Transcript 03.ppt
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 – 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 . . .
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
Let’s 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
Agent
Real-time accountto-account transfers
Customer
3. Use existing
technology in use
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
250k
Western
Union
500k
Bank
branches
~3bn
~25m
~1m
600k
Post Offcs
ATMs
POS
Mobile
Phones
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 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?
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.
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
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!