Onsumer Protection at The Bottom of The Pyramid (BOP) : Striking The Right Balance Between Access, Protection and Innovation

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 Advisor Global Seminar on Consumer Protection and Financial Literacy Washington, DC September 3, 2008
Four 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 Whats 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 . . .

Looking for a safe place to save Trying to get cash for a remittance transferred
from a relative working overseas Opening her first basic banking account Shopping around for a business loan Going into a community retailer to send money to his mother in the village Deciding whether to permit her MFI to report payment info to the credit bureau Receiving his social payment (pension, child allowance, etc.) via a card linked to an account
Lets look at branchless banking . . .
The logic of branchless banking: a low-cost transactional channel

1. Use existing retailers shops, lottery, POs 2. Deliver trust through technology 3. Use existing technology in use
Agent
Real-time accountto-account transfers
Customer
Any store can potentially be an agent
The power of using existing infrastructure

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
~3bn
~25m
~1m
250k
Western Union
500k
Bank branches
600k
Mobile Phones
Post Offcs
ATMs
POS
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

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

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?

Customer shares his mobile phone and PIN and it is used
malevolently
Fraudster manages to electronically intercept the clients PIN Client is robbed inside agents store The agents 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?
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?

3. 4.
Recourse/redress mechanisms Market-based mechanisms (e.g., quality seal, satisfaction index, publish data)
5.
6.
Self-regulation, e.g., voluntary codes of conduct

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

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!

Onsumer Protection at The Bottom of The Pyramid (BOP) : Striking The Right Balance Between Access, Protection and Innovation

Uploaded by

Copyright:

Available Formats

Onsumer Protection at The Bottom of The Pyramid (BOP) : Striking The Right Balance Between Access, Protection and Innovation

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Onsumer Protection at The Bottom of The Pyramid (BOP) : Striking The Right Balance Between Access, Protection and Innovation

Uploaded by

Copyright:

Available Formats

Building Financial Systems for the Poor

Consumer Protection at the Bottom of the Pyramid (BOP):

Four key messages

The market at the bottom of the pyramid Whats different?

Consider the CP issues for a low-income consumer . . .

Lets look at branchless banking . . .

The logic of branchless banking: a low-cost transactional channel

Real-time accountto-account transfers

Any store can potentially be an agent

The power of using existing infrastructure

Experience to date with branchless banking

Consumer protection issues in branchless banking

Key consumer protection issues in branchless banking

What can go wrong? Who is responsible?

to the wrong phone number (= bank account number)

Which regulatory tools to use?

Which non-regulatory tools to use?

Self-regulation, e.g., voluntary codes of conduct

Closing thoughts on consumer protection in BOP markets

most important products, providers and delivery channels

Building Financial Systems for the Poor Thank you!

You might also like