With millions now using digital financial services, more and more consumers are exposed to greater financial risks, particularly in digital credit.

These risks relate to consumer protection issues such as over-indebtedness, misinformation due to a lack of transparency (e.g. on fees), data privacy breaches, and fraud.

Despite greater risks, the voice of consumers is often absent in the evidence-gathering and consultation stages of the policymaking process. Many consumers (particularly in priority groups such as women living in rural communities) lack opportunities to raise concerns about business practices directly with the government. This is critical when consumers cannot or do not make themselves heard through other channels such as via their financial services providers, an ombudsman (which receives and investigates complaints), free legal aid, and traditional and social media.

CGAP suggests for policymakers and regulators to engage with the consumer voice through:

• Building awareness about the importance of consumer groups

• Seeking feedback from consumer groups during public consultation processes

• Providing funding to consumer groups, notably to support consumer insights research

• Collecting demand-side data through surveys to better understand consumer needs and risks

Public consultation with consumer groups and representatives

Consumer groups can help to amplify the voice of consumers by representing their collective rights and interests in policy debates.

These groups are often started by community representatives such as non-government organisations (NGOs) and civil society, academics and their students, and former civil servants, with the aim to conduct advocacy research for stronger policies and regulations in areas such as food, medicines, home appliances, as well as financial products and services. This is especially relevant for financial consumer protection: according to the World Bank, “The legal framework should be developed as a result of a consultative process that involves the industry, relevant authorities, and consumer associations.”

However, many consumer groups are chronically under-resourced (or do not exist at all). Consumers International, a membership organisation which brings together over 200 consumer groups in more than 100 countries, does not have any members in countries such as Ethiopia, Sierra Leone, Equatorial Guinea, Gabon and Cameroon. The Alliance for Financial Inclusion (AFI) points out that consumer associations for financial services can be relatively rare and hard to find. As AFI says, in these circumstances, “it falls to the public agencies such as central banks, superintendents and public policymakers to ensure the consumer voice is heard.”

For example, the Bank of Sierra Leone is preparing to consult on their new draft financial consumer protection guidelines. This process will include focus group discussions with consumer representatives such as NGOs and associations for women-owned businesses, teachers, nurses, etc. in both Freetown and the provinces.

Demand-side data such as surveys

Financial authorities can collect data directly from the perspective of users of financial services (referred to as demand-side data) using a range of research methods such as surveys, mystery shopping, focus groups, and social media sentiment analysis. This is useful for authorities to ‘deep dive’ into specific issues and to better understand consumers’ needs, access barriers and socioeconomic characteristics.

Examples of internationally comparable demand-side surveys include:

• FinMark Trust’s Finscope surveys

• World Bank’s Global Findex database

The Bank of Sierra Leone is awaiting the results of a phone-based survey via random digit dialing conducted by Innovations for Poverty Action (IPA) which asked consumers in every region across the country about their experiences with mobile money, loans, etc. including complaints and issues such as surprise fees, scams, fraud and over-indebtedness.

Future of demand-side data

Around the world, financial authorities are increasingly looking to news, social media, or digital commerce platforms as valuable sources of non-traditional data or ’alternative data’. Data analysts can apply an algorithm to gauge whether the emotions behind consumers’ social media posts are positive, neutral, or negative. In this case, regulators are usually concerned about negative sentiment towards financial institutions, products and services.

Some central banks, such as Banca d’Italia, have analysed consumers’ tweets and embedded sentiments to monitor any concerns with retail deposits and predict bank runs. FSD Kenya carried out a similar study on how consumers are relying on Twitter to lodge complaints with financial institutions and call out consumer protection abuses.

What we’re reading

• CGAP – Webinar: Strengthening the Collective Voice of Consumers in the Financial Sector

• Center for Financial Inclusion – Consumer Protection in Digital Financial Services – Core Not Compliance

• European Commission – Increasing consumer involvement in financial services policy-making

• BIS - The role of demand-side data – measuring financial inclusion from the perspective of users of financial services

• Cenfri - Getting the basics of demand-side surveys right

For more information, please contact:

• Naomi Bourne: naomi.bourne@uncdf.org

Read more about consumer protection

Authors

Naomi Bourne

Alexis Ditkowsky