Customer Centricity and Regulation and Supervision for Digital Finance. Eric Duflos, CGAP Regional Representative Sydney, 11 December 2015

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1 Customer Centricity and Regulation and Supervision for Digital Finance Eric Duflos, CGAP Regional Representative Sydney, 11 December

2 Outline 1. About CGAP 2. Why customer centricity is essential for digital finance 3. How to integrate customer centricity into regulation and supervision of digital finance

3 About CGAP CGAP (the Consultative Group to Assist the Poor) is a global partnership of 34 leading organizations that seek to advance financial inclusion. CGAP develops innovative solutions through practical research and active engagement with financial service providers, policy makers, and funders to enable market based approaches at scale. Housed at the World Bank, CGAP combines a pragmatic approach to responsible market development with an evidence-based advocacy platform to increase access to and use of financial services the poor need to improve their lives. More information and publications on 35

4 CGAP V Key Priorities Five priorities broken down into eight initiatives CGAP FIVE PRIORITIES DEMAND 1. Understanding demand to effectively deliver for the poor 2. Financial innovation for smallholder families CGAP EIGHT INITIATIVES 1. Customers at the Center 2. Graduating the Poor 3. Innovating for Smallholders SUPPLY 3. Developing robust provider ecosystems 4. Inclusive Payment Ecosystems 5. Digital Finance Frontiers POLICY 4. Building an enabling and protective policy environment globally FUNDING 5. Promoting effective and responsible funding for financial inclusion 6. Global Policy Architecture 7. Protecting Customers 8. Guidance for Funders 36

5 Three CGAP V Initiatives most relevant for this workshop Initiative Most Relevant to this Workshop Customers at the Center Without customer centricity achieving scale and use of products are difficult: CGAP will influence providers to embed customer centricity Global Policy Architecture Policy makers grapple with presumed inclusion tradeoffs: CGAP engagement will improve balance of inclusion with other policy objectives Protecting Customers Limited knowledge of customer risks, behavior, and protection options: CGAP will share insights that improve policies and provider practices 37

6 Low usage (and low quality) of digital financial services is a major challenge that we need to tackle Dropping off the customer journey In 2014, GSMA recorded 242 Mobile Money deployments, with 68% of users being inactive (<1 transaction in 90 days) Graph from GSMA s State of the Industry 2013 Mobile Financial Service for the Unbanked In the Pacific the lack of usage is particularly acute (close to 90% in some countries 38

7 Customer Challenges Economic and social reality of customers should guide financial solutions I personally deliver money to my mother. I take a bus and then a motorcycle. Her village is so remote that she has to walk away from her home to get mobile reception. James, Kumasi, Ghana. Mobile Money? I ve heard of it. But I seriously don t know anything about it. I don t have money, so it s not for me." My susu collector ran away with money two years ago. I went to the office and it had disappeared. I then started saving money in my own box at home. I dip into it though, sometimes. Grace, Kumasi, Ghana. There are lots of scams. Ethel, Nairobi, Kenya Marian, Kumasi, Ghana. Photo Credits: CGAP (Yanina Seltzer) 2013; Continuum

8 Examples of customer challenges (links to customer protection) It can be difficult and costly to ask for help when you have technical problems. Correcting a problem can take a whole day plus transport. Philippines user Sometimes agents are not able to give us proper information and they are not sincere in their behavior Bangladesh user What happens is that you call the bank and you fall asleep because nobody answers. Colombia user Sixty percent of people cannot do it [use mobile money]. They cannot send money on their own. They don t want to learn it. What can I do? - Bangladesh Mobile Money Agent Quotes from FII Quicksights Report in Bangladesh, CGAP/BFA Research on Emerging Risks to Consumer Protection: Key Findings in Colombia & Microfinance Opportunities Insights to Action 40

9 Provider Challenges Access and use the main challenges, implementation is more than a concept Lack of customer centricity a major cause Client interfaces badly designed (ranging from face to face, ATM screens, Phone Screens) Confusing products & functionality not understood by frontline staff, nor by HO staff Habib Bank - Pakistan Start with the client, granular understanding of needs, preferences, aspirations, context, translated into good customer experience design (includes product, delivery, empowerment), and going beyond design, embedding customer centricity in the organization Photo Credit: Continuum Pakistan, 2013 Photo Credit: AJ Rudin, CGAP Photo Competition

10 Customer Centricity as a Business Model 42 A strong dialogue between providers and customers is required to better understand, design and deliver services

11 Five Pillars of Customer Centricity Consistently delivering positive customer experience to create value for all Leadership and culture (customer focused leadership and culture) Focusing operations (focusing operations on the customer - compliance, risk, IT, HR, finance, marketing, legal, training) People, tools and insights (collecting information, generating insights, informing strategy, informing customer value propositions and empowering employees) Customer experience (based on insights generated, design, concepts, test, build, delivery, scale and renewal) Creating value (creating and measuring value: at customer, firm and society level) Current emphasis on design, need much more to move to the implementation of customer centric solutions, embedding customer centricity in organizations needs these pillars 43

12 Partners Working together to test and learn with reference FSPs AMK - Cambodia Barclays Africa Group Limited several countries BPI Globe BanKO Inc. Philippines (now changed) CARD Pioneer Microinsurance Inc (CPMI) - Philippines Digital Money Myanmar Ltd. - Telenor Eko India FS Private ltd - India Equity Bank ltd - Kenya Fidelity Bank Ghana Ltd.- Ghana IFMR Rural Finance and Services Private Ltd. - India Kenya Post Office Savings Bank - Kenya MicroCred - Senegal MicroEnsure - Kenya Orange Money - Madagascar Zoona Transactions, South Africa (Zambia, Malawi) Pt. Bank Tabungan Pensiunan Negara (PT BTPN) - Philippines Janalakshmi Financial Services - India Application Selection Diagnostic Project identification Type of Projects Share learning 80 firms 16+ firms 15 firms, more later with self applied version Diagnostic and strategy sessions 5+ firms As per the FSP and CGAP requirements The Guide, Partner events and Workshops 44

13 How can regulators and supervisors of DFS be customer centric Understanding behaviors, linking regulation to demand side analysis There are several ways for regulators to better understand the customers: - Immersion - Consultation with industry players - Behavioral research - etc 45

14 Behavioral research matters more for BoP financial consumers Scarcity and stress of low, informal income can impact decision-making Social & economic barriers to (complex) formal finance & suitable products Increased access via innovative channels and platforms Lack of research and data on these consumers, providers, and markets 46

15 Behavioral economics matter in financial consumer protection because Financial products are particularly complex Trust is key for products and financial sector overall Certain business models exploit consumer biases Economic consequences of financial mistakes particularly harmful for low-income consumers 47

16 Some consumer protection policy success cases Mexico Suitability & sales practices Mystery shopping Lenders handled high-debt shoppers who asked for loans appropriately BUT ID d misaligned FSP & sales staff incentives Offer of [mandated] low-cost, no frills basic savings accounts to small-balance depositors negligible Kenya Transparency & Disclosure Price awareness/sensitivity Consumers aware of P2P price reductions but not exact fees (& cite old tariffs) 35% of PayBill customers think it is free ID d priority competition and transparency issues in MM for full competition inquiry Malaysia Suitability & sales practices Mystery shopping, behavioral mapping Limited usage of official suitability & disclosure forms Steering of consumers to inadequate products & hi-cost renewals Friends and family sales process exacerbates consumer biases Mexico Transparency & Disclosure FGDs, Mystery Shopping, Lab testing Consumers more easily ID lower cost among 5 credit options with Total Cost in nominal vs. % terms Consumers do worse with more product features in comparison tables Product info overload impedes effective decision making and product comparison. CONDUSEF reviewing use/impact of Total Annual Cost in credit products Ghana & Kenya Recourse Icon mapping of consumer complaint experiences, FSP systems and behavioral barriers Challenge to push digital recourse channels while consumers prefer face-to-face interaction Set recourse expectations w/positive framing & clear time commitments cultural differences in trusted channels FSP dialogue on industry-wide complaints handling mechanism Philippines Transparency & Disclosure Mystery shop, FGDs Wide variance in compliance with disclosure reforms Limited impact of single reforms on overall disclosure quality. 48

17 When thinking about pre-sale and choice of financial products and services, there are a number of critical elements to consider 1. Content of information 2. Timing of information delivery 3. How the choice and product is framed 4. Source of the information 5. Channel This becomes even more complicated when transitioning from traditional, brick and mortar products to digital financial services 49

18 Example I Disclosure of prices and fees Tariffs are widely published at agents, but often unavailable at the time of the transactions 50

19 Example I Disclosure of prices and fees Even after a significant change in M-Pesa tariffs in August, 2014, unavailability of price information leads to limited price awareness: Could it be that cutomers didn t feel the transaction at the point of sale? Yes! The super-users in our sample did respond to price chanes, price optimizing 33% more than all other users. 51

20 Example II. Engaging Policymakers in Behavioral Research and Design Bank of Ghana/CGAP/GiZ used a behavioral mapping of actual consumer complaints experiences to develop a new Recourse Directive and signage to be posted in all branches. 52

21 Where do we go from here? CGAP Behavioral Research and Consumer Protection Agenda: Disseminate field-tested tools: Mystery shopping technical guide; lab and field-based tools for testing disclosure impact; behavioural mapping diagnostic methodology Complete testing on digital credit and other DFS products and move towards responsible industry standards Turn more consumer protection policymakers into behavioralists (Partners wanted!)

22 Selected CGAP Publications Regulating Banking Agents (2011) Regulating-Banking-Agents-Mar-2011.pdf Supervision of Bank and Non Banks Operating through Agents (2015) Doing Digital Finance Right (2015) Finance-Right-Jun-2015.pdf Applying Behavioral Insights in Consumer Protection Policy (2015) Behavioral-Insights-in-Consumer-Protection-Policy-Jun-2014.pdf

23 Advancing financial inclusion to improve the lives of the poor 55