Is there ever, really, too much of a good thing? While it is a colloquialism certainly trite in its use, whether or not it rings true is a philosophical question sometimes worth pondering. And perhaps, for financial inclusion, that moment of self-reflection has arrived. While a recent Mondato Insight concluded that the impact of Digital Finance and Commerce (DFC) - which is the primary vehicle of financial inclusion in emerging markets - is mostly good for macro and micro economic outcomes, has there been a corresponding commitment to consumer protection as digital finance has permeated into poorer consumer segments? In the brouhaha and hurry of the industry to bank new pockets of people, it is essential that principles of consumer protection do not escape from view.

A Laundry List of Reforms

Consumer protection is not some monolithic block of regulation - instead, it is a web of best practices, safeguards, institutions and laws that interact and complement each other. And, as technology both shakes up the lay-of-the-land of digital finance and unravels the relevance of current consumer protection protocols, fresh eyes and feedback must continually re-orient stakeholders, from regulators to service providers, to new considerations. Those considerations could be central to digital finance, such as dispute resolution, fraud, agent conduct, anti-competition and pricing, or more peripheral issues, like data privacy and cyber security.

While the struggle in developed markets is to modernize and build upon formalized legacies of consumer protections, in developing economies the quickening pace of digital financial penetration has, at times, left consumer protection progress - which might be lagging or non-existent - out of breath.

The Central Bank: A Bird's Eye View

Of course emerging markets is an umbrella term that groups countries of varying circumstances and prosperity together. In an attempt to streamline regulatory approaches in regard to consumer protection and digital financial services, the Evans School of Public Policy & Governance at the University of Washington surveyed the literature and laws of 22 developing countries.

At the highest level, most have relegated ultimate responsibility over digital finance, and the drafting of applicable consumer protection statutes, to the respective central bank (in fact, 17 of the 22 countries reviewed pursued this model, with Colombia, Ecuador, Peru, Tanzania, and Zambia as the odd men out). The degree of involvement by secondary institutions, whether that be telecommunication authorities or independent competition agencies, is not consistent on a country-by-country basis. To complicate matters further, it becomes even less homogeneous across country lines when the analysis dives into different facets within the consumer protection framework.

Down To The Knitty Gritty

While regulatory bodies are certainly the lighthouses to guide the way in consumer protection, financial institutions are the consumer-facing vessels that must steer and implement change. Failure by financial service providers to do so erodes trust and can end in morally reprehensible practices.

Unfortunately, happenings that represent the underbelly of financial inclusion are not one-offs. In Uganda, there is an air tinged with fear among micro-finance clients teetering on default. Lenders, often apprehensive of flight to evade loan payments, are reactive and will resort to enforcement without due process which often translates to collateral seizure (with possessions stashed in warehouses or bartered away at the side of the road). In fact, the equivalent of debtor's jail is still common in Uganda. Cambodia, too, has recently wrestled with the consequences of client default and over-indebtedness, and how to properly regulate micro-finance institutions.

What is worse, is that digital finance - which aims to be the go-to remedy for financial penetration woes - could exacerbate consumer protection concerns if not handled with care. Dalberg, in observing a series of experiments that involved inclusive digital lending and APIs in India, concluded that while the net effects were overwhelmingly good, a few caveats remained. Digitization, without centralized tracking of lenders or outstanding liabilities, could lower the barriers of borrowing to a degree that might encourage over-indebtedness. This, coupled with a consumer-base not necessarily equipped with the financial literacy to navigate through disclosure terms or loan types, could add to a powder-keg climate ripe for unsavory collection tactics.

When The Agents Come Marching In

Agent misconduct can also be source of frustration for digital money users, which is not conducive to a healthy relationship between digital financial service providers and customers. Price gouging, added fees, and few avenues for dispute resolution are among the contentions.

The most acute issue that intersects with agent networks and consumer protection is added fees. This could, in part, be attributed to low awareness, limited customer redress mechanisms, and poor agent monitoring. However, in some markets, such as Kenya, end-users are more enlightened on charges, which makes it difficult for the agents to double charge customers. Henry Chukwu, Specialist of Agent Networks

There appears to be a fragile balance between agent profitability and upstanding service provision. Mondato has previously discussed the nuances and difficulties in managing a robust digital money distribution network and incentivizing agents. Therefore, piling on consumer protection as one more obligation might be more responsibility than some Mobile Network Operators are willing to shoulder. Mr. Chukwu confirmed the hesitancy of providers to allocate funds to these very causes.

For Nigeria, the operators have not invested adequate resources in customers' and agents’ education, as some of the operators are of the opinion that awareness programmes are very expensive and the returns on investments are not commensurate.

If providers are not inclined to step up, regulators may have to overcompensate. Transparency is one expedient way to gain traction, and regulators could mandate that agents post consumer protection department contact details, especially in situations where operators are negligent in resolving complaints.

Get Your Hands Off My Data

Data is a touchy subject in financial services, and in terms of regulation, is a bit of a mixed-bag. Of the 22 developing countries included in the University of Washington study, only 12 had put into place data security requirements, and of more concern, only 9 had explicitly limited the sharing of consumer data with third parties. While financial institutions are giddy at the thought of commercializing and monetizing data, pursuit of profit should not hold consumer protections hostage.

And while central banks across emerging markets are in the process of regulating the storage and usage of data by banks and telcos, sometimes tangential industry players sneak under the radar. One such instance is in Kenya, where Kopa Leo, an Android app that transacts loans, does not 'report' directly to any financial authority. Consequently, the firm is within its legal right to publicly publish the identities of defaulting customers on its social media channels. There are fears that a similar situation might manifest in digital lending spaces in India, as data is "controlled by under-regulated non-state actors."

The significance of data is only going to intensify as its standing as 'virtual gold' solidifies. Alternative lending is at the forefront of the financial data revolution, and sans proper monitoring, the industry could embrace practices that are borderline invasive. Equifax Inc. in Latin America calculates credit scores from inbound, and outbound, call history - where sociability signals the positive correlation with low risk. Or WeLab Ltd. in China aggregates application downloads, GPS locations, social networks and educational archives in order to churn out a rating. The firm even offers discounts on loan products in exchange for voluntary surrender of social media data by users.

While none of these approaches are inherently unsound, consumer consent must be layered into the business model, not an inconvenient after-thought.

A Light At The End Of The Tunnel

Although regulatory bodies across the world are still in a state of flux and grappling with the best way forward to ensure consumer protections, financial institutions, at times, are welcoming grass-root level reforms.

The Smart Campaign is a global organization that promotes fair and ethical principles - from prevention of over-indebtedness to responsible pricing - in financial inclusion. It is, perhaps, the first step to a brave new world where service providers are committed to policing their own excesses, and look to humanize their customer-base. According to Alexandra Rizzi, Deputy Director of the Smart Campaign at the Center for Financial Inclusion, there is a whole arsenal of potential, piece-meal strategies.

Regulators are of course integral to a supportive ecosystem for client protection. However, financial service providers of all stripes, whether they are banks, telcos or fintech companies can take steps on their own to proactively improve their practices. The Smart Campaign has a path for institutions to follow to improve their practices. Endorse the Campaign, familiarize yourself with the Principles, assess your practices internally or with an external expert and then improve. There are dozens of tools and best practices available on the Campaign’s website. We also encourage practitioners to share their good practices as demonstration effects. Alexandra Rizzi, Deputy Director of the Smart Campaign

As financial inclusion unearths new consumer segments, costumer protections cannot be lost in the fray. If the first introduction to digital finance is one of brutalization, deception or humiliation, the industry runs the risk of quickly souring its reputation. And, if trust is strained, the task of pushing financial inclusion and digital adoption becomes monumentally more challenging.

Image courtesy of [Senate Democrats](https://www.flickr.com/photos/sdmc/18904113514/in/photolist-vJUTbG-vsTPAw-uNuwkC-vJUNKh-uNCLDv-uNCQd4-vt2hFZ-61iKXG-nEDUmv-ogxiKQ-ogxM3K-ogwMNY-oxZVvd-RJMZUV-8MpwbA-piVfRP-pyn42u-jsFbXu-pA8poc-piVfMv-pyn3To-oCR6oz-53VXi7-piUyo7-jsFbL7-6KWdbD-bn3K5U-jsFcsh-bUayuR-nbR2MU-pe5ms1-byYDdt-53W1zw-oVoNzk-oxPCCC-7ZNmj3-7MZHWh-bBovHx-JLoxJc-botAks-dbZ1Xw-9hwCZd-oCRKE3-8kDFVU-mGxhFg-9JQEQj-botzXb-mGxhDT-owMx7x-nYsyC5/).
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