Digital finance presents both opportunities and risk to vulnerable groups

This year’s World Consumer Rights Day, March 15, 2022, sparked the first-ever global conversation on the consumer vision for fair digital finance as it was the for the Day: Fair Digital Finance. 

Digital technologies are reshaping payments, lending, insurance and wealth management, becoming a key enabler for consumers of financial services. However, in recent years and exacerbated by the COVID -19 pandemic, consumers are increasingly exposed to scams, frauds, phishing and data malpractices, Consumers who experience economic hardship are particularly vulnerable to these harms.

To address the most pressing issues faced by consumers in digital finance, Consumers International and our global Membership developed a Consumer Vision for Fair Digital Finance. The Vision sets out questions for decision-makers from a consumer rights perspective to build a digital financial marketplace that is inclusive, safe, data protected and private, and sustainable for everyone.      

Finance experts have estimated that by 2024, digital banking consumers are expected to exceed 3.6 billion. In the developing world, the proportion of account owners sending and receiving payments digitally has grown exponentially. For instance in Ghana, the number of mobile phone money accounts increased by 18.49 per cent to 38,473,724 at end of December 2020 from the 2019 position of 32,470.793, according to Payment Systems Oversight Annual Report, 2020 issued by the Bank of Ghana.

Digital finance brings new opportunities – but also new risks that can lead to unfair outcomes for consumers. Digital finance can increase the likelihood that the most vulnerable are left behind. 

Digital Financial Services can empower consumers, everywhere. To achieve this, digital financial services must be inclusive, safe, data protected and private, and sustainable.

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Building financial inclusion and resilience are vital for thriving communities and economies. We want digital finance products and services that help us alleviate poverty, avoid debt, create jobs, grow health and wealth and help us plan for the future in a sustainable way. Digital finance services can help in many ways. But it will take effort.

To maximise the benefits and prevent consumers being harmed, consumer associations such as ours, the Consumer Advocacy Centre Ghana, government, industry and civil society organisations must work together to create a fair, safe and sustainable marketplace for all.

Globally, financial regulatory frameworks have been designed to deal with the presence of digital technologies, however, many still lack effective consumer protection mechanisms and appropriate supervision and enforcement capacity. Equally, some providers of digital finance are ignoring the needs of consumers and actively leaving them exposed to vulnerabilities. The use of technology and the possibility of a cashless society create new risks and deepen existing within the financial services sector.

Technology is vulnerable to hackers and illegal actors creating substantial risks to security and privacy. Frauds and scams are increasing. Consumers risk not just loss of money but loss of personal and biometric data too, which can never be recovered.

Digital inclusion is increasingly a precondition for financial inclusion, for example the Ghana Card has become  prerequisite for banking transactions. Global gaps in connectivity impede broad-based access to digital tools. Personal computers and mobile phones have replaced the bank branch but assume networks and devices are both available and affordable. Low digital and financial literacy is common and unequally spread across generations. These factors are creating and exacerbating digital divides.

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Digital finance has the potential to transform the livelihoods of consumers if it is supported by effective consumer protection frameworks that exist alongside cash-based payment options. Building well designed digital financial services and infrastructure can offer safe and innovative ways to engage with financial services and improve financial health.

Digital finance products and services can increase our understanding of consumer experience and thereby accelerate inclusion. Digital transactions can create digital footprints and new ways to define creditworthiness, widening access to loans, if used fairly and with effective oversight. Personalised services can give people more visibility and control over their money and help build resilience. Automated savings can help people save small amounts with ease. Certain platform services give rise to more accessible investments, at lower costs. Emerging financial technologies have provided a growing number of sustainably-minded digital financial services providers with the necessary tools to offer transparency to consumers on their sustainable consumption practices.

Digital technologies will continue to reshape all forms of financial services, including payments, lending, insurance, and wealth management everywhere – a process that the COVID-19 pandemic has accelerated.

This Vision for Fair Digital Finance asks all stakeholders to play their part. Fair digital financial services need to be underpinned by consumer-centric policy and trustworthy systems. The design and delivery of products and services should be informed by consumers and their representatives.

The digital finance ecosystem must deliver better value and create financial health and resilience for everyone, no matter where they are.

By Prof. Mrs. Goski Alabi, President, Consumer Advocacy Centre Ghana

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