Slide 1

Protecting Consumer in Mobile Finance:
Regulatory Issues and Options for Promoting Responsible Financial Access

Denise Dias
Policy Specialist and Manager for Latin America
CGAP

Slide 2

Policy goals, mobile finance and protection

What do you look for?

• Systemic stability
• Increased financial access

• Mobile finance is a hot topic for both service providers and regulators
• Enabling regulations are being issued all over the world to allow and expand mobile finance
• Regulations vary, but policy goals and concerns, not so much

Slide 3

Policy goals, mobile finance and protection

Consumer protection is embedded in promotion of financial stability AND healthy financial access, for it may help:

• Keep risk-taking by providers at prudent level
• Keep undesirable players out of the market
• Nurture confidence in institutions and the system
• Foster informed consumer choices

Consumer protection is the convergence of healthy access and systemic stability goals but it is not a precondition for access

Slide 4

Branchless banking: New ways of doing business

Client-provider (bank or nonbank) relationships are:

• Remote - distance between point of service and provider’s headquarters or branch
• Indirect - use of third parties (nonbank agents)
• Technology-based - mobile phones, prepaid cards, POS devices, biometrics, internet…

How do these features relationships affect consumer protection?

Slide 5

Does mobile finance bring value for the consumer?

• Access to previously unreachable services?
  • proximity, costs, cultural and other barriers
• Less risky than existing alternatives?
• carrying cash can be dangerous in some places
• More suitable services?
• price, convenience, tailored products
• Improved transparency?
• Alerts, real time pricing
• Other advantages?

Slide 6

What can go wrong? Evidence and perceived risks

• Client is not able to transact for different reasons
• Client’s personal information is stolen or wrongfully accessed or shared
• Agent charged unexpected fees
• Fees and prices are not fully and clearly informed to the client
• Lack of cash at cash-out point
• Client is required to buy another product to conduct the financial transaction

Slide 7

What can go wrong? Evidence and perceived risks

• Client was not able to file a complaint or complaint was not adequately treated
• Provider did not assume responsibility for agents
• Client was deceived by a “fake retail agent”
• Client is treated poorly by agents, or agents do not know how to perform the service
• Client lost funds (deposits) due to the provider’s weak financial health or fraud

Slide 8

What should be the regulator’s priorities?

1. Protecting clients’ deposits (bank- and nonbank-based);
2. Ensuring security, reliability and availability of electronic channels and transactions;
3. Protecting clients’ personal information;
4. Reducing opportunities for agent frauds and misbehavior;
5. Ensuring agents deliver good and fair service;
6. Ensuring clear and comprehensive disclosure;
7. Ensuring liability for the services provided;
8. Ensuring the client knows and has access to effective redress and compliant filing mechanisms.

Slide 9

Before protecting, ask yourself

What are the current alternatives to mobile finance? (e.g. informal services)

What risks consumers face today without mobile finance?

How does mobile finance change the risks? (e.g. money laundering risk)

Image of a down arrow asking the next question

What is a proportional regulatory approach in your case? (Promotion x Protection)

Slide 10

Principles for protection through regulation

• Seek proportionality and balance
  • Rules to address identified risks
  • Consider different regulatory and non-regulatory options
  • Weigh against your financial inclusion objectives

Some regulations may protect consumers out of the formal market or towards less suitable services

Slide 11

Remember that regulation is not enough

Image of three arrows for Responsible Financial Access
Up Arrow is for Consumer Protection Regulation
Left Arrow is for Industry Codes of Conduct and Standards
Right Arrow is for Consumer Awareness and Financial Capability

Slide 12

CGAP

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Advancing financial access for the world's poor
website: www.cgap.org
website: www.microfinancegateway.org

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