IPA Consumer Protection Quarterly | April 2024

Welcome back to the Consumer Protection Quarterly, IPA's newsletter on the latest consumer protection research across the globe. This newsletter is part of IPA's Consumer Protection Research Initiative (CPRI). Each quarter we send you the latest research, insights, and inspiration for financial consumer protection. If you have something to share, please reach out: [email protected].

What’s New & What’s Next

What's New: IPA Nigeria and The Central Bank of Nigeria Host Inaugural Consumer Protection Forum

IPA Nigeria and the Central Bank of Nigeria hosted a Consumer Protection Forum for Financial Institutions with the theme “Feedback to Foresight: Proactive Consumer Protection in Financial Services.” This inaugural workshop was held to share market data and insights on consumer protection, critical challenges, risks, and market trends. It was also an opportunity for stakeholders to discuss policy recommendations for the financial industry.

What's New: Ugandan Mobile Money Customers Are Facing A Sudden Price Hike

Recently, Airtel mobile money users in Uganda were caught off guard when they noticed a new hike in fees. Price changes with limited accompanying notification to consumers, combined with minimal pricing disclosure by mobile money agents, as documented in IPA's Transaction Cost Index, can lead to unwelcome surprises to consumers and a breakdown in trust between financial service providers and their customers. What were the changes and who will they impact? Our new blog helps answer these questions.

Note: Since the blog was posted, Airtel updated the price list posted on X, correcting the discrepancy with the price list posted on their website.

What's New: New Evidence on Consumer Awareness: Can Pakistan’s Instant Payment System RAAST Unlock Financial Inclusion?

IPA along with researchers from the University of Sydney and the Lahore University of Management Sciences partnered with Karandaaz Pakistan to embed a survey module. This module studied the state of instant payments in Pakistan from the users' perspective, with a specific focus on RAAST, Pakistan’s first instant payment system. RAAST enables users to instantly transfer funds between accounts at different financial institutions at no cost, which is especially useful for merchants. According to the Karandaaz Financial Inclusion Survey, the rate of account ownership in Pakistan has increased to 30 percent in 2022; however, based on the World Bank’s Findex data, only 1.1 percent of adults made a digital merchant payment in 2021 in Pakistan, indicating a lack of consumer trust in digital payment methods.

So the question is, given this gap between account ownership and the use of digital merchant payments, how can an instant payment system change the Pakistani financial inclusion landscape? This survey module found that there might be some divergence in consumer usage: financially- included consumers are relatively likely to use RAAST and possess some level of awareness about it. On the flip side, there is a significant group of financially excluded consumers who have limited experience and knowledge of RAAST. So more research will need to be done to address consumer awareness. Check out the blog to read about the other insights.

What's New: The Promise and Harms of Digital Credit: What Does the Evidence Say?

A new evidence synthesis by IPA and the Center for Effective Global Action (CEGA) supported by the Bill & Melinda Gates Foundation focuses on studies investigating the welfare impacts of digital credit, the forms of misconduct associated with digital credit, and the effectiveness of consumer protection tools. The report narrows in on the topic of Mobile Instant Credit —small digital loans that are primarily marketed and used for consumption—and airtime loans, which together comprised the first wave of credit digitization. Read more about the report and a summary of the findings and the policy insights, in this blog from IPA and CEGA.

What's Next: Updates from a CPRI Funded Study

In 2021, IPA launched a project in Ghana to measure the impact of fraud recognition and avoidance training on encouraging female microfinance consumers to take up mobile banking services. Fast forward a few years later and now we have some interesting results that highlight the importance of peer endorsement in financial inclusion and consumer protection. Overall, researchers found that while individual monetary incentives increase adoption of mobile banking services by 50 percent, adding endorsement by a peer doubles the impact of the individual subsidy alone. Additionally, peer endorsement is particularly effective at increasing confidence in dealing with fraud and peer interaction around mobile banking. You can read more about the methodology and findings here.

Things That Make Us Think

Blog: Digital financial services (DFS) are a major driving factor of financial inclusion in Senegal. But as DFS usage increases, so do the risks to consumers and financial inclusion efforts. A national survey conducted by CGAP in collaboration with the Financial Services Quality Observatory (OQSF, for its initials in French) and IPA, reveals significant challenges. 90 percent of DFS users have been exposed to at least one risk in the last 12 months, and 32 percent have lost money due to a risk they faced. In addition, 39 percent have faced difficulties in using DFS due to lack of digital and financial literacy. A new blog by CGAP dives into the specific findings of the survey, highlighting four major challenges faced by mobile money users in Senegal.

Report: In a new report from the Center for Financial Inclusion, researchers look into how strategically adding friction to DFS can benefit both lenders and borrowers. The report outlines that there are clear linkages between inserting positive friction into the design of financial products and delivery models and consumer protection. Read more here.

Report: How can we leverage transactional data for credit scoring for micro and small enterprise lending? This new report from CGAP highlights two case studies to help answer this question. Overall, the evidence shows that (1) Transactional data can have similar predictive power in credit scoring to credit history. (2) Combining transactional data with credit history can result in better predictions than either of these data sets by themselves. (3) These results hold under different circumstances, including for both different types of MSEs and different types of credit histories.

Article: As digital credit continues to expand across emerging markets and economies, new challenges to protect consumers arise for policymakers and practitioners. A new paper from Rafe Mazer and Seth Garz aims to provide a policy case study to capture and interpret key facts of the development of the digital credit market in Kenya within its first 10 years. Overall, this research suggests that policy responses in Kenya often did not fully address the growing consumer risks in the country. Read more to see their five policy recommendations based on this case study to support consumer protection and competition in emerging digital credit markets.

Paper: Africa leads the world in mobile money adoption while cyber attacks and fraud are rising. This led to the creation of the Cybersecurity, Capacity Development, and Financial Inclusion (CyberFI) project—to examine the potential impacts of Africa’s significant digital transformation and how to promote inclusion while mitigating the negative side effects. So how are new efforts faring to increase security and trust in digital financial inclusion? Check out the Carnegie Endowment’s recent paper to learn more, broken down by four main stakeholder groups: governments, firms and businesses, consumers, and donors, and the digital development support community.

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