Branchless Banking and Consumer Protection

Erik Aelbers Access to Finance Expert Pacific Microfinance Week Nadi, Fiji, October 2013

Consumer Protection Why?

Ensure that consumers of financial services receive responsible products and fair treatment Reduce information and power imbalances between providers and consumers Encourage trust, confidence and stability in the financial system

Consumer Protection Principles

1. Appropriate product design and delivery 2. Prevention of over-indebtedness 3. Transparency 4. Responsible pricing 5. Fair and respectful treatment of clients 6. Privacy of client data 7. Mechanisms for complaint resolution

Branchless Banking
Banks and non-banks (e.g. mobile network operator) the provider Use of agents and technology Opens up financial services to customers who may have been excluded, and who are typically poorer and less experienced

Consumer Protection & Branchless Banking

But Branchless banking can lead to increased concerns about the welfare and protection of consumers
Issues or perceived risks Policy objective

Client loses funds due to illiquidity or insolvency of the provider

Client cant withdraw cash due to lack of cash at agent or due to technical difficulties

Protecting client funds held as electronically stored value

Ensuring safety and reliability of services

Source: Dias, Denise, and Katharine Mckee. 2010. Protecting Branchless Banking Consumers: Policy Objectives and Regulatory O ptions. Focus Note 64. Washington, D.C.: CGAP.

Consumer Protection & Branchless Banking

Issues or perceived risks Client loses funds through agent fraud or fake agents Policy objective Reducing opportunities for agent fraud

Client is pressured to buy products or Reducing opportunities for conduct transactions harmful conduct by agents Fees are not clearly disclosed to the client and/or agent charges unexpected or unauthorized fees Ensuring clear and effective disclosure

Source: Dias, Denise, and Katharine Mckee. 2010. Protecting Branchless Banking Consumers: Policy Objectives and Regulatory O ptions. Focus Note 64. Washington, D.C.: CGAP.

Consumer Protection & Branchless Banking

Issues or perceived risks Clients personal information is stolen, shared, or used to conduct unauthorized transactions Client does not know how to file a complaint, does not have proof of transaction, or complaint is not adequately handled by provider Policy objective Protecting clients personal information

Ensuring clients have knowledge of and access to effective redress and complaint mechanisms

Source: Dias, Denise, and Katharine Mckee. 2010. Protecting Branchless Banking Consumers: Policy Objectives and Regulatory O ptions. Focus Note 64. Washington, D.C.: CGAP.

Consumer Protection & Branchless Banking

Does this mean that comprehensive consumer protection regulation is required? Maybe Regulation can be an obstacle to financial inclusion and has opportunity costs Importance of consumer awareness and financial capability Voluntary provider-led initiatives SMART Campaign Industry standards / codes or practice

Consumer Protection & Branchless Banking

Remember: Providers have incentives to protect their consumers Reputation and the need to build trust and confidence in their service Example: Kenya M-PESA 0.1 % of clients reported having lost money and most customers say that they feel their money is safe
Source: Collins. 2010

Consumer Protection & Branchless Banking

However, over time at least some regulation will likely be deemed necessary. It should be based on constant monitoring of the emerging issues prioritisation. Regulation must be proportionate and effective alignment of market conduct supervision with existing prudential supervision Resources must be available for actual supervision General principle: Keep providers responsible for agents performance and compliance with regulation

Thank you.

More information contact :

Pacific Liaison and Coordination Office www.adb.org/offices/pacific/main psdi@adb.org