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> Posted by Sonja Kelly, Director, CFI
A recent Facebook promotion by a U.K. coffee shop offered, “Like us on Facebook and get a free coffee!” This line would totally get me. Wait… all I have to do is click one little button, and I can save $2? Sign me up!
A free cup of coffee, however, was not the only thing that customers received when they liked the coffee shop’s Facebook page. They also got a very “personalized” experience, complete with the barista at the coffee shop rattling off their job, religion, birthdate, address, mother’s maiden name, and more.
Check out the video that documented the customers’ experiences here:
(My favorite part is when the barista says to the customer, “Oh, we know everything about you, Martin.”)
As part of the CFI Fellows Program one of our fellows, AJ Mowl, has been looking at some of the pros and cons of leveraging consumer data for financial inclusion. As she has relayed to me some of the basic facts about big data, I have become more and more aware of just how big big data is—and what the consequences are when I trade access to my data for services.
> Posted by Susy Cheston, Senior Advisor, CFI
Data analytics is a big story these days, and we’re excited about its potential. In fact, we discuss its promise in the Technology, Addressing Customer Needs, and Credit Reporting sections of the FI2020 Progress Report. In terms of credit reporting, data analytics start-ups claim that their algorithms can cull information from Internet searches, social media, mobile apps, and so on to identify creditworthy people who might otherwise be left out of the system.
GO Finance, operating in Tanzania, and Konfio, in Mexico, are online lenders whose models are based on data analytics. GO Finance leverages digital data and mobile money channels to underwrite and manage loans for small and medium-sized enterprises (SMEs), particularly targeting farmer cooperatives and others in the agricultural value chain. Konfio uses credit algorithms based on alternative data to help micro and small businesses obtain working capital loans. Konfio’s digital platform allows for low-cost customer acquisition and rapid credit assessment, enabling the company to offer lower rates. Demyst Data, by contrast, partners with financial institutions – global banks, online lenders, and card issuers. It analyzes online, social, and internal data to help its partners lend to thin-file, underbanked customers. Alibaba’s Ant Financial and its new Sesame Credit use proprietary customer data drawn from non-banking transactions to support lending, with Alibaba’s e-commerce business, financial service provider (Ant), and credit reporting service (Sesame Credit) all arms of the same conglomerate.
For data analytics to reach its enormous potential for credit reporting, there are big questions that need to be worked out. Is it really predictive? Will it really enable more customers at the base of the pyramid to obtain credit? Will customers’ rights to data privacy be protected? How can data analytics be effectively regulated?
> Posted by Susy Cheston, Senior Advisor, CFI
Visitors to our FI2020 Progress Report on Client Protection will have noted our poor math skills. (This is the section of the report that assesses global progress to date in advancing fair treatment for lower-income financial services clients.) We rated regulators a 6 on consumer protection and providers a 3—and somehow averaged those out to a 5. Our averaging skills make even less sense when you consider the three legs of the client protection stool—providers, regulators, and consumers—and realize that consumers are not even on the radar, rightfully earning a 1 at best in terms of their capacity to advocate on their own behalf. So why the optimism?
We were certainly swayed by the impressive momentum among a range of actors at the global level—including policy and private sector initiatives—toward improved consumer protection. But it’s what happens at the national level that really counts. The World Bank’s 2014 Global Survey on Consumer Protection and Financial Literacy reports that some form of legal framework for financial consumer protection is in place in 112 out of 114 economies surveyed. We are not so Pollyannaish as to think that having a legal framework is equivalent to having a regulatory and supervisory system that protects consumers well, but we do think it’s a good step in the right direction.
> Posted by Haset Solomon, Communications and Operations Associate, the Smart Campaign
I rarely think about the cost of convenience. I often use my phone’s navigational system, seeking turn-by-turn directions, but I usually don’t consider the trail of data I’m leaving behind – and even if I do, I decide the benefit outweighs the cost. We live in an age where leaving myriad digital footprints is almost inescapable. Increasingly, we hear of big data analytic companies that “liberate data” or “democratize data” for the purpose of improving products and services or making them more widely available. There are true benefits to advancing our society’s data capabilities and unearthing new patterns and insights. (The phone that tracks my travel can give me advice on promising restaurants nearby.) But the costs can be high. Here in the U.S., the anonymity of “meta” data sets is continually being challenged. Fortunately, in this country consumer advocacy groups and institutions such as the Electronic Privacy Information Center (EPIC), Bureau of Consumer Protection at FTC, and Consumer Financial Protection Bureau (CFPB) are working to address and remedy breaches of privacy and data rights.
In most of the world, similar institutions are nonexistent or under-developed. The fast uptake of technology has opened up large population segments to new possibilities, while leaving them vulnerable. Digital financial services users in developing countries are often choice-less and voiceless on how their data is used.
> Posted by Rafe Mazer, Financial Sector Specialist, Government & Policy, CGAP
It’s a great time to be working on consumer protection. Even while risks change or expand in scope as new products evolve and access increases, it seems that there are just as many talented researchers and new approaches to making consumer protection work emerging. Some of the most important breakthroughs are coming from consumer and behavioral research. This includes insights into what sales staff really do and why (see, for example, this infographic on a recent World Bank/CGAP/CONDUSEF audit study in Mexico), how consumers make financial decisions—not always for purely economic reasons, and what the context of low resources or scarcity means for financial behavior.
The next step is to take these research insights and turn them into improved consumer protection policies in emerging markets. CGAP’s recent publication, Applying Behavioral Insights in Consumer Protection Policy, describes a range of current and potential ways we can bridge the research and policy fields. But what about providers? What can we take from the recent behavioral insights emerging for the Client Protection Principles?
> Posted by Jamie M. Zimmerman, Senior Policy Consultant, CGAP
Achieving financial inclusion by 2020 will depend in large part on the proliferation of fast, affordable, and accessible digital financial services (DFS). Indeed these effective, scalable models were a clear theme at the FI2020 Global Forum hosted by CFI last fall. Yet as excitement for DFS dominated much of the public discussion, a small and diverse set of financial inclusion leaders convened a private side-meeting to discuss an often-overlooked question: what are the consumer risks to these new, innovative digital models?
The meeting, co-hosted by CGAP and UNCDF’s Better Than Cash Alliance, introduced the concept of “responsible digital finance” and revealed heightened awareness of and interest in an array of issues related to the potential consumer risks of digital financial services, including:
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