This report, the third in a <a href="https://www.centerforfinancialinclusion.org/series/municipal-cash-transfer-programs-design-ids-and-data-protection">series</a> on municipal cash transfers in the U.S., focuses on data protection for undocumented or mixed-status beneficiary households. In the context of cash-based assistance (CBA) programs, poor data protection practices could add additional risks for low-risk individuals by providing data trails that could pave the way for unauthorized access to applicant or beneficiary data or leakage of personally identifiable information. These could leave a digital footprint that can make it easier for law enforcement to target undocumented individuals.

Considering these risks, we have identified and detailed approaches and strategies used to protect applicant and beneficiary data through four programmatic phases: targeting beneficiaries, outreach and onboarding, disbursement and distribution, and ongoing monitoring and data storage/retention. Insights in this report are gleaned from CFI interviews with cities, community-based organizations (CBOs), debit card providers, and privacy advocates.

This report and the others in this series are intended to guide municipal officials and CBOs considering or developing programs to support undocumented or mixed-status households. The insights may also be of interest to organizations advocating for and supporting the rights of undocumented populations, students and academics, and anyone <span data-contrast="auto">interested in </span><span data-contrast="auto">access to financial and</span> <span data-contrast="auto">public</span> <span data-contrast="auto">services</span><span data-contrast="auto"> for all members of U.S. communities. </span>

Protecting Beneficiary Data: Guidance for Municipal Cash Transfer Programs Responding to COVID-19

Two days ago, <a href="https://centerforfinancialinclusion.org/reimagining-inclusive-finance-with-women-in-mind/" target="_blank" rel="noopener noreferrer">we met Carla</a>, a woman in Tanzania with limited access to financial products that could help her save, plan, borrow, and make and receive payments. Now imagine that Carla’s husband became ill with COVID-19 and the market where she normally sells her vegetables has been shuttered by lockdowns to prevent spreading the virus. The family’s income has completely dried up. Carla is eligible for a government program which deposits funds directly into a mobile money account, but Carla has never used mobile money and is completely unfamiliar with the family’s new smartphone that’s registered in her husband’s name. This scenario is playing out around the world for many of the <a href="https://openknowledge.worldbank.org/handle/10986/33635" target="_blank" rel="noopener noreferrer">1.1 billion first-time recipients</a> of cash transfer payments in response to COVID-19. Who will help Carla figure out how to access the funds? Where can she go for help?

COVID-19 and its overwhelming impact on the health and livelihoods of people around the world has been the defining issue of 2020. Unexpected and unparalleled, the pandemic has been particularly devastating for low-income people already living on the brink of poverty. <a href="https://www.worldbank.org/en/news/press-release/2020/10/07/covid-19-to-add-as-many-as-150-million-extreme-poor-by-2021" target="_blank" rel="noopener noreferrer">The World Bank estimates</a> that COVID-19 is likely to push between 88 and 115 million people into extreme poverty, reversing the poverty reduction trend of recent decades.

With this new wave of economic uncertainty, governments have been quick to adopt cash transfer programs to help people cope with the impact of the pandemic. The World Bank reports that 340 cash transfer programs in 158 countries were initiated in response to COVID-19. Of those, 65 programs in 43 countries are new initiatives which are introducing benefits to 1.1 billion first-time cash transfer recipients.

The scale and speed at which these programs have been created and disbursed is unprecedented and has required governments to adapt their processes to get the funds out the door quickly and efficiently. Many have turned to digital channels. On the one hand, this presents an <a href="https://www.cgap.org/blog/can-emergency-cash-transfers-lead-financial-inclusion">opportunity for onboarding</a> customers to the digital finance ecosystem. On the other, it poses significant challenges for customers who are unfamiliar with the system that stands between them and the funds that they desperately need during these challenging times. If something goes wrong when trying to access the funds, whom can they turn to? If they can’t locate any cash-out locations due to lockdowns, how can they access the funds? If someone thinks they are eligible but has not been enrolled, whom do they contact?

During the course of Financial Inclusion Week, we asked participants to share what they’re seeing with regard to emerging consumer protection risks in light of COVID-19. Here’s a sample of what we heard:
<ul>
 	<li>Most respondents believe the rapid digitization of cash transfers presents increased risks for customers</li>
 	<li>Fraud by staff or agents was the most commonly cited type of risk observed, followed by excessive fees and poor data protection and security</li>
 	<li>Respondents would like to see better mechanisms for supervisors to monitor misconduct, and more consumer awareness and capability trainings by providers</li>
</ul>
Have you experienced similar risks where you live or work? <a href="https://app.sli.do/event/oqxdkouf/embed/polls/c12f34ed-3a47-4023-96fe-73f15cb5a722" target="_blank" rel="noopener noreferrer">We are collecting global examples of risks</a> through an ongoing survey and invite you to help us uncover specific instances we should explore as part of our ongoing research on this topic.
<h2>Looking Ahead</h2>
Beyond the specific and urgent issues related to the proliferation of cash transfer payments, we must continue to reimagine the paradigms that will enable improved consumer protection in a digital age. Supervision Technology, or SupTech, for example, is changing the interaction between customers, financial service providers, and supervisors by providing direct communications channels between customers and supervisors. In the Philippines, the central bank is piloting a <a href="https://www.marketscreener.com/news/latest/Moving-from-Crisis-to-a-Stronger-Tech-driven-More-Inclusive-Philippines--31488613/" target="_blank" rel="noopener noreferrer">chatbot</a> named BOB, or BSP Online Buddy, to handle customer concerns sent by SMS, Facebook Messenger, and online chat. This type of direct connection between customers and supervisors can strengthen monitoring systems and help track the customer experience and where protections are needed. Just as we continue to monitor new consumer risks related to the digitization of financial products, we must also continue to research, test, and advocate for innovative approaches to monitoring market conduct.
<blockquote>Just as we continue to monitor new consumer risks related to the digitization of financial products, we must also continue to research, test, and advocate for innovative approaches to monitoring market conduct.</blockquote>
At the end of 2019, when CFI began to <a href="https://centerforfinancialinclusion.org/new-decade-new-focus-areas-cfis-role-in-an-evolving-space/" target="_blank" rel="noopener noreferrer">consider the future</a> of our consumer protection agenda, we never imagined the world that we now find ourselves in. Yet the questions being raised in this context are not new ones. As we collectively work to expand access and usage of financial services that we know can improve lives, how do we do so in a way that sufficiently protects vulnerable customers? The evolution toward digital channels has been underway for many years, already requiring that we reassess the next wave of priority research topics, yet the rapid expansion of digitized cash transfer payments and the rapidly changing context of the pandemic has propelled this effort and made the work even more urgent.

As <a href="https://pheedloop.com/fiw2020/virtual/" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> draws to a close today, we hope the conversations held, the connections formed, and the knowledge gained will be put to productive use as we continue to advance inclusive finance in a way that has consumers best interests in mind at every step.


COVID-19 Ushers in New Challenges for Consumer Protection

The Rizzi family recently returned to the US after living in Italy for three years, during which time a love for all things pizza was cemented. I could write a whole blog about the best Roman pizzeria (it's Roscioli), so when a colleague told us, the data team, about a recent <a href="https://news.stanford.edu/2017/08/03/pizza-privacy-stanford-economist-examines-paradox-digital-age/" target="_blank" rel="noopener noreferrer">study about pizza and data privacy</a> – MIT undergraduates were willing to relinquish their friends’ personal information in exchange for a free pizza – we were interested.

Should we chalk the results up to college students’ love of late-night snacks? Not exactly. This year, the Ipsos Global Trends survey across 33 countries found that despite growing concern around big data, nearly <a href="https://www.ipsosglobaltrends.com/2020/02/data-dilemmas/" target="_blank" rel="noopener noreferrer">half of respondents said they would trade their information away</a> in return for personalized services and products. This was a 7 percent increase since the last time the survey was conducted in 2013. It’s easy to assume that this implies that people don’t care about data protection, but it fails to account for the frequently zero-sum choice presented to consumers for whom access to vital products and services increasingly relies on digital gatekeepers. The financial inclusion field is no exception.
<h2>Unchecked Superpowers?</h2>
For the unbanked and underbanked and those that work with them, the explosion of available data, data-crunching services and data-enabling regulatory schemes bring unprecedented potential. A BFA paper called certain artificial intelligence applications "<a href="https://bfaglobal.com/wp-content/uploads/2019/03/FIBR-Artificial_Intelligence_FINAL_MAY2018-1.pdf" target="_blank" rel="noopener noreferrer">practical superpowers</a>" and the possibilities to unlock wealth and opportunity for the poor indeed seem extraordinary – from prospecting and credit scoring for thin-file consumers to well-timed nudges for saving, from fraud management and complaint chatbots to access to e-commerce platforms and <a href="https://www.cgap.org/blog/open-banking-7-ways-data-sharing-can-advance-financial-inclusion" target="_blank" rel="noopener noreferrer">open banking regimes</a>. At CFI, we feel the case has been <a href="https://centerforfinancialinclusion.org/accelerating-financial-inclusion-with-new-data-2/" target="_blank" rel="noopener noreferrer">well-articulated</a> for supporting a myriad of <a href="https://www.cgap.org/research/publication/using-satellite-data-financial-inclusion" target="_blank" rel="noopener noreferrer">data-driven tools</a> and will continue to be made.
<blockquote>Data-driven tools must also be examined for their risks, pitfalls and unintended consequences.</blockquote>
Our perspective is that for these opportunities for financial inclusion to be fully realized, they must also be examined for their risks, pitfalls and unintended consequences for low-income consumers. This lens is not meant to throw a wet blanket on innovation and enthusiasm, but to have a clear-eyed focus in a world where data is <a href="https://cloudian.com/blog/getting-a-handle-on-data-growth/#:~:text=According%20to%20IDC%2C%20the%20world's,all%20this%20data%20the%20same." target="_blank" rel="noopener noreferrer">growing by the zetabyte</a> (10^21) every month, where tens of thousands of individuals become digital immigrants every day and where innovation <a href="https://www.centerforfinancialinclusion.org/data-consent-lets-share-the-burden-for-effective-consumer-protection" target="_blank" rel="noopener noreferrer">races ahead of traditional guardrails</a> on data protection and privacy.

Our vision is that digitization is catalytic for the poorest and most vulnerable consumers, not just those who are already on the pathway to digital inclusion. Looking at developed markets where smartphone ownership is widespread, we still see vulnerable communities trapped in a state of <a href="https://socialchangenyu.com/review/the-surveillance-gap-the-harms-of-extreme-privacy-and-data-marginalization/" target="_blank" rel="noopener noreferrer">data marginalization</a>, due to gaps in technology access, fear of documentation, or failures of mainstream data collection mechanisms. As the use of alternative data to drive financial products grows and other data tracking systems, such as biometrics, expand, developing countries may see more data silos and failures in capturing a holistic picture of the lives of the poor.

We see evidence of this when looking at the consumer base of digital credit products, which tend to be <a href="https://www.centerforfinancialinclusion.org/making-digital-credit-truly-responsible" target="_blank" rel="noopener noreferrer">younger men living in urban areas</a>. There are many reasons why women may not be accessing these products, but failing to account for <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2020/05/GSMA-The-Mobile-Gender-Gap-Report-2020.pdf" target="_blank" rel="noopener noreferrer">limits on women’s use of smartphones</a> is a structural barrier to collecting accurate data to use in digital credit decision models. Pushing for rapid onboarding to digital finance without an understanding of these dynamics could lead to a more entrenched digital divide, unintentionally excluding those who could benefit most from new products and services because of their incomplete digital footprints.
<blockquote>CFI plans to build on its experience in financial consumer protection to focus on key questions around data and financial inclusion.</blockquote>
CFI plans to build on its decade of experience in financial consumer protection to focus on key questions around the promise of data and financial inclusion. And we are raising several of these issues as part of <a href="https://pheedloop.com/fiw2020/virtual/" target="_blank" rel="noopener noreferrer">Financial Inclusion Week 2020</a>.
<h2>Hot Topics</h2>
<h3>Responsible Algorithms</h3>
The data-driven predictions in the financial inclusion space that have grabbed the most headlines in recent years have been on <a href="https://www.accion.org/digital-lenders-can-help-unlock-full-financial-inclusion" target="_blank" rel="noopener noreferrer">consumer creditworthiness</a>. In economies where there is less access to reliable financial data, providers are leveraging other sources, the bulk of which come from mobile phones but can also include social media, geospatial data, etc., in order to make underwriting decisions. Today there is limited visibility into the type of data that financial service providers are collecting and how they are using it, with few incentives for transparent data practices.

CFI is interested in examining how financial inclusion actors approach the use of algorithms and automated decision-making, especially using alternative data, as their use becomes ever more pervasive in the industry. Within this arena are several important topics, including how to effectively measure capacity to repay with alternative data as well as how to mitigate against biased decisions. Although algorithms and automation don’t necessarily lead to discrimination, bias can occur at <a href="https://medium.com/impact-engineered/understanding-bias-in-algorithmic-design-db9847103b6e" target="_blank" rel="noopener noreferrer">varying stages</a> – from the data sources, processing, model development, or outputs. And there are heightened risks that biases, which could undermine financial inclusion goals, could arise from data that does not paint a full enough picture of a low-income person or customer segment.
<blockquote>Algorithms are not designed to be interpretable or explainable.</blockquote>
Compounding this, algorithms are not designed to be interpretable or explainable, and are often treated as trade secrets that are only understood by few within an organization. Data protection frameworks have emerged in developed markets that empower consumers with data rights vis-à-vis automated decision-making, and rely heavily on <a href="https://gdpr-info.eu/art-22-gdpr/" target="_blank" rel="noopener noreferrer">consent</a>. As the principles in these frameworks percolate into emerging markets, we wonder what constraints and barriers there are in their implementation.
<h3>Beyond Consent</h3>
While notice, choice and informed consent have been the traditional approach to data privacy, those concepts seem ill-equipped for our data-driven world. For instance, you probably already knew that the apps you use monitor your location to send you custom advertisements, but did you know that a <a href="https://www.wired.com/story/wired-guide-personal-data-collection/" target="_blank" rel="noopener noreferrer">hedge fund might also buy</a> that geolocation data to figure out which stores you like? Or that there is a whole industry of data brokers – scraping, compiling and collating bits of data about you to monetize and make predictions about your behavior? <a href="https://www.fastcompany.com/90310803/here-are-the-data-brokers-quietly-buying-and-selling-your-personal-information" target="_blank" rel="noopener noreferrer">Acxiom</a>, one of the biggest, operates in more than 62 markets and has information on over 2.5 billion consumers. Especially for low-income or vulnerable consumers, who are both often targets for data collection efforts and less likely to understand or use basic privacy protections, consent-based approaches seem insufficient. New approaches beyond consent are <a href="https://www.cgap.org/events/beyond-consent-why-new-approaches-data-protection-and-privacy-digital-age-are-needed" target="_blank" rel="noopener noreferrer">clearly needed for data</a> protection in financial inclusion (and beyond), but what might those look like in practice, who bears the cost for them and who determines their efficacy?

We hope you continue to engage us and challenge us on these issues, not only during this <a href="http://www.financialinclusionweek.org" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a>, but as we roll out our new <a href="https://centerforfinancialinclusion.org/reflecting-on-the-past-and-charting-a-new-direction/" target="_blank" rel="noopener noreferrer">strategy</a>. There will always be tension – sometimes healthy, sometimes unhealthy – in the use of technology for inclusive finance: will it make better lives within reach? Or will technology overstep and infringe on privacy rights….or worse?

Data for Inclusive Finance: Delivering on the Promise for Consumers

Just over one year ago, I joined the Center for Financial Inclusion (CFI), and what a year it has been. <a href="http://financialinclusionweek.org" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> presents a great time for me to reflect on this past year and to share with you CFI’s plans for our next chapter. We are using Financial Inclusion Week to feature the work of so many of our partners. And we are also using the week to focus attention on the themes we have identified in our new strategy as the pillars for this week’s <a href="http://financialinclusionweek.org/event-calendar-2020" target="_blank" rel="noopener noreferrer">calendar of events</a>.

CFI emerged from the rubble of the financial crisis to spearhead the most pressing issue the inclusive finance field needed at the time: improved consumer protection. We are now well into our second decade and our industry is reeling from the ravages of the COVID-19 pandemic. It is perhaps the right time for CFI to reenergize its mandate and spearhead what we believe is needed to “build back better” as the saying goes. As tragic as the pandemic’s consequences have been and continue to be, it has at least laid undeniably bare the failures of the status quo and has created a heightened sense of urgency, for financial services to build back better.

CFI was founded at a particular moment when it was becoming more apparent that market forces alone would not ensure positive outcomes for financial inclusion, and that sustained intentionality would be necessary. The coronavirus pandemic has, at the September 2020 time of writing, infected more than 33 million people and killed nearly 1 million. Beyond the rapid and catastrophic spread of illness and death, the pandemic has devastated global economies. Millions of micro, small, and medium enterprises (MSMEs) around the world have seen revenues plummet and have suspended operations or gone out of business altogether. Hundreds of millions of families have lost jobs and incomes, and many of them live in countries where social safety-net protections are patchy at best. The pandemic also reversed, seemingly overnight, social and economic development gains that had taken decades to achieve: the World Bank estimates that 70 million people are at risk of falling back into poverty. Women and children have been among those most affected: children because schools around the world have been shuttered, and women because they are more likely than men to lose their jobs and to shoulder the responsibility of supervising and homeschooling children.

For CFI, the pandemic has reenergized our purpose. Financial services are critical to reducing low-income populations’ vulnerability and helping them to recover from this and other recurring crises in their lives. We believe we have a leadership role to play in this intensified global effort. We have more than a decade of recognized global leadership in understanding the financial needs and behaviors of low-income vulnerable populations. Complementing this demand-side expertise, our recent <a href="https://content.centerforfinancialinclusion.org/mix-and-cfi-announce-strategic-integration-to-drive-industry-knowledge-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">integration</a> with MIX brings supply-side expertise to the table, as they have been studying and reporting about financial service providers for the past 20 years. These complementary strengths, combined with our history of thought leadership and our role as conveners, positions CFI to pursue an ambitious three-year strategy made all the more urgent in the context of the pandemic.
<blockquote>The pandemic has reenergized our purpose.</blockquote>
The strategic plan which will guide CFI’s work through 2024 focuses on four thematic areas. All of them, to significant degrees, have either been exacerbated by the pandemic or have been revealed by this crisis as urgent and under-attended priorities. The common thread among the themes is that progress in these areas is essential to ensuring that all people have the financial tools needed to improve their lives and to prosper.
<h2>Financial Services to Respond to the Risks of Climate Change</h2>
Just as the pandemic’s effects have been most severe on those who were already the most vulnerable, so too are the effects of climate change. Low- and moderate-income countries (LMICs) in the Global South are likely to experience longer, hotter heat waves and more extreme storms which in turn will create income loss, food insecurity, adverse health effects, and displacement that will hit already-vulnerable LMIC populations hardest.
<blockquote>Financial services are an indispensable tool to help prepare for climate-related shocks and recover.</blockquote>
CFI recognizes that climate change is ultimately an issue requiring long-term systemic changes to entrenched patterns of production and consumption. In the short term, however, financial services are an indispensable tool to help low-income vulnerable people prepare for climate-related shocks and recover from them when they happen. Our work in this theme will focus on understanding what those people need and the constraints they face, uncovering product innovations that can help, and then pilot testing such innovations and scaling-up lessons learned.
<h2>Women’s Financial Inclusion</h2>
Around the world, in many different geographies and socioeconomic contexts, women occupy a “last in, first out” position of vulnerability. The fall-out from the pandemic has made this abundantly clear. Whether it is a workplace where the more recently hired woman is let go before the more senior man, or a financial system that only prioritizes women’s needs when times are good, women’s economic inclusion is seen as a nice-to-have rather than a must-have. Women’s financial inclusion is powerfully shaped by broader societal norms, the unspoken assumptions and values governing men’s and women’s roles. CFI believes that efforts that focus solely on process fixes or product design will not succeed in women’s financial inclusion unless those efforts also seek to transform, rather than merely acknowledge, the underlying norms.

Our work in this area will accordingly include an intensive focus on research into successful norms-transformative initiatives, and how those might be scaled up. We will also work to improve the digital and financial capability of subsegments of women customers, and to influence the policy environment for women’s financial inclusion.
<h2>Data Risks and Opportunities</h2>
The pace of change created by the technology revolution is much faster than law, policy, or social mores can match. Although data privacy and protection regimes have begun to emerge, especially in wealthy countries, data by its nature is universal. To date, there is no universal framework setting forth who even owns personal data, much less governing how it can be used, by whom, and under which circumstances. The COVID-19 pandemic has provided a powerful illustration of both the risks and the opportunities of digitized data. The public health benefits of documenting and following diagnosed COVID-19 cases, and of tracing patients’ contacts, are obvious. But the risks to patients of stigmatizing, discrimination (whether of access to insurance, housing, employment, or otherwise), and other abuses are also very real.

Similarly, in financial services, data is the key that can unlock access to a full range of personalized, effective products that can help low-income people achieve their goals. The risk is that many LMICs have no effective consumer data protection regimes in place and that even where those exist, people with low levels of digital and financial sophistication may, in their eagerness to receive financial services, sign away their rights without even fully understanding them.
<blockquote>CFI will focus on means to bring transparency to data practices in DFS.</blockquote>
CFI’s work in this area will focus on means to bring transparency to the data practices of digital financial service (DFS) providers. We will also study how financial service providers use algorithms, which can be biased against already-underserved populations, in automated decision-making. We will monitor emerging frameworks around the world to document what does and does not work to advance financial inclusion while safeguarding data privacy, portability, and other consumer rights.
<h2>Consumer Protection in the Digital Economy</h2>
As the inclusive finance landscape evolves, so too must the approaches to consumer protection. Social platforms, ecommerce giants, fintechs, and pay-as-you-go providers are all relatively recent entrants into the field, and this means a multi-pronged approach is necessary to ensure safe practices are the norm. This is especially true since many of these business models fall beyond the scope of existing banking regulation. Consumer protection is an evergreen challenge, and one where CFI has long been active.
<blockquote>Consumer protection is an evergreen challenge.</blockquote>
We plan to devote intensive study to the practice of government-to-person (G2P) digital cash transfers, since these are often the on-ramp to digital financial services for low-income populations. We want to understand the risks that digitized G2P transfers present and how governments are mitigating those risks. We also want to document innovations around redress of grievances, financial capability-building add-on services, resolution of connectivity issues, and other relevant lessons learned.

In addition, CFI will partner with regulators and supervisors to test new technologies, such as chatbots or algorithmic audit tools, that can allow supervisors to be in direct dialogue with consumers, without consumer voices being mediated via the financial service providers. Such a dialogue can ultimately improve customers’ experience with financial services and democratize the financial sector by involving customers in the development of financial sector policies. To date, much of the recent work in regulatory technology (RegTech) and supervisory technology (SupTech) has prioritized the data reporting and compliance, but CFI believes its potential for advancing consumer protection has been underappreciated.
<h2>Conclusion</h2>
CFI developed its three-year strategic plan by weighing the needs of the inclusive finance industry against what we see as our own comparative advantages. We recognize that the four thematic priorities we intend to pursue are not an exhaustive list of everything that needs to happen to ensure positive outcomes for low-income people, and we also recognize that other individuals and organizations are doing excellent work in the areas we intend to pursue. We look forward to collaborating with all stakeholders who share the vision of a world where all people are able to equitably participate in the economy and are able to use financial tools to improve their lives and to prosper.

We hope you will participate in the rest of Financial Inclusion Week, which is packed with amazing speakers, events and activities. And, we want to hear from you. Please participate and tell us what you think about CFI’s thematic priorities.



Reflecting on the Past and Charting a New Direction

The economic crisis brought about by the COVID-19 pandemic is disproportionally impacting small businesses and low-income households. While there is emerging evidence about how individuals and MSMEs have been impacted by COVID-19, the impact on the providers that serve these customer segments is less clear, particularly when tech-enabled providers play an important role in mitigating the economic impacts of the pandemic for households and businesses by <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/PFFIEA.pdf" target="_blank" rel="noopener noreferrer">deploying services quickly and efficiently</a>. Additionally, fintechs are well-suited to <a href="https://www.consultancy.eu/news/4523/covid-19-crisis-also-an-opportunity-for-fintechs-says-bcg" target="_blank" rel="noopener noreferrer">bounce back</a> and reorient themselves in times of crisis given their <a href="https://www2.deloitte.com/us/en/pages/financial-services/articles/beyond-covid-19-new-opportunities-for-fintech-companies.html" target="_blank" rel="noopener noreferrer">agile nature</a>. However, in order to determine how best to support fintechs, more information is needed to understand how these providers have adapted to a challenging economic landscape.

To understand more about the impact on and the role of these providers, CFI, in partnership with the <a href="https://scbf.ch/" target="_blank" rel="noopener noreferrer">Swiss Capacity Building Facility</a>, conducted research to understand fintechs’ early adaptation and coping models under COVID-19. This brief draws findings from the <a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50</a> applicant data coupled with key informant interviews with investors and fintechs conducted in March 2020. During June and July 2020, 403 early-stage fintechs (Figures 1 and 2) applied through a publicly available online form that gathered data related to target market, financials, product details, as well as seven COVID-19-specific questions exploring changes in fintechs’ business and operating models between December 2019 and May 2020. The findings also include COVID-19 survey findings from six 2019 Inclusive Fintech 50 winners.
<h4>Inclusive Fintech 50 Sample Distribution
Figure 1. Inclusive Fintech 50 Distribution by Product Category</h4>
<img class="alignnone size-large wp-image-40001" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/Table-1-v3-1024x627.png" alt="" width="1024" height="627" />
<h6>N = 409
Note: Infrastructure includes a fintech whose main business is to provide processes and tools that enable multiple types of financial services such as credit, payments, insurance, and personal wealth management.</h6>
<h4>Figure 2. Inclusive Fintech 50 Distribution by Fintech’s Operating Country</h4>
<img class="alignnone size-large wp-image-40002" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/10/Table-2-v3-1024x671.png" alt="" width="1024" height="671" />

The findings show these early-stage fintechs innovated rapidly to meet the changing needs of their customer base, while simultaneously reconfiguring operating models, internal policies, and growth strategies. Importantly, the findings present clear opportunities for investors to play a central role in expanding financial services to the underserved through these critical providers.<strong> </strong>

Findings from our research reflect five key takeaways:
<ol>
 	<li><strong>Fintechs are operationally resilient.</strong> Fintechs are maintaining a cash buffer and employing diverse strategies to keep their staff on board.</li>
 	<li><strong>New partnerships.</strong> The pandemic is enabling early-stage fintechs to increase their business opportunities by creating new partnerships with banks, government, and non-governmental organizations (NGOs) that need to digitize their services.</li>
 	<li><strong>New approaches to customer acquisition.</strong> Early-stage fintechs are employing digital delivery channels like platforms to increase uptake.</li>
 	<li><strong>New products and product changes.</strong> Early-stage fintechs are pivoting products to meet client needs. Payments and — surprisingly — savings and financial management fintechs grew their services between December 2019 and May 2020.</li>
 	<li><strong>New funding sources:</strong> Almost all of the fintechs have had to change their fundraising strategies in light of COVID-19, mainly diversifying their funding base.</li>
</ol>
While fintechs have shown resilience by innovating and evolving their offerings in the wake of the COVID-19 crisis, their biggest need remains access to capital in order to continue innovating.

Rapid Innovation: How Fintechs are Adapting Under COVID-19

Around the developing world, the use of mobile technology for financial services is skyrocketting. In Africa, the value of mobile money transactions has grown over <a href="https://qz.com/africa/1721818/africa-mobile-money-industry-is-entering-its-next-stage-of-growth/" target="_blank" rel="noopener noreferrer">890 percent since 2011</a>. App-based lenders in Kenya, Uganda, and elsewhere claim to leverage more than 10,000 data points as part of their <a href="https://www.mitpressjournals.org/doi/abs/10.1162/inov_a_00240" target="_blank" rel="noopener noreferrer">underwriting processes</a>, (though consumers are largely <a href="https://digital.hbs.edu/platform-digit/submission/tala-using-machine-learning-to-provide-access-to-credit-for-the-worlds-unbanked/" target="_blank" rel="noopener noreferrer">unaware of what data is being collected</a> from them). In Myanmar, where 20 years ago SIM cards cost $5,000, today, more than 75 percent of the population own (mostly) smartphones, and mobile money provider <a href="https://www.wavemoney.com.mm/wp-content/uploads/htd_Wave-Money-cements-mobile-money-leadership-with-stellar-2019-results-_FINAL.pdf" target="_blank" rel="noopener noreferrer">WAVE Money</a> has reached more than <a href="https://medium.com/@geoffcharles/from-zero-to-40-million-the-rise-of-digital-payments-in-myanmar-2499b488f871" target="_blank" rel="noopener noreferrer">17 million unique users</a>.

Consumers have had to adjust rapidly. For many, their first experience with financial services asks them to contend with new digital interfaces, complex products, nefariously creative forms of fraud, and detailed regulations with rights and responsibilities they <a href="https://gdpr-info.eu/" target="_blank" rel="noopener noreferrer">may not understand</a>.

This is not just a developing-world issue, of course. Carnegie Mellon researchers found that it would take the average American more than 76 working days annually to <a href="https://techland.time.com/2012/03/06/youd-need-76-work-days-to-read-all-your-privacy-policies-each-year/" target="_blank" rel="noopener noreferrer">fully read the privacy policies</a> they encountered on the internet. Underserved customers also often do not have actual people to engage with on <a href="https://customersguide.cgap.org/sites/customersguide.cgap.org/files/resource/2018/07/CGAP-Voice-of-Customer-Toolkit.pdf" target="_blank" rel="noopener noreferrer">questions, complaints, or feedback</a>.

This context served as the backdrop for CFI, in partnership with the Mastercard Foundation, to build and test a toolbox of consumer engagement channels to surface challenges clients face as financial services go digital. From <a href="https://centerforfinancialinclusion.org/clients-deserve-to-know-using-radio-to-educate-and-empower-consumers-in-africa/" target="_blank" rel="noopener noreferrer">radio campaigns</a> and client surveys to digital recourse channels for regulators and industry associations, these projects provided a set of valuable lessons about the increasing complexity of the sector and steps we must take to protect the well-being of customers. As the Smart Campaign winds down, CFI is reflecting on these lessons to inform the next stage of our consumer protection agenda.
<h2>Tailor Your Tools to Clients, Then Tailor Them Again</h2>
When done well, digital interactions with customers – whether it be financial products or surveys or other forms of communication – can provide immense value to both customers and providers. We learned from clients about the critical importance of being customer-centric in the design of these interactions. Investing in design upfront leads to better outcomes for all stakeholders, but most importantly, it can protect customers from negative consequences.

In our <a href="https://centerforfinancialinclusion.org/client-voices-rwandans-speak-on-digital-financial-services/" target="_blank" rel="noopener noreferrer">client survey on mobile money in Rwanda</a>, while most people reported that mobile money interfaces are easy to use, they worry that it’s also easy to make a mistake. Sixty-nine percent of clients believed it was easy to make a mistake and 17 percent have made an error. One issue is language: clients may select the wrong default language to begin with (English instead of Kinyarwanda, in our research in Rwanda, for instance), or even after selecting Kinyarwanda find that the language switches unexpectedly. Fear of making a mistake might be a disincentive for some users to engage with digital products, or worse, actually making a mistake could result in loss of funds or instances of fraud.

CFI also worked with three FSPs and the <a href="https://cma-network.org/" target="_blank" rel="noopener noreferrer">Cambodia Microfinance Association</a> to design and implement a survey, using the interactive voice response (IVR) method, with the goal of hearing directly from clients about the FSPs’ client protection practices. From the outset, we knew that precision in the survey’s language would be integral for the project’s success. But even with this expectation, we were surprised by how much it took to get it right. As my colleagues <a href="https://centerforfinancialinclusion.org/amplifying-client-voices-using-interactive-voice-response-ivr-technology-insights-from-cambodia/" target="_blank" rel="noopener noreferrer">pointed out in a CFI blog post</a>, pre-launch testing showed that while the Khmer jargon used in the survey was well-understood among microfinance staff, clients would either ask for help or skip questions altogether. Moreover, my colleagues observed that intonation and speech tempo of the voice talent behind the IVR recording made a significant difference in respondents’ successful completion of the survey. Seemingly small details such as this can easily prevent a project from achieving the intended results, further emphasizing the importance of upfront product design and testing with clients (not just MFI staff) before roll out.

In our <a href="https://www.centerforfinancialinclusion.org/clients-deserve-to-know-using-radio-to-educate-and-empower-consumers-in-africa#ghana:-you-deserve-to-know-campaign" target="_blank" rel="noopener noreferrer">Ghanaian radio campaign</a>, we partnered with local designers to create posters and animated videos to promote the broadcasts. For example, for the themes of fraud and privacy, we had a cartoon in Twi, the language spoken by over 10 million Ghanaians, depicting what happens when a family is called by a scammer (the family figures it out before they lose any money, fortunately). Our approach initially was to create purely educational social media content to drive listenernship, but we found more success with an edutainment approach, with the lively cartoons amplified by paid advertisting on Twitter and Facebook. In this case, it was important for the team to quickly learn from consumers what resonated and lean into that approach rather than simply stick with the original plan.
<h2>Fraud’s Digital Inroads</h2>
Financial fraud is <a href="https://www.cbsnews.com/media/top-14-financial-frauds-of-all-time/" target="_blank" rel="noopener noreferrer">nothing new</a>, but there are characteristics unique to digital finance that give it renewed virulence. These include less face-to face interaction between consumers and providers, a larger burden on clients to conduct transactions independently, and a wider network of entry points for fraudsters to gain access to clients’ data and scale their schemes.

Indeed, fraud was top of mind among partners and consumers in all of the markets where we implemented projects. In Rwanda, 39 percent of the clients surveyed perceived mobile money fraud to be a big problem and 10 percent reported being defrauded themselves. These frauds resulted in real financial harm for individuals, and we were troubled by how few were able to report it to authorities. One victim reported that the perpetrator claimed to be part of the Girinka “One Cow Per Poor Family” program and even invoked the involvement of Jeannette Kagame, First Lady of Rwanda, to gain the client’s trust.

In Uganda we heard of schemes including PIN fraud and false text messages stating users won a competition and would need to send a fee to claim a prize. Through a mix of dramatic storytelling, local reporting, expert interviews and social media public service announcements (PSAs), our three radio campaigns tried to impart on listeners how to distinguish fraudulent institutions from real ones and how to recognize mobile money scams.

The pervasiveness of fraud (especially digital) highlights real gaps in client capability. Schemes show that clients need a greater understanding of privacy risks and continued awareness campaigns about how to protect themselves as fraudsters evolve their tactics. We also found the burden of reporting fraud needs to be reduced to meet the constraints of this lower-income segment since opportuntiy costs for this group are steep.
<blockquote>Leveraging technology for consumer protection has great potential to meet consumer protection challenges.</blockquote>
Leveraging technology for consumer protection has great potential to meet these challenges, with, for example, chatbot-powered complaints management system. In this <a href="https://www.r2accelerator.org/chatbot-prototype-1" target="_blank" rel="noopener noreferrer">use case</a>, which has already been tested in markets like the Philippines, all actors could benefit - from the central bank to financial service providers to the consumers. Access to new quantitative and qualitative information can enable regulators to better understand customer experiences and more easily detect fraud in the market. We are eager to identify, test, and document more use cases around the use of technology to improve market monitoring and consumer protection.
<h2>Empowerment Comes from Long-Term Client Engagement</h2>
While we are excited by what CFI accomplished with the radio campaigns, we know that the length of the interventions, which ranged from six to 13 weeks, were likely not enough to catalyze long-term behavior change. However, we designed the radio campaigns with partners whom we hoped could continue to distribute and air the episodes and media content. In both Uganda and Ghana, government entities expressed interest in continuing to run the content. In Benin, we used a decentralized approach of training 19 radio journalists on the key client protection market issues, then managed a competition to see who could create the best educational content. The journalist competition allowed us to multiply our outreach efforts in a cost-effective, sustainable way.

With the Client Voices research, we worked closely with the National Bank of Rwanda (BNR) research unit in the hopes of embedding data collection as a regular occurance and not a one off, which they are currently exploring, though at a smaller scale. In Cambodia, the objective for the IVR was to pilot an effective tool for MFIs and others to take the pulse of their clients on an ongoing basis. Over the course of the project, we recognized that providing such feedback can have significant (and in our case unanticipated) cost implications for low-income households. For this reason, we had to reexamine the programing of the platform so that clients would not incur any charges for airtime used when they called in to complete the survey.
<h2>Looking Ahead: CFI Strategy &amp; Impact</h2>
CFI’s experience with client engagement under the Smart Campaign yielded several valuable lessons. First, engaging clients in the design and testing of any digital tool is essential to ensuring that the product features and safeguards work for them. Client engagement also helps providers prioritize what’s most helpful and rout out anything harmful, ideally in the design stage before any harm actually occurs. Second, direct client feedback should not be considered a one-time occurance during product design. Ongoing engagement can provide valuable lessons and ensure that client needs are being met. Finally, digitization has introduced an era of rapid change, made only more extreme by the impacts of the COVID-19 pandemic. We must be poised to listen to clients, and quickly adapt as needed to fulfill our commitment to the <a href="https://centerforfinancialinclusion.org/about/what-we-do/consumer-protection/" target="_blank" rel="noopener noreferrer">Client Protection Principles</a>.
<blockquote>CFI is incorporating these lessons across our work as we seek to understand the impact of COVID-19 on low-income customers.</blockquote>
CFI is incorporating these lessons across our work as we seek to understand the impact of COVID-19 on low-income customers. For example, we launched a series of policy papers examining policy measures to mitigate the impact of COVID-19 and understanding their impact on low-income customers. We are also collecting data on the impact of COVID-19 on MSMEs to help inform providers, investors, and policymakers about the depth and breadth of the impact on low-income customers. As the world faces unprecented times in the wake of COVID-19, we will continue to listen to customers and adapt our work. The customer voice — and engaging them at every step — is crucial for advancing financial inclusion, perhaps now more than ever.

<em>We’d like to thank the <a href="https://mastercardfdn.org/" target="_blank" rel="noopener noreferrer">Mastercard Foundation</a> for partnering with us on this journey.</em>

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Making Digitization Work for Clients Starts With Client Engagement

When CFI <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/09/Ten-Years-of-Keeping-Clients-First-Final.pdf" target="_blank" rel="noopener noreferrer">launched</a> the Smart Campaign in 2009, global financial upheaval had revealed huge cracks in financial consumer protections around the world, including <a href="https://www.centerforfinancialinclusion.org/2009-microfinance-banana-skins-report" target="_blank" rel="noopener noreferrer">new challenges</a> for the inclusive finance sector. A lack of comprehensive consumer protection regulation covering microfinance institutions across the globe put vulnerable clients at risk. The industry faced inconsistent regulations at the country level and did not have a globally accepted framework describing appropriate consumer protection from the provider perspective. Steeped in an <a href="https://www.huffpost.com/entry/on-microfinance-whos-to-b_b_777911" target="_blank" rel="noopener noreferrer">over-indebtedness crisis</a> that threatened both the operations and reputations of microfinance institutions, the industry had an imperative to accelerate and amplify its individual consumer protection actions.

The <a href="https://centerforfinancialinclusion.org/about/what-we-do/consumer-protection/" target="_blank" rel="noopener noreferrer">Client Protection Principles</a> emerged as a shared set of responsible financial inclusion guidelines that would become the bedrock of the Client Protection Standards and <a href="https://centerforfinancialinclusion.org/about/what-we-do/certified-organizations/" target="_blank" rel="noopener noreferrer">Smart Certification</a>, and the infrastructure needed to support the implementation of good consumer protection practices: technical know-how through a community of experts and tools, access to funding through support facilities, and evaluations and capacity building for both providers and regulators. Since 2013, when CFI began certifying financial service providers (FSPs) that met adequate standards in their treatment of clients, 135 institutions in over 40 countries have earned Smart Certification, collectively serving over 62 million people. We also conducted over 120 trainings and 300 assessments, produced hundreds of tools for FSPs, and hosted convenings for thousands of financial inclusion professionals around the world, all part of a <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/09/Ten-Years-of-Keeping-Clients-First-Final.pdf" target="_blank" rel="noopener noreferrer">multi-pronged strategy</a> to raise awareness about the importance of consumer protection and improve providers’ practices.
<blockquote>Smart Certification has been awarded to 135 institutions serving 62 million people in 40 countries.</blockquote>
A cohesive landscape of investors and providers facilitated collaboration, enabled the uptake of certification, and created conditions in which clients could better access a range of financial services with confidence. Providers were <a href="http://smartcampaign.org/tools-a-resources/1172-consumer-protection-resource-kit" target="_blank" rel="noopener noreferrer">motivated</a> to undergo evaluations and seek certification in order to differentiate themselves as responsible actors, strengthen internal processes, attract investors, and improve relationships with regulators. <a href="https://responsiblefinanceforum.org/investor-guidelines/" target="_blank" rel="noopener noreferrer">Investors</a> adopted components of the standards into their due diligence and social impact assessments. Regulators have relied on our <a href="https://blogs.worldbank.org/psd/model-law-best-practice-financial-consumer-protection-important-driver-universal-financial-access" target="_blank" rel="noopener noreferrer">Model Legal Framework</a> (now known as the <a href="https://centerforfinancialinclusion.org/handbook-on-consumer-protection-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">Handbook on Consumer Protection for Inclusive Finance</a>), which was recently updated for digital financial services. Regulators also used CFI’s <a href="https://centerforfinancialinclusion.org/client-protection-in-peru/" target="_blank" rel="noopener noreferrer">research</a> to design policies that balance client risk and market sustainability while taking the voices of both providers and clients into account. (For more resources and past consumer protection knowledge products, visit the Smart Campaign <a href="https://centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign/" target="_blank" rel="noopener noreferrer">project page</a> on the CFI website.)
<h2>Changing Times Raise New Concerns for Client Protection</h2>
New actors, fintechs, and their investors are launching ventures aimed at serving unbanked and underbanked customers, hoping to use technology to scale their offerings beyond the reach of physical branches. Fintechs have entered the ecosystem at a rapid rate, particularly in growing markets, such as <a href="http://www.nairobibusinessmonthly.com/impact-of-fintech-on-kenyas-financial-services-industry/" target="_blank" rel="noopener noreferrer">Kenya</a> and <a href="https://www.techinasia.com/talk/state-fintech-cambodia" target="_blank" rel="noopener noreferrer">Cambodia</a>. Some of these companies have emerged under a loose banner of “inclusive fintech,” but many new entrants have different motivations and experiences than the providers that have traditionally sought to provide financial services to low-income customers. Fintechs that aim to serve this vulnerable segment may have good intentions, but many are also driven by different forces, including pressure to scale quickly in competitive markets, and commercial investors that are motivated more by returns than by development goals. As financial inclusion slogans increasingly appear in the <a href="https://www.bloomberg.com/news/features/2020-02-12/tech-startups-are-flooding-kenya-with-apps-offering-high-interest-loans" target="_blank" rel="noopener noreferrer">lexicons of fintechs</a>, these companies are largely unaccountable for their claims and, as non-bank entities, do not fall under existing consumer protection regulations.

Of course, many fintechs have genuine ambitions to advance inclusive finance and want to do everything in their power to prevent harm to their clients. Yet they face limits in what they can control due to fragmentation of the financial product delivery value chain. For instance, one credit product might involve an array of different companies: one that designs the credit model, another company contracted for collections, a bank that provides the capital, and the mobile network operator (MNO) that controls the digital rails. Because of this fragmentation, FSPs can find themselves as deal takers with limited influence over the practices of some partners.
<blockquote>Fintechs face limits in what they can control due to value chain fragmentation.</blockquote>
The new landscape compounds the challenges faced by regulators to improve consumer protection measures. Consumer protection is higher on the agenda than ever, as evidenced by findings of the annual <a href="https://centerforfinancialinclusion.org/global-microscope-2019/" target="_blank" rel="noopener noreferrer">Global Microscope</a>, an index that assesses the enabling environment for financial access in 55 countries across the globe, and the agenda set by the <a href="https://www.afi-global.org/" target="_blank" rel="noopener noreferrer">Alliance for Financial Inclusion</a> (AFI). Nonetheless, the progress that many countries have made to bolster consumer protection regulations and enforcement does not apply to new digital business models – either because these non-bank, non-microfinance entities fall outside current frameworks or because regulation has not yet addressed risks unique to digital financial services.
<h2>Building a Responsible Digital Ecosystem</h2>
As the inclusive finance ecosystem fragments and becomes more complex, CFI will shift its approach from codes of conduct and provider certification to focus on regulation, market conduct, and consumer research. With the <a href="https://centerforfinancialinclusion.org/cfi-celebrates-smart-campaigns-advancement-of-consumer-protection-announces-plans-to-transition-resources-to-industry-partners/" target="_blank" rel="noopener noreferrer">closure of the Smart Campaign</a>, our partners, SPTF and CERISE, will manage the Client Protection Standards going forward as a part of the Universal Standards for Social Performance. CFI will continue to manage the Client Protection Principles, which we believe can form the base of a shared language to understand consumer risks across the range of inclusive finance providers. CFI will continue to collaborate by engaging in research and learning that can be translated by our partners into practical tools for FSPs.
<blockquote>CFI will continue to collaborate by engaging in research and learning that can be translated into practical tools for FSPs.</blockquote>
To begin addressing the digitalization of financial services for the poor and the increasing complexity of the sector, CFI conducted <a href="https://centerforfinancialinclusion.org/a-framework-for-responsible-digital-credit/" target="_blank" rel="noopener noreferrer">research on digital credit</a> (including the <a href="https://centerforfinancialinclusion.org/client-protection-standards-for-digital-credit/" target="_blank" rel="noopener noreferrer">Client Protection Standards for Digital Credit</a>) to provide digital lenders with a shared set of criteria to assess their practices. CFI convened researchers, investors, and providers to discuss and debate good practices. These consultations revealed the following lessons:
<ul>
 	<li><strong>The relative importance of the Client Protection Principles are shifting in a digital world. </strong>Principle Six (Privacy of Client Data) has become a key consideration, while Principle Five (Fair and Respectful Treatment of Clients) may look vastly different when a business model leans toward tech over touch.</li>
 	<li><strong>Protection by design better aligns with fintech's faster product development and deployment cycles</strong>. Previously, the CPPs looked at established products and institutions, but the pace at which fintech products are brought to market and refined based on customer use shifts attention to the product development cycle as a crucial opportunity to embed client protection.</li>
 	<li><strong>Consumer protection needs an awareness boost</strong>. The Smart Campaign put consumer protection on the radar of FSPs by raising awareness of unintended consequences and convening stakeholders to identify practical solutions. It’s time to open this conversation to new investors and providers that are concerned about alarming trends in markets like <a href="https://centerforfinancialinclusion.org/red-flags-in-kenyas-nano-credit-market/" target="_blank" rel="noopener noreferrer">Kenya</a>, for example, to raise awareness again. In a rapidly evolving digital financial system, it is more important than ever to anticipate, understand, and catalog risks to consumers -- activities that will form the basis of CFI’s consumer protection agenda going forward.</li>
</ul>
<em>We’d like to thank the <a href="https://mastercardfdn.org/">Mastercard Foundation</a> for partnering with us on this journey.</em>

&nbsp;

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&nbsp;

FSPs Adopt Client Protection: A Look Back, A Look Ahead

<h1>Why Consumer Rights and Responsibilities?</h1>
The <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> provide a common framework for financial service providers (FSPs), policymakers, and clients to better understand and discuss consumer protection issues. While much of the Center for Financial Inclusion’s (CFI) work with the financial inclusion industry has focused on providers and regulators, there is a third crucial constituency: clients.

Client awareness and capability is a critical component of effective financial consumer protection. Clients have the right to demand fair treatment and lodge complaints with government authorities, but these rights mean little if they don’t know what constitutes lawful treatment or how to access complaints channels. Similarly, clients play a role in protecting themselves by practicing behaviors to maintain their privacy and safety. While FSPs can institute protective processes and regulators can craft policy safeguards, improving client awareness of their rights and responsibilities helps consumers play their part to support a sustainable financial system.

This report provides lessons learned from initiatives in Ghana, Uganda, and Benin to raise consumer protection awareness among clients through multimedia campaigns, digital tools and other outreach strategies. It covers country-specific consumer protection issues and the individualized campaigns to address these issues. We also offer five key takeaways to help inform future client protection and empowerment awareness building activities.

Clients Deserve to Know: Using Radio to Educate and Empower Consumers in Africa

On the second day my son’s preschool was closed in Rome due to the coronavirus, a <a href="https://www.reuters.com/article/us-health-coronavirus-fed-dollars/fed-quarantines-us-dollars-repatriated-from-asia-on-coronavirus-caution-idUSKBN20T1YT">headline</a> out of the U.S. caught my eye: “Fed quarantines U.S. dollars repatriated from Asia on coronavirus caution.” I imagined a huge cartoon stack of dollar bills with face masks on, languishing inside a bank vault. My second reaction was to realize the profound implications the coronavirus would have for the use of cash and the many millions who rely on the cash-based economy.

While there is fear over cash as a vector of COVID-19, and while some viruses can indeed survive for hours or days on banknotes and coins, public health officials and scientists believe that cash itself is less likely a source of transmission compared to other surfaces we come into contact regularly, like POS devices or ATM pin pads. In fact, the Bank of International Settlements <a href="https://www.bis.org/publ/bisbull03.pdf">recently noted</a> that there have been no known cases of COVID-19 spreading via cash or coins.

However, wrapped up in this concern is the context that cash-based transactions occur in-person and in close physical proximity, and the reality that person-to-person is the primary transmission channel for COVID-19. As a result, many governments, multilateral organizations and private-sector players are calling for and actively incentivizing an expedited pace of digitization for their economies and payment ecosystems.

In Kenya, for instance, the <a href="https://www.centralbank.go.ke/uploads/press_releases/2125980791_Press Release - Emergency Measures to Facilitate Mobile Money Transactions.pdf">Central Bank</a> rapidly issued new rules for mobile money such as removing fees for small-value transactions, increasing transaction limits, increasing mobile money wallet limits and removing transfer charges between bank accounts and mobile wallets. The Bank of Ghana (BoG) recently loosened know your customer (KYC) restrictions for mobile subscribers to <a href="https://www.weforum.org/agenda/2020/04/coronavirus-set-to-spur-mobile-money-growth-in-w-africa">open a mobile wallet and transfer up to 1000 cedis</a> (around $170).

There is proven potential for digital finance – both in the immediate management of the COVID-19 pandemic, and in the <a href="https://science.sciencemag.org/content/354/6317/1288">longer run</a>. In times of crisis when temporary employment is required by the government, the rapid digitization of wages can be a health and economic boon. The Better Than Cash Alliance conducted a study on the use of digital payments to pay the wages of health workers fighting the Ebola outreach in Sierra Leone. They found that the <a href="https://www.betterthancash.org/news/blogs-stories/putting-digital-payments-to-work-in-the-time-of-covid-19">efficiency and timeliness of digital wages saved the loss of 800 working days of health workers</a>, which surely saved lives. And impressively, the Sierra Leone government digitized the wages of 30,000 health workers in two weeks! And cash transfers by governments or other actors, a literal lifeline during a pandemic where income has dried up, are made <a href="https://blogs.worldbank.org/voices/responding-crisis-digital-payments-social-protection-short-term-measures-long-term-benefits">infinitely easier through digital channels</a>.
<blockquote>It's not hard to imagine governments pushing for rapid digitization to protect their populations from illness and create apertures for economic activity.</blockquote>
So should we prepare ourselves for an inevitable, even faster stampede towards digital finance? It is not hard to imagine governments pushing for rapid digitization with the good intentions of both protecting their populations from illness and creating (much needed) apertures for economic activity.
<h2>Keeping the Consumer in Mind</h2>
But we must keep in mind the consumer. For CFI, our focus is squarely on the vulnerable at the bottom of the pyramid.

And we have a few concerns. Hastily planned, rushed edicts to digitize will harm the poor. In November 2016, the government of India surprised the world by announcing the immediate invalidation of Rs 500 and Rs 1000 notes, ostensibly to curb corruption and push for digitization. The aftermath was bedlam: the country’s <a href="https://www.vice.com/en_ca/article/a3j5ng/india-discontinued-86-percent-of-its-circulated-currency-and-the-poor-are-in-crisis">200-plus million farmers were unable to buy seeds</a> and other inputs, businesses sputtered through shocks in revenue, the rural poor traveled miles (at the cost of their daily wages) to wait on interminably long lines to exchange their bank notes, while better off citizens would hire someone to stand in line for them through a service called Book My Chotu. And one year out, while digital transactions did <a href="https://www.weforum.org/agenda/2017/11/a-year-after-india-killed-cash-heres-what-we-can-learn">rise</a> immediately after demonetization, growth slowed each subsequent month. This is not to say that rapid onboarding is impossible – see the Sierra Leone example – but rushed, fear-based policies are ill-advised and will do more harm than good.

Digital natives take for granted their comfort level in the shape shifting world of two-factor authentications, interfaces and apps (and more apps). While the march towards mobile money and digital finance has been steady, a stampede would leave many digital immigrants behind. Here in Italy, where our family has been living for nearly three years, we’ve read that many schools have struggled to transition online during the crisis. As <a href="https://www.newyorker.com/news/dispatch/what-italians-have-learned-from-the-coronavirus">noted</a> by an Italian journalist, “The reason for the delay is absurdly simple: many Italian teachers, and most principals, are old and never learned to use a computer properly, thinking that it would never become necessary.”
<blockquote>While the march towards mobile money and digital finance has been steady, a stampede would leave many digital immigrants behind.</blockquote>
Similarly, in a rush to digitize, we must be careful not to perpetuate a new kind of financial exclusion. Many rural villages have weak foundations to support robust digital finance, more than 1 billion people cannot read, write or understand the long number strings necessary to <a href="https://nextbillion.net/the-clear-blue-water-on-the-other-side-of-the-digital-divide/">transact on mobile phones</a>, and while more have smartphones, the devices and data plans are <a href="https://www.centerforfinancialinclusion.org/technology-inequality-opportunities-and-challenges-for-mobile-financial-services">still not affordable</a> to many low-income segments. As they seek to push for digitization, policymakers should have a comprehensive sense of their country’s “<a href="https://www.cariboudigital.net/wp-content/uploads/2019/01/Paying-Attention-to-the-Poor.pdf">digital repertoire</a>”, an approach which includes the network available, the capacity of devices being used, the market’s digital services, and the digital capability of individuals.
<blockquote>Policymakers should have a comprehensive sense of their country’s “digital repertoire.”</blockquote>
A related concern is fraud and scams in an environment where a pandemic is weighing on everyone’s minds, especially for digital immigrants. David Medine at CGAP has documented some of the <a href="http://cgap.org/blog/financial-scams-rise-coronavirus-hits-developing-countries?utm_source=ENGLISH_+Weekly_Update_%232_Apr_10_2020&amp;utm_campaign=English+COVID+Weekly+Update+%232&amp;utm_medium=email">abhorrent COVID-19 related scams</a>, both analog and digital, from fake emails from the WHO or CDC peddling treatments, to messages/calls from scammers pretending they are with a friend/family member at a hospital in need of payment. Beyond the immediate health crisis and the fears that scammers feed off, digital finance has a fraud and a fraud redress problem. At CFI, we are especially attuned to this, having done <a href="https://centerforfinancialinclusion.org/client-voices-rwandans-speak-on-digital-financial-services/" target="_blank" rel="noopener noreferrer">demand-side research in Rwanda</a> as well as anti-fraud educational campaigns via radio. We’ve learned how difficult it is for victims to report fraud and recover their balances.

These considerations are not to discredit digital finance as one of the most viable solutions for the near-term needs brought about by COVID-19, as well as long-term financial inclusion goals. Many of these issues have been raised for years in the broader context of responsible digital finance – but they take on added urgency in an environment where policies are being designed and rolled out quickly. Governments and stakeholders around the world can and must meet the moment through careful planning and communication, robust monitoring and feedback loops, picking the right experts and partners, and most of all, keeping the most vulnerable users in mind.

&nbsp;

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A COVID Digitization Stampede Mustn’t Trample Consumer Protection

CFI has begun the new year with many developments and shifts in our agenda. We have been working hard behind the scenes to position our strategy where inclusive finance can have an important role on issues that are most pressing for the lives of the poor. As we have been undertaking this strategy refresh – looking both internally and externally to identify what is critical for the inclusive finance field – we have identified several important areas of focus. At this juncture, we would like to share how our thinking is evolving with regard to our role and future focus priorities.
<h2><strong>First, we want to use this opportunity to relay our continued commitment to improved consumer protections for people at the base of the pyramid.</strong></h2>
CFI has been supporting the Smart Campaign for more than 10 years. This initiative has had many achievements, most notably, its role in defining a set of standards, the Client Protection Principles, which guide how providers adapt their internal practices and how regulators should think about consumer protection regulation and the tools they use to monitor market conduct. We expect to continue to evolve CFI’s work on consumer protection by expanding our research and analysis of how the digital economy is presenting new risks for consumers. We also plan on expanding our work with regulators on both regulation and market conduct.
<blockquote>Consumer protection in the digital economy will be a focus area for CFI research and analysis.</blockquote>
We anticipate Smart Campaign’s role will be that of an industry initiative: it will continue to be supported by the many actors that are part of that community. CFI’s role in the Campaign will be discussed in an upcoming steering committee meeting and will align with CFI’s broader strategic shifts.
<h2><strong>Second, we want to double-down on our advocacy role in protecting and empowering customers.</strong></h2>
We believe there are few organizations in the inclusive finance field that truly prioritize the customer voice and perspectives. Our role is doing just that. Over the years we have used many tools to listen to customers and have used these listening exercises to inform our policy recommendations and our consumer protection standards, and we want to continue to do this. In 2019, we published the Client Voice Rwanda which used surveys and focus groups to better understand Rwandans experiences with mobile money, and our ongoing work in Cambodia is testing IVR technology as a means of collecting client feedback. And we have tested many ways to share information with customers to improve their ability to make informed decisions. In the past year, we ran consumer awareness campaigns in Ghana, Benin, and Uganda using different engagement techniques, such as social media videos, radio dramas and interviews, and journalist competitions, to inform consumers about their rights and responsibilities when accessing financial services.
<h2><strong>Third, we want to elevate the work that will be most impactful on the poor: financial services that help the poor deal with and adapt to climate change, gender inequality, and data opportunities and risks.</strong></h2>
This shift does not mean we stop working with providers or on important market infrastructure issues. It means that given resource limitations, each institution that is focusing on inclusive finance needs to ensure that its focus areas have a direct line of sight on how this work will lead to improved outcomes for the poor. For CFI, we have identified three key areas of focus that we will add to our agenda to help us have a more impactful influence toward improved customer outcomes. These areas are doing additional research on how financial services can both reduce risks and help customers adapt to the reality of climate change, doing additional research and experimentation on how to address the remaining policy and norms barriers that impede progress on women’s participation in the formal financial system, and better understanding the risks and opportunities that the new digital economy and the use of data pose for customers and identifying innovative solutions for managing those risks through regulation, data practices by providers, and industry wide solutions.
<h2><strong>Finally, we want to refine our influence model to improve our impact.</strong></h2>
As an independent global think tank housed at Accion, we know we must continue to partner to have leverage. We want to continue to build partnerships with like-minded organizations to test new ideas, conduct research, share and advocate. As in the past, we strongly believe that collaboration is the key to improving our impact, and we will continue to work together to scale our learnings.
<blockquote>I am excited to see the opportunities that lay ahead for CFI and inclusive finance.</blockquote>
After a few months on the job, I am excited to see the opportunities that lay ahead for CFI and for the inclusive finance field and hope that you will be a part of this journey.

New Decade, New Focus Areas: CFI's Role in an Evolving Space

Isabelle Barrès

Former Vice President and Campaign Director, Smart Campaign

Mayada El-Zoghbi

Managing Director

Madeleine Longwell

Alexandra Rizzi

Lauren Braniff

Alex Kessler

Maha Khan

Simon Agez

Malacci Ohrt

Laura Schroeder

Sezgi Guler-Fuechec

Ethan Loufield

Shweta Vashisht

Jessica  Galimberti

North America

United States

Benin

Cambodia

East Asia and Pacific

Ghana

Myanmar

Sub-Saharan Africa

Uganda

Rwanda

Kenya

India

Latin America and The Caribbean

Peru

South Asia

Appropriate Product Design and Delivery

Challenges and Crises

Consumer Protection

Credit/Debit Cards

Enabling Environment

Payments

Privacy

Responsible Digital Finance

Client Treatment

Complaint Resolution

Alternative Data

Data Analytics

Financial Inclusion Strategy

Financial Technology

Delivery Channels

Digital Financial Services

Human Touch

Transparency

Trends

Underserved Groups

Women

Financial Service Providers

Fintechs

MSME/SME Finance

Smart Certification

Credit

Digital Credit

Financial Capability

Fraud

Policy, Regulation and Government Initiatives

Product Pricing

Telcos

Over-indebtedness

Governance

Report

Blog Post

Brief

Event

Webinar

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.

Recent research on the <a href="https://www.centerforfinancialinclusion.org/making-digital-credit-truly-responsible">state of the digital consumer credit market in Kenya</a> has documented breakneck growth in mobile lenders and alarming levels of defaults and delinquency. These findings, coupled with <a href="https://www.bloomberg.com/news/features/2020-02-12/tech-startups-are-flooding-kenya-with-apps-offering-high-interest-loans">anecdotal reports</a> of aggressive sales tactics, abusive debt collections, and unacceptable levels of debt stress, raise an enormous red flag regarding digital consumer credit’s potential for financial inclusion.

The promise of digital credit is to make people with no documented financial history visible to the formal financial system, helping low-income people gain access to loans and other financial products. Microcredit started out with a similar promise to help people move out of poverty, but the microfinance industry learned the hard way that good intentions are insufficient. After microcredit-fueled, <a href="https://www.cgap.org/sites/default/files/CGAP-Focus-Note-Growth-and-Vulnerabilities-in-Microfinance-Feb-2010.pdf">overindebtedness crises</a> spiraled out of control, the industry introduced protective measures and formal regulation followed in many countries. The red flags appearing in Kenya’s digital credit market are familiar, but a host of new players beyond traditional banks and microfinance providers may not recognize the signs of a looming crisis.
<h2>New Entrants, New Credit Models</h2>
New tech players are flooding into markets like Kenya to offer scalable models for faster and more accurate loan products backed by big data. Mobile app-based lenders use nontraditional data to provide near-instant credit decisions for loans ranging from the equivalent of $5 to $100. The algorithms at the core of these products rely on unverified, self-reported user information and data scraped from users’ mobile phones, including call logs, contacts, location, social media activity, and text messages. An inherent flaw in these models is that they are built on data reflecting a consumer’s willingness to repay rather than their ability to repay. This is a crucial distinction representing the difference between a client that is willing to skip meals or borrow from other lenders to repay the original loan and a client that can afford the loan without experiencing such debt stress. Repayment rates may appear acceptable, but this flaw in the model masks a brewing overindebtedness crisis as repayment rates don’t account for loan stacking or abusive debt collection practices.

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It’s Time to Protect Kenyans from a Digital Lending Laboratory

Last year was a huge milestone in my life. I got a scholarship to study at a prestigious graduate school in the U.S. I earned a promotion from a big four consulting firm in my home country. I felt like nothing could stop me.

Although I’m equipped with skills and knowledge to determine my financial future and work in the financial services field, my spouse managed our finances. We used a single credit card to make household purchases even though I participated in making payments on it. I had an excellent credit in my home country, but delayed establishing my own credit line in the U.S. because it was convenient to use a single credit card with a better APR. When my spouse and I decided to part ways, I realized that I underestimated the impact of not having a credit history in the U.S., so I had no access to affordable credit.

“We absorb a way of perceiving the world from parents and neighbors. We mimic the behavior around us. Only at the end of the process is there self-conscious oversight,” wrote David Brooks in a 2008 New York Times <a href="https://www.nytimes.com/2008/07/22/opinion/22brooks.html">opinion</a> piece. This was the case for me – and likely is for many immigrant women of different cultures – when it came to management of household economics. Contrary to the teachings of my debt-averse and underleveraged family back home, the “pursuit of happiness” in the U.S. is usually linked to one’s ability to borrow to pay for <a href="https://www.cnn.com/2019/04/02/health/health-care-costs-borrowing/index.html">healthcare</a>, education, a mortgage, or building a business. When the system doesn’t “trust” you, rebuilding a life isn’t easy.

So I went back to square one in this new country. It’s not hard to imagine that the impact would've been more dramatic if I had limited financial literacy, education or resources.
<h2>Is Trusting the “Credit Invisible” Possible? Enter Alternative Data.</h2>
The traditional credit scoring system excludes 26 million consumers with non-existent or short credit histories in the U.S. The <a href="https://www.americanbanker.com/news/fintechs-find-another-untapped-market-new-immigrants-needing-credit">gap</a> will likely increase with the growing trend in the demographics of the immigrant population in the United States, so alternative data has emerged as a way to rethink the indicators of credit worthiness to expand credit to the “credit invisible.” As the world becomes more interconnected and migration flows increase, several financial technology startups are seeking innovative solutions to tap into this market. Examples of this are a <a href="https://www.creditstacks.com/">credit card that doesn’t require a credit history</a> in the U.S., and <a href="http://www.novacredit.com">connecting international credit bureaus</a> with domestic institutions that enable expats to apply for products and services as well as helping them build a credit score.

Alternative data mainly includes unorthodox information such as consumer-permissioned financial data, online activities and rental payments. With the evolution of analysis, management and storage of big data, extremely large information sets that can be analyzed to reveal patterns, trends, and associations – especially relating to human behavior and interactions – startups, like the examples above, have started to develop and license automated scoring methodologies based on alternative data.

The use of alternative data considerably expands the universe of information available to lenders and CRAs (credit reporting agencies), enabling them to achieve a <a href="http://images.go.experian.com/Web/ExperianInformationSolutionsInc/%7B15855ffe-926b-4c59-a5a6-52fb5ed79cff%7D_2019StateofCreditData_whitepaper_web_01.pdf">holistic view</a> of their current and future customers, identify and prevent fraud, and assess a customer’s repayment capacity more efficiently. But is this always good for the consumer?

The promise to increase underserved individuals’ access to credit comes at a cost. The <a href="https://www.internetsociety.org/tutorials/your-digital-footprint-matters/">Internet Society</a> notes that every day, whether we mean to or not, we “contribute to a growing portrait of who we are online; a portrait that is probably more public than we assume” without knowing what kind of trail we’re leaving, and what the possible effects can be.

Recently, various consumer advocacy groups and the United States Government Accountability Office (GAO) have expressed concerns about data accuracy and privacy issues arising from the <a href="https://www.gao.gov/assets/700/696149.pdf">amount and sensitivity of the alternative data</a> collected and used by financial technology companies. The lack of transparency in the models, data sources and data analytics technologies are also criticized. Credit scoring companies treat their <a href="https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=1122&amp;context=yjolt">data sources as proprietary trade secrets</a>. If consumers are not aware of what specific information the credit scoring systems use and how it impacts their credit score, their ability to dispute unfavorable credit decisions, identify inaccuracies in the lender’s files and take remedial steps to improve their credit score is significantly limited.
<blockquote>How can consumers dispute credit scores if they don't know what data is in them?</blockquote>
Furthermore, credit scoring models are based on class attributes and underlying assumptions built into them by the developers, which remain undisclosed, and failure to use <a href="https://www.nytimes.com/2016/06/26/opinion/sunday/artificial-intelligences-white-guy-problem.html?mcubz=1">inclusive datasets</a> to facilitate the machine learning process may <a href="https://www.consumercomplianceoutlook.org/2017/second-issue/keeping-fintech-fair-thinking-about-fair-lending-and-udap-risks/">amplify and perpetuate existing social inequalities</a>.

In order to achieve meaningful access to financial services using alternative data, industry stakeholders need more guidance and regulations on data privacy, transparency and clarification of the scope of data that may be used for credit scoring purposes. Currently, <a href="https://www.federalreserve.gov/boarddocs/supmanual/cch/fair_lend_over.pdf">fair lending laws and regulations</a> prohibit the use of certain information such as race, color, religion and national origin that may result in lending discrimination. However, it’s unclear to what extent these regulations capture alternative data, as discrimination may occur indirectly or even in an unintended way depending on the type of data is being used and how the scoring model works. For example, even though data initially collected from consumers doesn’t infringe upon protected classes, aggregation of data may be <a href="https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=404003">used as a proxy</a> for a given protected class a consumer may fall under. This also increases the risk of vulnerable populations, such as the elderly in financial distress, being targeted for <a href="https://www.govinfo.gov/content/pkg/CHRG-113shrg95838/pdf/CHRG-113shrg95838.pdf">predatory marketing pitches</a> to sell financial products with unfavorable terms.
<h2>Current Legislative and Policy Efforts on Alternative Data</h2>
Although federal agencies have taken some <a href="https://files.consumerfinance.gov/f/documents/cfpb_interagency-statement_alternative-data.pdf">steps</a> to monitor the use of alternative data and encourage well-designed compliance management programs, existing guidance remains to be limited, according to the GOA. In 2019, there have been a few legislative efforts in Congress for regulating the use of alternative data in lending. However, the programmatic focus and the scope of alternative data that may be used in credit scoring were criticized to be narrow given the variety of use cases and the types of alternative data available to credit scorers and lenders.
Recently, Rep. Josh Gottheimer of New Jersey introduced a bill titled “<a href="https://financialservices.house.gov/uploadedfiles/bills-116hr____ih-accesstocredit.pdf">Accurate Access to Credit Information Act of 2019</a>” which amends the <a href="https://www.consumer.ftc.gov/articles/pdf-0096-fair-credit-reporting-act.pdf">Fair Credit Reporting Act</a> to ensure that CRAs are providing fair and accurate information reporting in consumer reports, and for other purposes. Similar to the previous bills that sought to expand access to credit through alternative data, the proposed amendments permit the CRAs to use rent or utility payment information, subject to certain limitations. The proposed legislation emphasizes finding a better way to create a big picture view of a consumer’s creditworthiness and new consumer habits. That makes sense in 2020: millennials, for example, are prone to being credit invisible because they prefer to rent instead of owning a house, use mobile ride hailing apps rather than leasing a car, and use mobile payment apps.

This isn’t just a pressing topic in the U.S., of course. The World Bank and CGAP have published a detailed <a href="https://www.gpfi.org/sites/gpfi/files/documents/Data_Protection_and_Privacy_for_Alternative_Data_WBG.pdf">discussion paper</a> on data protection and privacy for alternative data, identifying transparency, data privacy and discrimination risks to be addressed through policy guidance. Looking across our southern border, similar risks were spelled out by Banco de Mexico, who emphasized the potential reliance of lenders on reports obtained from alternative data providers as a substitute of credit reports. Mexico, which adopted a <a href="https://www.acc.com/resource-library/fintech-regulation-mexico-1">landmark piece of legislation</a> regarding financial technology, requires alternative data providers to comply with <a href="https://www.dlapiperdataprotection.com/index.html?t=law&amp;c=MX">data protection regulations</a>.

In Europe, information used by credit scorers such as social media data, app usage data and location intelligence will likely be captured by the General Data Protection Regulation, which regulates data permissions and lawfulness of the use as well as requiring robust IT security and safeguards, to the extent an individual can be identified based on alternative data (including identification with reverse engineering and the combination of various datasets).
<blockquote>Without data integrity, alternative data may not expand access to credit.</blockquote>
In the United States, efforts to regulate use of alternative data promise to increase consumer protection and facilitate financial inclusion. Because people develop technology and algorithms, they may also learn and reflect biases of their makers. To minimize the risk of discrimination and unfair outcomes, more transparency is needed from the credit scorers. Furthermore, without ensuring data integrity, it’s not realistic to expect alternative data to miraculously expand access to credit. In the absence of sound and uniform regulations on data privacy and laws on the fair use of alternative data, consumer protection risks outweigh benefits.

Alternative Data in America: Policy and Concerns

India is a global leader in financial inclusion. For over a decade, Accion has worked with and learned from India’s innovators, investors, and policymakers to expand economic opportunity for its people and businesses.

As more people are connecting to more financial services digitally, we’re seeing growing calls for individuals to have greater control over how their data is being used and by whom. At the heart of consumers’ ability to control their data is the notion of consent, but what consent means in practice can vary considerably and can often be difficult for providers to ascertain in a meaningful way from a consumer standpoint.

In the EU, the GDPR has <a href="https://gdpr.eu/gdpr-consent-requirements/">defined consent</a> as being free, informed, specific and unambiguous. It also necessitates an opt-out option for data subjects, allowing for the partial or complete withdrawal of any previously given consent, and for the removal of all gathered personal data. But while these requirements may be good for consumers, they’re also tough for providers to implement. Just ask Google, which was <a href="https://www.reuters.com/article/us-google-privacy-france/france-fines-google-57-million-for-european-privacy-rule-breach-idUSKCN1PF208">fined 50 million euros</a> last year after the French data protection authority concluded that it “lacked transparency and clarity in the way it informs users about its handling of personal data and failed to properly obtain their consent for personalized ads.”
<h2>Flexibility Needed for Smaller Providers</h2>
So, if a tech giant, operating in Europe with all the resources and expertise at their disposal, can run afoul of these new consent requirements, does it make sense for governments in developing countries to try to adopt similar rules? India’s response for now has been yes. The current version of its pending data protection bill incorporates the same consent principles as GDPR. However, one legal observer we spoke to expressed concerns that the bill says nothing about what this consent architecture will look like and the ways in which consent will be sought. For smaller providers like microfinance institutions, fintechs and small finance banks that are trying to reach underserved segments with higher levels of illiteracy, obtaining consent as currently defined in the bill would pose a significant challenge, as elaborated below. Moreover, providers leveraging digital technologies to serve customers who might not be that digitally literate or understand the ways their data can be used may find it nearly impossible to meet such high standards of consent. The likes of Google might be able to figure it out over time, but smaller providers would need more flexible rules and support to comply.
<blockquote>Google might be able to figure out high-standard consent, but smaller providers would need more flexible rules and support.</blockquote>
For further evidence on how providers are already coming up short on consent, a recent <a href="http://documents.worldbank.org/curated/en/677281542207403561/Financial-Consumer-Protection-and-New-Forms-of-Data-Processing-Beyond-Credit-Reporting">World Bank report on new forms of data processing</a> laid out many limitations of practices around consent, such as lengthy and complex consent forms, incomplete information, and standardized, inflexible terms offered on a “take it or leave it” basis. As a result, providers are often seen to be doing the bare minimum to comply with existing data protection requirements. In recounting the deficiencies identified in a study by the Centre for Internet and Society on fintech privacy policies in India, a <a href="https://cis-india.org/internet-governance/blog/the-wire-shweta-mohandas-july-30-2019-in-india-privacy-policies-of-fintech-companies-pay-lip-service-to-user-rights">recent article</a> noted that one rule “requires a fintech company to provide an option to withdraw consent. Twenty-three percent of the companies allowed the user to opt out or withdraw from certain services such as mailing list, direct marketing and in app public forums, but they did not allow the user to withdraw their consent completely.” Such findings have led various observers to rightly question <a href="https://www.cgap.org/blog/data-protection-and-financial-inclusion-why-consent-not-enough">how effective consent really is</a> in practice and to propose <a href="https://www.cgap.org/research/publication/making-data-work-poor">other approaches</a> to give consumers more meaningful control over their data.
<h2>The Futility of Trying to Keep Up with New Approaches to Consent</h2>
This all stands to reason, but it again begs the question as to how providers who are already having a hard time complying at a minimal level could ever keep up with these new approaches. Indeed, in discussing the variety of data protection principles and standards that already exist around the world, the previously mentioned World Bank report also hastened to point out that “such principles may often be difficult to implement, particularly in low-capacity environments and/or where changes in the financial sector are fast paced.” As our interviewees attested, low-capacity environments and fast-paced changes are very much the rule, not the exception, and the path from principles to implementation is littered with landmines.
<blockquote>Low-capacity environments and fast-paced changes are very much the rule, not the exception.</blockquote>
One case we encountered centered around the issue of informed consent. Last year, the Reserve Bank of India <a href="https://economictimes.indiatimes.com/industry/banking/finance/banking/rbi-slaps-rs-5-crore-penalty-on-airtel-payments-bank-for-violation-of-norms/articleshow/63235308.cms">fined Airtel Payments Bank</a> the equivalent of roughly $700,000 for “contravening the Operating Guidelines for Payments Banks and directions issued by RBI on Know Your Customer (KYC) norms.” Airtel Payments Bank is majority owned by Bharti Airtel, one of the largest mobile operators in India, and in 2017 complaints started to emerge among mobile subscribers that Airtel Payments Bank had opened new bank accounts without their consent. According to <a href="https://www.financialexpress.com/economy/uidai-airtel-payments-bank-case-company-claims-no-wrongdoing-heres-how-you-can-avoid-the-trap/979401/">reports</a>, when new Airtel mobile subscribers first opened their Airtel mobile app, a pre-ticked consent box would appear on the welcome screen which, unless unchecked, would authorize the use of the same <a href="https://uidai.gov.in/what-is-aadhaar.html">Aadhaar</a>-based eKYC verification required to open the mobile account to also open an Airtel Payments Bank account. Over 2.3 million customers reportedly had new bank accounts created that they did not realize had been opened. Further complicating the matter was the fact that government subsidies would automatically be sent as direct benefit transfers to each beneficiary’s most recent Aadhaar-linked bank account, resulting in the equivalent of about $6.6 million in subsidies being deposited into these accounts. Airtel Payments Bank maintained that it had properly obtained consent to open these accounts but committed to working with the government to ensure compliance. We spoke with Akhil Verma, the current Chief Information Security Officer of Airtel Payments Bank, and he said the bank’s failure to notify customers of this caveat and obtain their explicit permission before allowing this was considered grounds for insufficient consent.
<h2>Out of Step With Modern Digital Reality</h2>
Another concern we heard from the other side of the globe was that some consent requirements are out of step with modern realities. According to Mariano Fuentes, Legal Advisor with ASBANC, the banking association in Peru, its data protection law (which was originally passed in 2011) is outdated for the digital times we now live in and does not do a thorough job of clarifying the ways consent can be obtained. Banks in Peru can obtain consent for personal data digitally, but “sensitive” personal data, which not only includes data on things like race or health, but also biometric data and data pertaining to “personal habits” that could come from things like mobile phone usage patterns, still requires written consent. Since Peru’s data protection law was passed in 2011, it would not have been able to fully anticipate the ways in which people’s lives have been digitized and the new types of data that would emerge, so it’s not surprising that it was reported last June that the National Authority for the Protection of Personal Data in Peru had issued <a href="https://elcomercio.pe/economia/negocios/tres-anos-han-puesto-1-246-sanciones-faltas-proteger-datos-noticia-646513-noticia/">1,246 sanctions within three years</a> (across all sectors).  A scan of the sanctions imposed by the data protection authority also reveals that a significant share of these violations resulted from failures to properly obtain consent.

Whether these cases amount to violations is often a matter of interpretation. Mariano Fuentes of ASBANC underscored this by pointing out that five member banks are currently appealing their penalties because they disagree with the arguments made by the data protection authority. “The complete idea of consent is not represented by any technology, which is damaging in today’s times and is used against us to levy sanctions,” he added. Despite these challenges, Peru consistently ranks as one of the top country-wide regulatory environments for financial inclusion in the Economist Intelligence Unit’s <a href="https://www.centerforfinancialinclusion.org/global-microscope-2019">Global Microscope</a> assessment. In the 2019 version, it came in second partly because it “showed the greatest improvement in the consumer protection domain—specifically, for its data protection framework for financial customers.”
<h2>So How Are Consumers Supposed to Understand?</h2>
Given all the shortcomings with current consent practices around the world, it’s simply unfair to expect consumers to be able to fully understand what can and cannot happen with their data right at the point when they are about to access a new service or download an app. But at the same time, placing the burden on providers, especially those that are on the frontlines of underserved areas, to understand and apply high standards of consent is also proving to be a challenge. The reality is that this is a burden that both consumers and providers need to share, but not on their own. They need the right mix of policy and technology to help them get there. There are some emerging regulatory technology – or “regtech” – solutions providers in developed markets (like <a href="https://www.trunomi.com/">Trunomi</a>) that enable consent-based data sharing, for example.
<blockquote>This is a burden that both consumers and providers need to share, but not on their own.</blockquote>
As these solutions continue to advance, perhaps governments in developing countries could seek to attract such providers to adapt these solutions for their markets. It’s this type of innovation and collaboration that is needed to make consent work. The burden should be broadly shared.

Data Consent: Let’s Share the Burden for Effective Consumer Protection

In response to the seemingly <a href="https://www.centerforfinancialinclusion.org/infographic-75-records-compromised-every-second">endless flow</a> of data breaches and misuses of personal data, governments are increasingly responding with <a href="https://www.ironmountain.com/resources/general-articles/t/the-legal-ramifications-of-a-data-breach">penalties</a>, hearings and new laws and regulations. Perhaps the most widely known is the European Union’s General Data Protection Regulation (GDPR), which <a href="https://www.wired.co.uk/article/what-is-gdpr-uk-eu-legislation-compliance-summary-fines-2018">went into effect</a> in May 2018 and has quickly become a global benchmark, as many of the data protection regimes emerging around the world appear to embrace the same <a href="https://gdpr-info.eu/art-5-gdpr/">basic principles</a> that are at the core of GDPR.

As the growth of the digital economy continues to fuel the expansion of consumers’ data footprints, we’re also hearing calls for new approaches to data protection that advances in digital technologies should be making increasingly possible, at least in theory. But in the recent research and interviews we conducted on the current state of data protection in India, Ghana and Peru (thanks to a collaboration made possible through the <a href="https://www.credit-suisse.com/careers/en/articles/careers/sharing-expertise-201712.html">Credit Suisse Global Citizens</a> volunteer program), we encountered a divide between governments and providers that surfaces when you get beyond principles and into the specifics of their application.

As usual, the devil is in the details.

For example, in responding to a question about how data protection laws and regulations in Ghana may be impacting the extent of data sharing among providers seeking to reach underserved segments, Clarissa Kudowor, Deputy Chief Manager of the Payment Systems Department, Bank of Ghana, wrote, “Whatever the arrangements/partnerships, we expect them to apply the universally accepted principles of data protection under Section 17 through to Section 34 of the Data Protection Act, 2012.” But achieving alignment between policymakers and providers on how best to apply these principles may be easier said than done.
<blockquote>Achieving alignment between policymakers and providers may be easier said than done.</blockquote>
For instance, in talking about data protection seminars offered by the Ghanaian government, Elorm Allavi, the CEO of <a href="https://syecomp.com/">SyeComp</a>, a fintech which uses data from smallholder farmers for its mfarmPay credit product, said, “Seminars are for awareness creation, but in terms of the technical side, they’re not there yet. They don’t understand how we use data.” This is but one example of the gap that exists between governments and providers in advancing data protection in their countries. But where there are problems, there are also opportunities.

Recognizing how vast of a topic this is, we have chosen to focus on three key aspects of data protection that surfaced during our research.
<ul>
 	<li>
<h4><strong>Consent</strong></h4>
</li>
 	<li>
<h4><strong>Localization</strong></h4>
</li>
 	<li>
<h4><strong>Regulatory capacity and fragmentation</strong></h4>
</li>
</ul>
We will dedicate one blog post to each of these issues, starting next week with consent. Over the coming weeks, we will explore these topics – plus <strong>alternative data</strong> legislation and vulnerable populations in the U.S. – in a CFI Blog series, “Data Protection and Financial Inclusion: Why It Matters Now.” Join us as we dive in to these issues from a financial inclusion perspective and our unique position as an industry engager.

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Data Protection and Financial Inclusion: Why It Matters (Introduction)

It’s the time of year when you take stock of what you’ve done and plan your coming year. And here at the Center for Financial Inclusion at Accion (CFI), we’re doing the same thing: reflecting and planning. Here are five highlights from 2019 as we pursue our mission to engage and challenge the industry to better serve, protect and empower clients. We look forward to engaging our community anew in 2020!

If you like what you read, consider including the Center for Financial Inclusion at Accion in your <a href="https://give.accion.org/page/contribute/cfi">end-of-year giving</a> plans. Donate between now and December 31st and your contribution will be fully matched up to $250,000.
<h1>1 Made consumer protection in digital finance an imperative</h1>
In a world where face-to-face contact in financial services is on the decline, we took up the “<a href="https://www.centerforfinancialinclusion.org/from-human-conduct-to-protection-by-design-the-smart-campaigns-digital-standards">protection by design</a>” call and created the <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">Digital Credit Standards</a>, which incorporate feedback from consumers, researchers and financial service providers. The <a href="https://www.centerforfinancialinclusion.org/handbook-on-consumer-protection-for-inclusive-finance">Handbook on Consumer Protection for Inclusive Finance</a> was also released, providing a legal and regulatory framework to protect low-income consumers. We heard from hundreds of digital financial service clients in Rwanda in our most recent <a href="https://www.centerforfinancialinclusion.org/client-voices-rwandans-speak-on-digital-financial-services">Client Voices</a> report; and we commissioned a study on the <a href="https://www.centerforfinancialinclusion.org/making-digital-credit-truly-responsible">state of digital credit in Kenya</a>, highlighting challenges and making recommendations on customer centricity.
<h1>2 Continued to shape the next generation of financial inclusion leaders</h1>
We believe strong board leadership is crucial for social enterprises to grow and have impact. In October, following the conclusion of the 5-year <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program">Africa Board Fellowship Program</a>, we launched the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> for social enterprise leaders to learn and exchange ideas on governance, digitalization and inclusive digital finance. And since 2006, we continue to provide management and leadership training to microfinance leaders via the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/hbs-accion-program-on-strategic-leadership-in-inclusive-finance">HBS-Accion Program on Strategic Leadership in Inclusive Finance</a>.
<h1>3 Engaged with mainstream banks to reach the underserved</h1>
We also published the final the two reports from our <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/mainstreaming-financial-inclusion-best-practices">Mainstreaming Financial Inclusion: Best Practices</a> project in 2019. These briefs focus on <a href="https://www.centerforfinancialinclusion.org/leveraging-technologies-to-improve-the-quality-and-maximize-the-productivity-of-agent-models">agent models</a> and how technology can boost their quality and effectiveness, and how the <a href="https://www.centerforfinancialinclusion.org/charting-the-customer-journey-in-the-digital-age">customer journey</a> has morphed in the digital era – with unique examples from the industry. These reports facilitate learning and action on six key challenge areas of serving unbanked and underbanked customers.
<h1>4 Transitioned to new leadership</h1>
In September, I <a href="https://www.centerforfinancialinclusion.org/q-a-with-mayada-el-zoghbi-cfis-new-managing-director">took the reins</a> at CFI as Elisabeth Rhyne, our founding Managing Director, retired. With new leadership and a new year will come unique strategic priorities, and in the first months of 2020, we’ll announce our new strategic imperatives for the new year and beyond.
<h1>5 Guided Financial Inclusion Week 2019</h1>
For the fourth annual <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-week-2019">Financial Inclusion Week</a>, we solicited <a href="https://www.centerforfinancialinclusion.org/series/financial-inclusion-week-2019">contributions</a> from members of the financial inclusion community, this year under the theme “<a href="https://www.centerforfinancialinclusion.org/financial-inclusion-for-what">Financial Inclusion: For What?</a>”. And you responded: thousands took part engaging with blog posts, sharing their perspectives and research, and interacting with webinars, podcasts, quizzes and in-person events by dozens of partners worldwide. You gave us your thoughts and votes on which areas – equity, financial health, the bottom line, sustainable development – you believe financial inclusion’s ultimate purpose lies. #FinclusionWeek

Looking Back at 2019: a Transition, a New Initiative, Sharing Insights and Engaging Our Community

With the expansion of digital financial services (DFS) for the underserved, policymakers and regulators must set the conditions to allow innovative financial products to flourish while providing the market guardrails that ensure customers, especially those accessing financial services for the first time, can access DFS with confidence and adequate protections.

According to the World Bank’s most recent Global Financial Inclusion and Consumer Protection Survey, more than 95 percent of the 124 respondent jurisdictions have some kind of <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/28998/122058.pdf?sequence=5&amp;isAllowed=y">financial consumer protection legal framework</a>. Other studies, such as the <a href="https://centerforfinancialinclusion.org/global-microscope-2019/">Global Microscope</a> series and the World Bank's <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/28996/122011-PUBLIC-GoodPractices-WebFinal.pdf?sequence=1&amp;isAllowed=y">Good Practices for Financial Consumer Protection</a>, have demonstrated that legal and regulatory responses to consumer protection risks have been strengthening over time. Such developments are important accomplishments and demonstrate the prioritization of consumer protection as an enabler of financial inclusion. However, our work doesn’t stop there.
<h2>The Opportunity</h2>
Not all financial consumer protections frameworks are effective in addressing key consumer protection risks for the financially excluded. In some cases, elements of such frameworks may even impede financial inclusion goals. Common challenges include legal and regulatory gaps, disproportionate (non-risk-based) interventions, inconsistent oversight, competing or overlapping regulatory mandates, and the inability or lack of enforcement. These challenges are exacerbated by a rapidly changing sector where digital technologies have introduced new providers, products, business models and delivery channels. Appropriate legal and regulatory responses can help to mitigate new and evolving risks while promoting responsible inclusive finance, stronger markets, and better served clients.
<h2>Our Contribution</h2>
To address the demand for practical resources to promote strong legal frameworks for responsible inclusive finance, CFI, DLA Piper’s global pro bono initiative, New Perimeter, and the legal team at Accion developed the <a href="https://centerforfinancialinclusion.org/handbook-on-consumer-protection-for-inclusive-finance/">Handbook on Consumer Protection for Inclusive Finance</a>. Organized around the <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles (CPPs)</a>, the Handbook expands on its predecessor, the <a href="http://smartcampaign.org/tools-a-resources/1049-model-law">Model Law and Commentary for Financial Consumer Protection (Model Legal Framework)</a> to address the unique characteristics of digital financial services. It’s informed by CFI's <a href="https://www.centerforfinancialinclusion.org/consumer-protection-in-a-digital-age">Consumer Protection Standards for Digital Credit</a>, which provide a shared set of practices for responsible digital lending through a provider lens, and updated Guidance for these standards. It also reflects consultation with experts and practitioners, experience from our work with regulators and financial service providers (including fintech companies), research on 19 regulatory environments, and guidance issued by international organizations and collaborative working groups.

The Handbook complements existing tools and guidance by distilling recommended legal and regulatory approaches for financial consumer protection into illustrative and user-friendly model language with explanatory commentary. Like the Model Legal Framework, the Handbook is intended for a broad range of stakeholders and is designed to be used in several ways: to develop or revise financial consumer protection legal frameworks, to serve as a diagnostic tool to assess existing frameworks, and to support dialogue and collaboration between government and industry.
<blockquote>The Handbook distills recommended legal and regulatory approaches for financial consumer protection into illustrative, user-friendly language and commentary.</blockquote>
<h2>What’s New?</h2>
The Handbook comprehensively updates the Model Legal Framework, including new and revised provisions and commentary related to DFS. It significantly expands recommendations regarding the privacy and security of consumer data, which traditional consumer protection frameworks may not address or where standalone data privacy regimes do not exist. In addition, the Handbook advocates for strong internal controls in the design process for products, services and delivery channels to support the concept of “consumer protection by design” in addition to monitoring consumer outcomes. It also tackles questions around algorithm-based lending, transparency safeguards for digital interfaces, third-party accountability, fraud, and coordination among supervisory authorities with converging regulatory mandates, among other topics.

No single resource can address every issue relevant to financial consumer protection, but the Handbook focuses on key areas of consumer risk based on consensus in the responsible inclusive finance ecosystem. As recommendations around strong consumer protection policy continue to evolve, so too will future editions of the Handbook, and we welcome your comments and feedback.

New Handbook Addresses Demand for Practical Legal Resources About Consumer Protection in a Digital World

Hema Bansal is presenting at two events at the 3rd Asia Finance Forum:
<h2>Fintech Bootcamp
Monday, November 4, 2019 3:30-5:00pm</h2>
Financial inclusion is increasingly driven by fintech firms independently, or in partnership with banks. Although financial services delivery models differ across countries, digital financial services have shown promising financial inclusion outcomes. There is little evidence, however, that these services are being delivered responsibly, increasing the potential risks to clients.

The Center for Financial Inclusion’s (CFI) <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">Smart Campaign digital credit standards</a> address risks to consumers, particularly those arising from new digital products or channels. At the Fintech Bootcamp, we will share these standards, which address a wide range of risks clients are exposed to when accessing digital credit, including but not limited to data privacy and security, over indebtedness, and lack of transparency. They are meant to guide both fintechs and traditional financial service providers undergoing digital transformation. We will also share CFI’s approach to building the financial capability of consumers in accessing digital financial services.

Hema's session will cover the following:
<ul>
 	<li>Responsible standards for digital credit design and delivery</li>
 	<li>Adaptability of responsible digital credit standards nationally and regionally</li>
 	<li>Financial capability approaches</li>
 	<li>Strategies for embedding responsible finance in digital financial services at the country level</li>
</ul>
<h2>Inclusive Finance: Combining Fintech Innovation, Public-Private Collaboration, and Responsive Regulation to Reach the Poorest
Wednesday, November 6, 2019 9:20-10:30am</h2>
Lack of financial and digital literacy is a major reason for lack of access to finance for women and in rural communities. Policies to enhance financial inclusion, especially through technology, should involve more active financial literacy and educational programs.

Learn about new products and services, players, and channels that address the essential need of financial literacy to reach the underserved and unbanked and drive the shift from financial access to financial usage.

Moderator: Lotte Schou-Zibell, Regional Director, Pacific Department, ADB

Panelists:
<ul>
 	<li>Hema Bansal, Senior Director, The Smart Campaign, Center for Financial Inclusion at Accion</li>
 	<li>Peter Morgan, Senior Consulting Economist and Vice Chair for Research, ADB Institute</li>
 	<li>Anil Gupta, Partner – Payments and Distribution, Microsave Consulting</li>
 	<li>Grace Tan, Head of Corporate Communications, Visa Inc.</li>
</ul>
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3rd Asia Finance Forum

In this webinar we discuss how the regulatory landscape is shifting with the advent of digital financial services, the challenges policymakers are facing, and the ways that the <a href="/handbook-on-consumer-protection-for-inclusive-finance">Handbook on Consumer Protection for Inclusive Finance</a> can help regulators and the entire inclusive finance industry to strengthen consumer protection frameworks.

Webinar: Handbook on Consumer Protection for Inclusive Finance