building financial systems for the poor c onsumer protection at the bottom of the pyramid (bop):...
TRANSCRIPT
Building Financial Systems for the Poor
Consumer Protection at the Bottom of the Pyramid (BOP):Striking the right balance between access, protection and
innovation
Kate McKee, Senior Policy AdvisorGlobal Seminar on Consumer Protection and Financial Literacy
Washington, DC September 3, 2008
Building Financial Systems for the Poor
Consumer Protection at the Bottom of the Pyramid (BOP):Striking the right balance between access, protection and
innovation
Kate McKee, Senior Policy AdvisorGlobal Seminar on Consumer Protection and Financial Literacy
Washington, DC September 3, 2008
Four key messagesFour key messages
1. Low-income and first-time financial consumers face specific risks –>consumer protection policy and regulation should consider needs of different client segments
2. Different financial products also raise distinct risks –> product-specific regulation may be appropriate
3. With the huge growth projected in branchless banking, specific channel risks need attention
4. A “light-touch” approach to regulation can permit evolution of standards as risks evolve -- enabling regulators to encourage innovation, access and protection
The market at the bottom of the pyramid – What’s different?
The market at the bottom of the pyramid – What’s different?
The demand side – clients tend to have lower . . . Income and assets Levels of literacy, education and “financial
capability” Experience with formal providers and products
The supply side – BOP providers Typically, the poor rely more on non-bank
providers, use a more limited product range (each with
distinct protection concerns) – payments, credit, deposit, insurance – and are
likely to depend more on branchless banking models for future access
Consider the CP issues for a low-income consumer . . .Consider the CP issues for a low-income consumer . . .
Looking for a safe place to saveTrying to get cash for a remittance transferred from a relative working overseasOpening her first basic banking accountShopping around for a business loanGoing into a community retailer to send money to his mother in the villageDeciding whether to permit her MFI to report payment info to the credit bureauReceiving his social payment (pension, child allowance, etc.) via a card linked to an account
Let’s look at branchless banking . . .Let’s look at branchless banking . . .
The logic of branchless banking: a low-cost transactional channelThe logic of branchless banking: a low-cost transactional channel
1. Use existing retailers – shops,
lottery, POs
1. Use existing retailers – shops,
lottery, POs
3. Use existing technology in use
3. Use existing technology in use
2. Deliver trustthrough
technology
2. Deliver trustthrough
technology
Real-time account-to-account transfers
Customer
Agent
Any store can potentially be an agentAny store can potentially be an agent
The power of using existing infrastructureThe power of using existing infrastructure
~25m
~3bn
~1m600k500k250k
WesternUnion
Bankbranches Post Offcs ATMs POS Mobile
Phones
Philippines 1,000 branches 7,000 ATMs 25,000 POS
terminals in stores 1.1 million prepaid
airtime resellers
Panama Largest bank has
65 branches 850 shared ATMs
(many in branches!)
12,000 prepaid airtime resellers
Worldwide points of presence
Experience to date with branchless
banking
Experience to date with branchless
banking
Promising strategy to extend access to those currently unserved, by driving down costs
Typical models use mobile phones, cards, and/or POS devices
Alliances between Mobile Network Operators and financial institutions common
Partnerships with non-bank agents (e.g., neighborhood shops, airtime dealers, even lottery outlets) also often in the mix – to reduce costs and reach lower-end and more remote clients
Consumer protection issues in branchless banking
Consumer protection issues in branchless banking
What concerns arise? Distance between bank HQ or branch and point at
which financial services are delivered Use of non-bank agents – introduces additional
issues of service quality, error resolution, fraud and abuse
Use of technology (mobile phone, cards, POS devices, biometric) including potentially much larger data “footprint” and wider data access
Note, however, that branchless models also can offer
some consumer protection advantages over conventional delivery (real-time info, traceability for errors/disputes) – trust through technology
Key consumer protection issues in branchless banking
Key consumer protection issues in branchless banking
Transparent pricing -- # of players in chain, service bundling, agent corruption
Service quality, incl. agent training, consistent availability of cash-in/cash-out services
Complaints and error resolution – Who is responsible? What is the process? ADR vs. courts?
Data quality, privacy and security
Note: some financial services raise more consumer protection issues than others, e.g., deposits, credit
What can go wrong? Who is responsible?What can go wrong? Who is responsible?
Customer shares his mobile phone and PIN… and it is used malevolently
Fraudster manages to electronically intercept the client’s PIN Client is robbed inside agent’s store The agent’s store is robbed and the cash is stolen Client makes a deposit, and value credited to his account is
less than what he paid in and also less than what is shown on the receipt
Using P2P transfer capability on mobile phone, the client sends money to the wrong phone number (= bank account number)
Client makes a deposit, but the account is empty when the customer goes to withdraw
Fraudulent agent is set up
Which regulatory tools to use?Which regulatory tools to use?
1. Prudential and market conduct regulation, e.g., Agent licensing/training/monitoring –
outsourcing rules Disclosure requirements – plain language --
agent/bank relationship, pricing, product terms Prohibited products (e.g. credit) and/or
practices (e.g., steering, cross-selling, unauthorized data sharing)
Required practices, e.g., standard contracts or provisions
Which non-regulatory tools to use?Which non-regulatory tools to use?
3. Recourse/redress mechanisms
4. Market-based mechanisms (e.g., quality seal, satisfaction index, publish data)
5. Self-regulation, e.g., voluntary codes of conduct
6. Consumer awareness, education and financial literacy
Note that regulators may need to define the rules of the game for these tools
Closing thoughts on consumer protection in BOP markets
Closing thoughts on consumer protection in BOP markets
Keep regulation “light-touch” and focused on most important products, providers and delivery channels
Consider regulatory capacity constraints and ability to enforce
Need to leave space for market innovation and experimentation
Balance protection and access policy goals
Building Financial Systems for the Poor
Thank you!