protection-in-mobile-consumer-credit/">Tiny Loans, Big Questions: Client Protection in Mobile Consumer Credit</a>

<a href="https://cfi-blog.org/2017/10/03/how-mobile-money-is-closing-the-agricultural-finance-gap-for-women-in-kenya/">How Mobile Money Is Closing the Agricultural Finance Gap for Women in Kenya</a>

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Choosing a Payday Lender: Can Online Reviews Help?

CFI Fellow <a href="/programs-a-projects/cfi-fellows-program/782#AlexisBio">Alexis Beggs Olsen</a> investigates Kenya’s digital financial services (DFS) landscape, the reasons why customers still desire human touch, and the innovative ways in which FSPs integrate human interfaces into their digital product offerings to better serve customers. In <em>Uniting Tech and Touch: Why Centaur Products Are Better for Consumers and Providers</em>, <em>Evidence from Kenya</em>, Alexis takes us along the customer journeys of Kenyan DFS users to illuminate the circumstances where they prefer human touch, the variations in customer preferences across demographic characteristics, and the particular pain points of low-touch digital loans, savings and insurance products.

Alexis finds that although Kenyans are comfortable conducting transactions digitally, other key aspects of the financial service customer journey are not adequately handled by digital means alone. Based on 104 in-depth qualitative interviews, Alexis discovers that Kenyans particularly want human touch for three reasons:

1. To verify the legitimacy of the FSP
2. To fully understand the product
3. To resolve problems or complaints

To address these needs, Alexis recommends “centaur” solutions—ones that combine human and digital interfaces—to provide valuable human interaction to customers where it is needed most, while improving customer acquisition and retention in the process. FSPs, their customers, and the financial inclusion community can benefit from leveraging centaur solutions that combine the best of tech and touch to convert customers who are currently uncomfortable with these digital interfaces into regular digital financial services users.

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<img class="alignnone size-large wp-image-29309" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2017/04/Technology-Inequality-Inforgraphic-330x1024.png" alt="" width="330" height="1024" />

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Uniting Tech and Touch: Why Centaur Products Are Better for Consumers and Providers - Evidence from Kenya

CFI Fellow Alexis Beggs Olsen investigates Kenya’s digital financial services (DFS) landscape, the reasons why customers still desire human touch, and the innovative ways in which FSPs integrate human interfaces into their digital product offerings to better serve customers. In Uniting Tech and Touch: Why Centaur Products Are Better for Consumers and Providers, Evidence from Kenya, Alexis takes us along the customer journeys of Kenyan DFS users to illuminate the circumstances where they prefer human touch, the variations in customer preferences across demographic characteristics, and the particular pain points of low-touch digital loans, savings and insurance products.

Alexis finds that although Kenyans are comfortable conducting transactions digitally, other key aspects of the financial service customer journey are not adequately handled by digital means alone.

Webinar: Uniting Tech and Touch Kenya

For Financial Inclusion Week 2017, WSBI highlights the ways that new partnerships and new products are helping its members make progress toward financial inclusion.

&gt; Posted by Mina Zhang, Senior Advisor, WSBI

The World Savings and Retail Banking Institute (WSBI) and its members are committed to <a href="http://www.worldbank.org/en/topic/financialinclusion/brief/achieving-universal-financial-access-by-2020">Universal Financial Access</a> (UFA), doing their part to help realize the “account for everyone” goal. <a href="https://www.wsbi-esbg.org/press/latest-news/Pages/WSBI-makes-further-progress-towards-UFA-2020-goal.aspx">Our data</a> from the end of 2016 shows that we’re making progress, with 136 million new clients and 236 million new transaction accounts, since the UFA benchmarks were set at the end of 2014.

For <a href="http://www.financialinclusionweek.org/">Financial Inclusion Week 2017</a>, we are highlighting the ways that new partnerships and new products are helping us achieve this goal.

WSBI members that harness new technologies have made real inroads. They have been able to more effectively offer affordable, quality products and services that meet the needs of underserved and unbanked people, allowing them to boost financial access and usage and attract new customers. In a nutshell, WSBI members’ approaches to financial inclusion include:
<ul>
 	<li>Integrating the unbanked at the start of financial inclusion journey</li>
 	<li>Extending banking networks to underserved areas</li>
 	<li>Digitizing savings mobilization and financial service to meet the changing needs of customers</li>
 	<li>Improving financial literacy, particularly among youth</li>
</ul>
<h3>Integrating the Unbanked at the Start of the Financial Inclusion Journey</h3>
[caption id="attachment_24473" align="alignright" width="195"]<img class="alignnone size-full wp-image-24473" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/wsbi-vivet-e1509740959598.png" alt="ViVet app screen." width="195" height="320" /> ViVet app screen. Photo credit: WSBI[/caption]

LienViet Postbank (LVPB) Vietnam is top among the WSBI membership in Asia in new accounts. The number of accounts has almost doubled from 2014 to 2016. This achievement is thanks to its innovative approach to integrate the unbanked at the start of financial inclusion journey.

<a href="https://www.youtube.com/watch?v=IqRdJhqaPsQ">ViViet</a> is LVPB’s payment solution that provides access to payment and banking services via mobile phones for customers in Vietnam. Only 22 percent of the population has access to formal banking services in Vietnam, but around 90 percent of Vietnamese adults are using mobile phones, and the mobile phone subscription rate is 128 percent. The wide gap between banking customers and telecommunication subscribers implies significant potential for the ViViet e-wallet.

ViViet is tailored to the needs of the unbanked because it can grow with users as their financial journey expands. They may start with bill payment, then open a bank account, access a microloan, and so on. ViViet currently serves as a payment tool for services including utility bills, transportation, mobile phone cards and air-time top-ups. ViViet can also be used for payment of loans, insurance premiums, tuition fees and online purchases, as well as fund transfers between ViViet and external bank accounts.

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<h3>Extending Banking Networks to Underserved Areas</h3>
[caption id="attachment_24476" align="aligncenter" width="611"]<img class="alignnone size-full wp-image-24476" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/wsbi-nsbi-saver-e1509741166378.png" alt="WSBI NSBI Saver" width="611" height="341" /> NSB i-Saver outlet in Sri Lanka. Photo credit: WSBI[/caption]

There are about 6 million smartphones in Sri Lanka, and today  a smartphone or computer device can easily be converted into a virtual bank. NSB i-Saver allows customers in Sri Lanka to deposit money in any NSB Bank account in a convenient and efficient manner via more than 16,000 touch points throughout the country, as a result of partnerships with the mobile network operator and other retailers. This expansion of service is expected to further inculcate the habit of savings among Sri Lanka’s populace, thus resulting in wealth creation and mobility of funds for investment.

Similarly in El Salvador, Fede Puntos Vecinos (Fedecredito’s agent banking scheme) has increased access to financial services in underserved areas. To date, service stations have been implemented in 196 of 262 municipalities in El Salvador—that means one service point for every 20 kilometers. As of December 2016, Fede Puntos Vecinos processed 5.4 million transactions valued at some US $195 million, with an average transaction amount of around US $35.

As one example, through the Fede Puntos Vecinos business model, mini-market owner Carlos Armando Barillas increased sales and broadened offerings at his initial store (opening a new bookshop section) and opened a new brand new store in another municipality.
<h3>Digitizing Youth Savings and Improving Financial Literacy</h3>
[caption id="attachment_24480" align="alignleft" width="300"]<img class="alignnone size-medium wp-image-24480" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/wsbi-postbank-uganda.jpg?w=600" alt="A woman speaks with a microphone in front of a panel at a PostBank Uganda YouthSave event." width="300" height="201" /> PostBank Uganda YouthSave event. Photo credit: WSBI[/caption]

PostBank Uganda unveiled a goal-based mobile savings product called the PostBank Youthsave Solution to encourage youth to save more diligently. This product aims to improve the financial inclusion of youth through educating them about saving money. It also aims to retain them as loyal customers and ultimately position PostBank as the preferred financial institution for young people. YouthSave was developed with support of the WSBI, which supported the research into youth and student behavior and gaps that affected the saving culture. The research confirmed that young people have access to and prefer digital platforms like mobile phones and the Internet.

The YouthSave account enables youth to access their accounts digitally, as well as learn how to save for multiple goals using a mobile phone application. Its functionality includes setting and tracking savings goals, setting start and end dates for savings goals, editing savings goals, checking the account balance, buying airtime, paying bills, and transferring money. This digitally-enhanced product is available to students and youth between 18 and 30 years old.

These challenges and questions make our work in financial inclusion even more pressing. If we address them well, we can expect more people joining into the financial mainstream.

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An Account for Everyone: How New Products and Partnerships Are Helping WSBI Members March Towards Universal Financial Access

Together, the mobile industry and the financial services community have the power, and the opportunity, to put billions of people on the path to financial inclusion. Steve Polsky of Juvo talks here about getting the the <em>how</em>, the <em>why </em>and the <em>when</em> in place.

&gt; Posted by Steve Polsky, Founder and CEO, Juvo

[caption id="attachment_24443" align="alignright" width="490"]<img class="wp-image-24443 size-large" title="Juvo" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/juvo-be-bold-for-change.png?w=490" alt="Juvo Be Bold for Change Report Cover" width="490" height="276" /> During the Mobile World Congress Americas in September 2017, Juvo held its inaugural Be Bold for a Change event with mobile and fintech leaders in San Francisco. Photo credit: Juvo[/caption]

Thanks to World Bank, we all know the numbers: two billion unbanked people around the world, excluded from formal financial services. Thanks to the United Nations, we have a global rallying cry with the Sustainable Development Goal and that financial inclusion is the enabler for seven of the 17 Sustainable Development Goals. And thanks to the Center for Financial Inclusion at Accion’s initiative <a href="http://financialinclusionweek.org/">Financial Inclusion Week</a>, we also know that dozens of companies are committed to improving the lives of billions of people around the world.

But in the same way that no man (or company) is an island, no single industry can financially include billions of people. Financial institutions have the technology and services to change the way people borrow, save, insure, send and lend money in emerging markets; however, even an industry of the scale of the financial system doesn’t have the reach to change the world as quickly as the UN Sustainable Development Goals demand.

The only industry with that reach is the mobile industry. And as mobile operators around the world begin to embrace the maxim “doing good is good for business,” likewise they’re becoming cognizant that while they may have the reach, they may not have the technology and services to drive sustainable financial inclusion.



In September, <a href="https://juvo.com/">Juvo</a>, redoubled its efforts to bring mobile and fintech together for good. We held our inaugural event:  Be Bold for A Change  focused on <em>How Fintech and Mobile Can Deliver Financial Inclusion for All</em>. I joined  <a href="https://medium.com/r/?url=https%3A%2F%2Fwww.linkedin.com%2Fin%2Fronsuber%2F">Ron Suber</a>, the “Mayor of Fintech”, <a href="https://medium.com/r/?url=https%3A%2F%2Fwww.linkedin.com%2Fin%2Fjamesmcelvanna%2F">James McElvanna,</a> VP of Product at Cable &amp; Wireless  and Chris Berry, co-author of McKinsey’s<a href="https://medium.com/r/?url=https%3A%2F%2Fwww.mckinsey.com%2Fglobal-themes%2Femployment-and-growth%2Fhow-digital-finance-could-boost-growth-in-emerging-economies"> Digital finance for all: Powering inclusive growth in emerging economies</a>  to discuss how, why and when telcos and financial services companies should work together. Three things shone through:
<h3><strong>1) The How: Meeting Customers Where They Are</strong></h3>
Around 80 percent of all mobile users globally use prepaid services. At the same time, only one in 10 unbanked people with a mobile phone are using mobile money services.

One of the biggest obstacles to financial inclusion is building trust with the customer. Some individuals don’t understand or trust financial products. They need education that puts mobile services into context and explain how they work. This is best achieved with a stepping stone approach, something we are doing with Cable &amp; Wireless in the Caribbean.

James McElvanna explained that a few years ago, Cable &amp; Wireless decided it wanted to build a better picture of these customers. James and his colleagues started by “meeting customers where they are” with tangible benefits, like helping when they’ve run out of airtime. In that moment, extending a small airtime credit loan, with zero fees and interest, helps the customer fix an immediate problem. It lays the foundation for a trusting relationship, which is deepened as more loans are taken and repaid.

And it’s the start of a new story, the creation of a credit history. In a short time, Cable &amp; Wireless and Juvo can build financial identities for financially excluded customers. Starting with simple credit extensions, we can understand which customers will make reliable clients for more sophisticated financial services offered by financial institutions. And, critically, it can take them on that journey leveraging the trust they’ve built together.
<h3><strong>2) The Why: Enabling Financial Resilience</strong></h3>
[caption id="attachment_24445" align="alignright" width="273"]<img class=" wp-image-24445" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/juvo-hurricane-levels.jpg" alt="Hurricane storm surge elevations pole" width="273" height="416" /> Hurricane Irma made landfall in Anguilla as a Category 5 hurricane on September 5, 2017.<br />Photo credit: Mr.TinDC (CC BY-NC-ND 2.0)[/caption]

Financial resilience helps<strong> </strong>people meet unexpected financial demands and mitigate financial shocks. It’s one important difference between the haves and the have nots. With access to more sophisticated financial services, the unbanked can build this resilience — securely saving, with the ability to move money and have access to credit when it’s needed.

Mobile operators provide the channel to reach these individuals when more traditional communication channels are unavailable. For example, during Hurricane Irma, Cable &amp; Wireless provided access to airtime loans via mobile to allow their customers to stay connected when catastrophe struck. Getting service — for up to a month of data and voice usage — was frictionless. Users didn’t have to visit a retailer or an agent, which would have been difficult or impossible at the time. As a result, borrowing spiked significantly and customers experienced resilience.

This is just the start. With a financial identity and a convenient channel that works in even the most dire circumstances, the opportunity to support financial resilience is a giant leap towards financial inclusion.
<h3><strong>3) The When: The Time Is Right Now</strong></h3>
Ron Suber pointed<strong> </strong>to<strong> </strong>the 50-year innovation cycle, an interesting concept that has been observed for TV, cars, radio and now mobile devices. Fintech started in 1998 with PayPal. A decade ago, companies like Lending Club and Prosper gave people reasons to borrow and lend online. We’re now 17 years into the fintech innovation cycle, and we’re heading into the <a href="https://medium.com/r/?url=https%3A%2F%2Fwww.crowdfundinsider.com%2F2017%2F10%2F123244-ron-suber-golden-age-fintech%2F">“golden years.”</a> Banks, fintechs and telcos are all figuring out how to more effectively engage with customers–for growth, retention, higher customer lifetime value and social good. The major opportunity, Ron believes, is that fintech can provide access to sophisticated banking services for the underbanked with convenience, and at a far lower cost.

Incumbents are now partnering with tech companies in this new era because of global needs. Ron predicts that a whole new group of companies passionately focused on financial inclusion will emerge in the near future, some with the capability to bridge industries and make them more than the sum of their parts. This, he argues, could not have happened three, five or 10 years ago. It’s a unique moment in time — a moment when industries can come together like never before.

[caption id="attachment_24447" align="aligncenter" width="490"]<img class="size-large wp-image-24447" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/11/juvo-steve-ron-james.jpg?w=490" alt="Steve Polsky, Ron Suber, James McElvanna at Be Bold for Change 2017." width="490" height="326" /> Steve Polsky, Ron Suber, James McElvanna at Be Bold for Change 2017. Photo credit: Juvo[/caption]

The mobile industry has demonstrated the reach to change the lives of billions of people around the world. But it’s only by working with the financial services community that the industry can contribute to achievement of UN’s Sustainable Development Goals through financial inclusion. Our two industries have the power, and the opportunity, to put billions of people on the path to financial inclusion. With the <em>how</em>, the <em>why </em>and the <em>when</em> in place, it’s time to be <strong>bold for change</strong>.

<em>Juvo is a San Francisco-based fintech company working to enable hundreds of millions of consumers around the world to build financial identities, starting with their everyday use of their prepaid mobile phone. Republished with permission.
</em>

A Team Sport — Three Reasons Why Mobile Telcos and Financial Institutions Will Drive Financial Inclusion Together

Very small instant consumer loans have ballooned from 11 deployments in 2011, to 52 in 2016, with a particular concentration in East Africa. In just a few years, through models such as M-Shwari, M-Pawa, Tala and Airtel Money, tens of millions of people have borrowed tiny amounts over their phones. These services represent an enormous increase in formal financial inclusion. They address a fundamental consumer need previously unavailable to lower income people from the formal financial system: the need for very short term money management tools to cope with income and expense volatility. While they are in many ways a boon, they also contain, and in some cases heighten, risks for their users.

This Brief enumerates and discusses emerging consumer risks posed by these products, using the Client Protection Principles as an organizing framework. We hope this lens will assist the mobile financial sector to articulate and build a consensus about responsible practices in mobile finance.

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Tiny Loans Big Questions: Client Protection in Mobile Consumer Credit

Agence Francaise de Developpement