Consumer Protection Issues for Digital Financial Services in Emerging Markets

Innovative digital financial services (DFS) are held out as a key solution for greater financial inclusion assisting low-income households to overcome poverty using lower cost methods for managing their finances. However, DFS roll-outs have been plagued by infrequent end-user usage despite high registration numbers. Active usage depends on many factors, however, one crucial factor is to ensure consumers to value and trust DFS. The newly banked must be confident in storing and accessing what little savings they have in a digital format. Consumer protection frameworks for DFS are critical in building that trust and confidence.

This paper explains how financial regulators can assist to instil this trust by viewing the DFS from the consumers’ perspective in the design and development of consumer protection frameworks for the DFS. Regulators must look at how the role and characteristics of the participants involved in the typical payments chain of DFS give rise to consumer risks specific to DFS. For example, the product provider and end-user may never meet face-to-face in the DFS ecosystem – this can create confusion for end-users about accountability. This paper presents a framework of analysis to use in developing consumer protection frameworks focusing on the nature and roles of participants in the DFS payment chain. This paper identifies key principles and responsibilities for regulators, including that regulators address accountability issues. Consumer protection frameworks that meet the specific needs of end-users of DFS will encourage more active use of DFS.