The authors of this report would like to acknowledge the support of the International Dialogue on Consumer Protection in Context of the SDGs, coordinated by GIZ. 

Consumer protection in digital financial services is important for sustainable development. The digitalisation of commerce and financial services has positively contributed to sustainable development by expanding the ability of individuals around the world to engage with the global economy. Rapid growth in the accessibility and use of digital financial services (DFS) has extended the reach and usability of financial services and fundamentally changed the way consumers interact with financial products and services. However, accessibility is only one step in achieving improved socio-economic outcomes. With digitalisation also come new and heightened risks, including in cybersecurity, to which consumers with low digital literacy are especially vulnerable. Without adequate and appropriate consumer protection the trends in digitalisation could reinforce the digital divide and result in negative collective outcomes such as discrimination, over-indebtedness and widening inequality. 

 The fact that DFS trends and risks are dynamic and continually evolving means that traditional rules-based frameworks quickly become out of touch with the realities faced by DFS consumers. In contrast, principle-based frameworks can accommodate new trends and technologies and remain relevant over time and across different contextual settings. Basing frameworks on consumer outcomes, as opposed to financial institution conduct, ensures that financial consumer protection efforts work towards the ultimate objectives they are intended for and align with the broader consumer protection agenda. From the financial consumer protection literature, ten core principles can be identified, aligning closely with the seminal G20 High-Level Principles on Financial Consumer Protection:  

1. Legal recognition
2. Oversight and monitoring
3. Responsible market conduct
4. Access to information
5. Financial education
6. Dispute resolution
7. Prudential protection
8. Data protection and privacy
9. Cybersecurity
10. Competitive financial sector

These ten elements come together and culminate in the overarching principle of fair consumer outcomes, namely that consumers should be treated equitably, honestly and fairly at all stages of their relationship with FSPs, to lead to fair outcomes from the consumer’s perspective. 

The consistent, principles-based application of the financial consumer protection elements, gauged against positive consumer outcomes as ultimate measure of success, provides a sound way for mitigating the main DFS consumer risks – and ensuring that emerging future risks are accounted for. For instance: 

• The increases in fraud risks such as cybercrime, identity fraud, social engineering, SIM swap fraud, hoaxes and scams heighten the need for sound prudential regulation and cybersecurity. 
• Increasing pressure to share data needs to be balanced with effective privacy and data protection to manage data misuse risks such as algorithmic bias; unfair sales and marketing practices; privacy intrusions; and breaches of personal data. 
• Inadequate redress risks such as unclear, expensive, or time-consuming complaint procedures and unsatisfactory dispute resolutions are addressed by giving consumers a more direct voice through various dispute and redress channels. 
• Lack of transparency risks such as misleading advertisements, hidden charges and complex or confusing interfaces or languages can be combatted through the disclosure of information and through financial education. 
• Responsible conduct extends from the service provider to also cover the provider’s agents and the associated agency risks such as the manipulation or unfair treatment of customers, insufficient liquidity and gender norms. 

This report outlines trends in digital financial services and the risks to consumers before discussing the principles of financial customer protection and the policy implications thereof. 

 If you would like to know more about our work on consumer protection you can contact christine@cenfri.org.