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More evidence, less poverty
IPA Consumer Protection Quarterly
Issue No. 2 – March 2021
Welcome back to the Consumer Protection Quarterly, IPA's newsletter on the latest consumer protection research across the globe. This newsletter is part of IPA's Consumer Protection Research Initiative
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. Each quarter we send you the latest research, insights, and inspiration for financial consumer protection. If you have something to share, please reach out:
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You are receiving this email because of your past participation in IPA consumer protection or financial inclusion events. If there are others you think may benefit from this newsletter, please forward. You can manage your email preferences here
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What's new and what's next
New: IPA’s new surveys highlight consumer experiences across three digital financial services (DFS) markets
IPA has just published results from our consumer protection in digital finance surveys in Uganda and Nigeria (Kenya coming very soon)—check them out here
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! Prefer to dig into the data yourself? The raw data is available here: Kenya
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, Uganda
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, and Nigeria
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. We hope these surveys inspire more research in other DFS markets. Some highlights from the surveys:
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What are the most common DFS challenges consumers face? We asked consumers about the types of DFS challenges they faced in 2020 and found significant variation by country. In Kenya, phishing scams and mistakes when sending money are common, while agent overcharging is more common in Uganda and Nigeria. In Uganda, issues related to customer care stand out, while in Nigeria unexpected charges and money missing from accounts are relatively common. Interestingly, in all three countries, better-off and better-educated respondents are more likely to report problems than lower-socio-economic respondents. To a lesser degree, the same is true of male and urban respondents.
Over-indebtedness: Mobile loans have become ubiquitous in some markets like Kenya, but should we be concerned about possible consumer protection risks with the rapid expansion of digital lending? In Kenya, more than half of respondents with mobile loan experience reported reducing expenditures, including food expenditures, to repay loans. Other common responses—nonpayment of another debt (47 percent) and using a second loan to pay the first loan (35 percent)—hint at the issue of multiple borrowing.
The role of trust: What are the consequences of bad DFS for trust in the system? In Uganda, a series of trust questions were asked to gauge consumer trust of DFS providers and providers. Respondents who have experienced DFS challenges are less trusting of agents, and the stronger the breach, the less trusting they are.
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Next: Survey of IPA staff on phishing scams
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Scams soliciting money or account information from unsuspecting victims (“phishing” scams) are on the rise globally
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, recently buoyed by scammers exploiting fears related to COVID-19. But how has this affected consumers in emerging markets, where vulnerabilities are different than in high-income countries? With staff working in 22 LMIC countries around the world, IPA is well placed to explore this question. We surveyed 622 of our own staff around the world and found that more than half had received a phishing scam. Phone call scams were most common, though more than 30 percent of respondents reported scams via SMS, email and internet messenger (for example, WhatsApp). Stay tuned for more results coming soon!
New: Using digital footprints to predict whether borrowers will benefit from digital credit
Is repayment the right metric for responsible lending? Repayment rates are a good measure for the lender’s financial health, but they don’t tell us if the borrower was better or worse off. Perhaps the borrower had to take out another loan to pay the first back, had to cut back on other important expenses, or after paying back interest and fees might have been worse off than where they started. But what if we had enough credit data to predict if a loan was likely to make someone better or worse off?
IPA is supporting Professors Daniel Björkegren (Brown University) and Joshua Blumenstock (University of California, Berkeley) to explore how administrative data and consumer survey data can help predict the potential impacts of loans early, during the loan application process. As Daniel describes the research:
Countries are deciding how to manage digital credit providers, and many are considering regulations similar to what is done with traditional loans. But there may be new, digital ways to manage digital loans. One particular issue is that while many people may benefit from credit, some may not. We’re exploring one idea: creating two dimensional, ‘welfare’ credit scores, that predict not only whether a borrower will repay, but also whether and how much they will benefit. We are measuring this impact with a randomized evaluation and a full survey. If it works, socially-minded firms could use it internally to improve their social impact, or regulators could request that lenders report it to monitor the industry and ensure that credit reaches the people who would most benefit.
IPA is excited to be supporting this research, which holds significant potential to identify efficient ways to implement consumer protection policies in digital credit. It may also offer strategies for better balancing trade-offs between increased access to credit and risks for consumers of taking on more debt than they can manage. Stay tuned for more on this project in the coming months.
Next: IPA’s first consumer protection request for proposals is in the books
On February 26th, IPA closed its first-ever consumer protection Request for Proposals
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. We received an excellent range of proposals on topics such as fraud prevention, complaints handling, and reducing over-indebtedness in digital credit. The Review Committee is currently considering the proposals. We look forward to announcing grantees in April.
Things that make us think
A few links to recent research that are sparking excitement on our team:
Can the presence of a low-cost formal credit option reduce the cost of informal credit? Hoffmann, Rao, Surendra, and Datta
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study a randomized rollout of self-help groups in India which provide their members with access to formal savings and loans, and find that these groups substitute and compete with informal credit. This intervention led both to fewer informal lenders and lower interest rates from those informal lenders who remain.
How much does information disclosure matter in consumer protection? In the context of consumer loans in Chile, Kulkarni, Truffa and Iberti
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find that increasing disclosure (of terms, APR, etc.) reduced delinquency by 14 percentage points. Likewise, Francis Annan
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found in Ghana that reminding customers and mobile money agents about transaction prices and complaints lines reduced the agents’ overcharging by 21 percentage points.
Finally, some interesting insights from Europe about data protection and consumer control over their information. Using evidence from the EU’s General Data Protection Regulation (GDPR), Aridor, Che, and Salz
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show that when consumers must actively opt in to data tracking as part of GDPR, there’s a 12.5 percent reduction in total cookies. However, those who tend to opt out are also more likely to use other means of privacy protection—such as cookie deletion—which makes those who remain without these protections even more valuable to advertisers.
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