My January article introduced you to Consumer Protection in DFS, why it is important from a business perspective in order to create sustainability, and why regulators are focusing on it. It provided links to the various International Guidelines on Consumer Protection applicable to DFS and suggested a high-level approach for you to follow to incorporate consumer protection into your company culture and processes. In this article I will be using the DFS Framework to perform a deeper analysis of consumer protection issues in each of the DFS Focus Area’s that make up your DFS Go-to-Market Plan.
DFS Consumer Risk and Protection Controls
Consumer protection starts with risks to consumers (because they now start using your service) and ends with controls you should implement to mitigate those risks e.g. consumer protection guidelines. Often these guidelines are laws enforced by the regulator and the courts, and there is sometimes an independent agency created (e.g. Consumer Financial Protection Bureau in USA) to champion the cause of the consumer. The format differs based on each country and you should find out what applies to you. These guidelines as well as many DFS Risk assessment publications are freely available allowing you to perform a self-assessment through internal mechanisms (e.g. compliance, risk management or audit functions), or, to follow an external certification processes available through independent assessors. I recommend certification, as it proves your commitment to both your customers and regulator, and can bring significant brand value.
I have done the heavy lifting by reviewing these documents and consolidated the issues to provide you with a scope of work for implementing consumer protection in each DFS Focus Area that you manage. A list of documents referenced and links to them is provided at the end of this article.
Your Product Proposition involves clearly understanding the market, identifying the core value that meets customers’ needs and then ensuring it is affordable, simple, innovative and social impactful. Consumer protection requirements are essentially the same, but want you to take special care to design products that do no harm and carefully consider your customer characteristics.
- Have a product development and management policy that includes consumer protection as an objective, supported by your mission statement and customer centricity objectives.
- Conduct appropriate market research regularly to understand client’s needs, preferences, behaviour, capabilities and security concerns, including literacy and numeracy rates, their understanding of technology, their financial capability, types of channels used and potential fraud threats they may face. Understand the gap between user’s expectations and what services will actually be offered, and how to take them on the journey to comfortably using your product. Focus group discussions are particularly helpful.
- Conduct satisfaction surveys and use other means of gathering client feedback on product performance, including customer care and other service touchpoint information.
- Analyze product performance per customer segment and fully investigate the reasons for inactivity (dormancy) and churn (cancellation).
- Avoid tying products together (forcing customers to buy one product in order to receive another) and excessive bundling (selling two or more products together) which makes comparison between products particularly difficult for customers.
- With regards to credit products ensure your collateral policy does not create unnecessary hardship for the client given their financial situation and is in line with market standards.
Competition and Fair Treatment
- Embrace competition by making your products easily comparable to the market (to the consumer’s eye), and allow customers to easily switch to a competitor without termination fees, penalties or delays.
- Support collaborative and industry-led interoperability initiatives in the market so that customers can transact with anyone no matter which service they belong to, and that barriers to access are reduced (like exclusive agent networks). Agree with regulators when the right time is for interoperability so that a balance is achieved between investment incentives for providers and what’s good for the customer.
Immediate settlement and Liability
- Only authorize customer transactions where the account settlement is immediate (debits and credits happen in real-time). Wholesale settlement of funds between financial ecosystem partners does not necessarily need to be real time upon each customer transaction, but it must be done regularly and be properly reconciled to ensure availability of funds to conclude customer transactions in real time.
- Be clear about exactly when, how and under what terms a customer has authorized a payment. For future payments, like scheduled payments or authorization to debit instructions, allow users to enter parameters such as limiting the time period for which an authorization is valid, the amount, and the payee. Also, allow consumers to easily revoke authorization.
- Have clear rules on the rights, liabilities and responsibilities for each party involved in any electronic funds transfer, and especially if there is a corresponding cash transfer. In the absence of payment scheme liability rules (like those for credit cards for example) determine your own for issues that may arise as a result of fraud, transactions in error (e.g. money sent to wrong person) and transactions made without the user’s consent (e.g. a child performing a transaction without a parent’s knowledge). Publish your policy, educate users and train customer service staff in how to deal with these situations quickly and in a caring manner.
- Set pricing that is affordable to customers while allowing you to remain sustainable. A pricing policy setting out targeted financial ratios as per your business plan (benchmarking against the industry in similar markets would be useful, where this information is available) as well as expected deviations from market pricing to match brand positioning can be set out and monitored (by your board of directors), and shared with the regulator.
- Actively debate opportunities to reduce pricing and interest rates in board meetings.
- Do not abuse a dominant market position by regularly benchmarking pricing against similar markets.
- Advise customers of charges prior to a transaction being authorized. Ensuring pricing information is visible at outlets and through other media is great, but it would be better to technically advise the customer during the transaction flow prior to the authorization confirmation, using “advice of charge” functionality when available. Including loyalty “points” information at the same time would be useful to a customer’s decision making. Tap and Go transaction process flows must balance user convenience with providing timely charges information in use cases where the customer is responsible for transaction costs.
- Advise customers of charges after transactions have completed by providing simple and clear transaction receipts and billing statements adequately describing the other party as well as the charges levied by each entity involved in processing the transaction.
- Have a policy on how to deal with dormant and deceased accounts, and comply with any legislation covering unclaimed financial assets and succession. Provide options for clients to identify and manage beneficiaries in case of certain events occurring. Ensure you communicate this to clients and have call center staff trained on how to handle these events.
- Have a policy on how to deal with group accounts with regards to identifying beneficial ownership (and succession), liability (and how it extends beyond the registered owner of the account to members of the group) and exposure with regards to suspicious activity under AML/CFT laws.
DFS providers that offer services via an agent network channel understand that coverage and quality is essential, as well as creating a balanced value proposition for the agents and managing service availability through agent training and liquidity management. Again, consumer protection issues largely mirror your commercial objectives. With the agent network being a major operational effort and expensive to maintain, you are often faced with conflicting choices between driving coverage, ensuring quality of services, and sustainably remunerating the agents themselves. To help you focus though, the many Agent Network Accelerator (ANA) research reports and subsequent insights (http://www.helix-institute.com/) show a direct improvement in the performance of agents where the DFS provider focusses on consumer protection issues.
- Have an agent recruitment and selection policy and procedure in place that has specific selection criteria for new agents (financial health and skills to perform KYC, customer education, training, record keeping and fraud detection) as well as performing additional due diligence procedures like watchlist screening on agents, their staff and owners.
- Increase competition among agents and consumer choice by increasing agent numbers in areas where agents are particularly busy.
- Accept that you are responsible for the actions of your agents, and ensure that all your staff are aware of this. Ensure you have a contract signed with the agent that details liability (e.g. Regulation 37 of Tanzania’s Electronic Money Regulations, 2015, states “A payment service provider is liable to its customers for the act[s] and omissions of its agents performed within the scope of the agency agreement.”), security requirements (agents responsible for physical cash security and losses, e-money agent vs banking agent requirements potentially differ), liquidity requirements (minimum cash and float balances) as well as specific “do’s and don’ts” emphasizing behaviour expectations (such as physical violence, fraud, deception, misuse of personal information and discrimination). Be clear in the contract on sanctions against the agents in case of non-compliance;
- Ensure you have clear signage at all agents identifying the DFS provider that is ultimately responsible for the service, and indicate contact details which customers can use for complaints. Insist that agents display on premises any signage disclosing product information, transaction limits, terms and conditions and tariffs. You must remove signage from any agents that are no longer active.
- Monitor the agent’s performance and signage through regular scheduled onsite checks, mystery shopping or customer satisfaction surveys (speaking to actual customers) at agent premises and without fail enforce sanctions if agents are found to be non-compliant.
- Make training of your agent’s compulsory and ongoing by setting a training policy and procedure, and implementing digital tools (field marketing software) to manage and enforce the process with an actual agenda to guide each training session. Have regional training “auditors” whose only function is to test the quality of the training the agents have received.
- Have formal training material you can leave behind with the agent to assist with recall and to help agents train customers on products. Training material should include at a minimum how to use the service, how to communicate with clients, security safeguards (for example in relation to PINs), customer recourse mechanisms, and prohibited practices (for example in relation to fraud and discrimination);
- Implement an agent call center for inquiries, problem management and product information (a toll free IVR is ideal for agent product training). Provide a mechanism for agents to request more training (IVR or SMS line perhaps) in case they have replaced staff or added new staff.
- Monitor agent’s performance (activity of the customers they registered, cash in, cash out) and use this as input to increase education and monitoring for poor performing agents.
Removing any conflicts of interest
- Regularly review your commission structures paid to agents to ensure that they do not encourage agents to act in a way that is detrimental to customers e.g. denial of service for low value transactions (low commission) or high value transactions (protection of cash balances to service more profitable smaller transactions, or security concerns because of high cash balances), performing agent assisted transactions (OTC) instead of depositing into the customer’s wallets, forcing customers to split transactions to maximize commission earned, aggressively selling or opening customers’ accounts to earn commission without the customer understanding what is happening.
- Monitor agent’s transaction patterns to identify where they may be negatively impacting customers for their own benefit, e.g. multiple transactions for same customers soon after each other, high incidence of OTC transactions from another wallet linked to the same agent, multiple registrations in quick succession, or no secondary activity on customer accounts opened by the agent.
- If you cannot avoid conflicts of interest in your agent channel be sure to disclose this to your customers explaining to them how agents earn their commission. Emphasize in agent training that they should respect the clients right to refuse to use your products and services.
Reducing liquidity constraints
- Roll out the agent network in conjunction with customer growth to ensure expanding liquidity facilities. Report daily from the e-money platform on agent float balances at end of day and visit agents consistently below agreed / contracted balances to address any issues. Help agents by producing system generated SMS alerts when they are running low on float. Perform analytics on agent transactions to evaluate optimal cash and float balances needed at various times of the day.
- Develop as many real-time float purchase mechanisms as possible and try to get sales points to come to the agent’s premises to reduce the need for the agent to spend time away from their shops. E.g. an API interface with your banks holding trust accounts to allow immediate float allocation (within internal control boundaries), toll free lines for agents to call their super agents and aggregators to request float rebalancing, free agent to agent float balancing transactions, establish distribution partnerships with strong B2B supply chains (e.g. soft drinks, breweries) that regularly visit agent locations on route plans, or provide your own runners to rebalance agents at their premises (balancing this with cash loss risk and the physical risk to your employees);
- Potentially provide a credit scheme to agents to allow them to rebalance immediately and then pay back later, possibly in partnership with an authorized credit provider. Consider a cash theft insurance scheme for your agents, potentially co-financed by the DFS provider as a loyalty scheme.
- Encourage agents that are also merchants to accept e-money as a form of payment instead.
- Plan float and cash requirements carefully before implementing any new major bulk payment schemes (e.g. government social schemes), establishing a sustainable cash distribution model before launch with costs identified and budgeted for, including any safety related costs. The goal is to avoid customers having to make alternative plans to receive their money like sharing PIN codes, or pooling e-money in one account to save themselves from unsuccessful trips.
Prevent overcharging by an agent
- Continually educate customers to use their own wallet to perform transactions instead of using OTC (agent assisted) services wherever possible, reducing the opportunity for agents to overcharge the customer. Monitor OTC activity on agent accounts and on separate accounts the agent may own from which they perform OTC transactions, and implement mechanisms to reduce ‘illegal’ OTC transactions (i.e. OTC is not a part of your business model).
- Advise customers of all-in transaction charges in real time during the transaction before confirmation, as well as on signage at the agent location. Educate them not to accept overcharging, and if they are forced to accept it, then provide an anonymous toll free line for them to report agents that are overcharging, and follow up with sanctions against the agent.
Enabling Regulations are cited as a key determinant to the success of DFS in any market, and consumer protection is a major component of these regulations. The DFS providers attitude to the regulator and their approach to practically implementing the regulations can make all the difference between a successful market and one that might suffer from restrictive requirements.
DFS providers approach to regulations helps improve consumer protection
- Working in a well-regulated market stimulates fair competition and is good for both your customers and the shareholders of your business who would prefer a predictable and rational investment climate. Therefore, get licensed, and help the regulator build the rules that shape the industry (i.e. you will help make them enabling). Understand the requirements, help make sure they are practical and implement the rules to avoid sanctions. Identify a code of conduct that you can subscribe to, and get yourself certified, then use all your PR and marketing channels to tell your regulator and your customers that you care about them and their country.
- AML/CFT rules helps protect consumers from being victims of crime, and I’m not talking about the act of money laundering, but the crime that lead to the money being laundered. Buy a good AML system, hire an Analyst, appoint a senior MLRO, get Board commitment to monitor AML activities and diligently train staff to perform the procedures. Not only will you avoid fines and be seen as a good corporate citizen, but you will actually save money if you do it the right way and invest heavily in fraud and AML analysis and prevention.
- Risk based KYC procedures are crucial to the development of DFS and impacts heavily on your product design and operational procedures. Work with the regulator to clearly define the KYC requirements for opening accounts and implementing transaction limits. Your customers don’t want to be precluded from using your services because they do not have the right ID type, so try and cast the net as wide as possible. Also, have the regulator agree to digitization of the KYC collection process using new mobile technologies in remote areas, a reasonable attitude between both parties here will mean effective KYC reducing risks but also being as inclusive as possible for the customers.
As you can see, so many of the consumer protection requirements (and identified controls to prevent consumer risks in DFS) are business as usual. It helps though to have a definitive list of items you can work on, and provide evidence of doing so, to show that you are actively addressing the concerns. You engagement and relationship with the regulator and your customers will significantly improve, leading to a more sustainable business case for your DFS service.
By Dylan Lennox
The following International Guidelines for Consumer Protection and Risk Management in DFS were used in the preparation of this article.
Box 1: International Guidelines on Consumer Protection
Box 2: Guidelines and articles on Risk Management in DFS