<a href="https://libra.org/en-US/">Libra</a>, a new digital currency backed by blockchain technology and introduced today by Facebook, has the potential to reach any consumer with a digital connection. It’s exciting news for the 3 billion people worldwide who are currently unserved or underserved by the world’s financial sector. In addition to leveraging connections between people already on the world’s largest social network, the platform will be leveraged by many innovators -- starting with an impressive <a href="https://mashable.com/article/facebook-libra/">array of founding members</a> -- enabling people across the globe to transact and access new products securely. While this represents a huge opportunity, there’s also a responsibility to ensure that access to the platform and new financial service customers’ data and funds be safeguarded.

The value proposition of a global payment infrastructure has been recognized before, with many innovators moving into this space to launch solutions tailored to the underserved. Yet, the potential scale of Libra, through familiar and popular platforms such as WhatsApp and those of other founding companies, is a potential game changer. Libra has the potential to add a streamlined payment feature in millions of people’s phones – without even requiring that they download a new app.

At the <a href="http://smartcampaign.org/">Smart Campaign</a>, we’re enthusiastic about the potential for partnerships and innovations through Libra, which will be governed by the independent, non-profit Libra Association. Vulnerable unbanked and underbanked populations still face challenges to access high-quality and trustworthy products. Libra will allow a wide range of innovators to develop creative solutions, backed by secure technology.

Ensuring the privacy and security of client data is at the core of building lasting trust in a digital world. Providers can strengthen their privacy and security practices by having:
<ul>
 	<li>Sound data collection and storage policies</li>
 	<li>Clear guidelines about when and with whom to share data</li>
 	<li>Informed consumers who have meaningful choices in regard to the handling of their data</li>
 	<li>Systems to detect and respond to fraud</li>
</ul>
Those are a few of the safeguards that the Smart Campaign promotes with providers and is helping providers to implement. Together, we can ensure that the products and services that are developed to use the Libra platform create trust and value for both providers and customers.

The <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a>, which form the cornerstone of the Smart Campaign’s work, provide a framework to anticipate and evaluate the consumer risks introduced by blockchain innovations. We look forward to working with innovators in the Libra community, as we have with our <a href="https://www.smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a>. Similar to our work with Fintech Protects, we hope to promote greater awareness and consensus among Libra innovators on consumer risks in digital financial services and how to mitigate them.
<blockquote>We hope to promote greater awareness and consensus among Libra innovators on consumer risks in digital financial services and how to mitigate them.</blockquote>
There will be adoption challenges for any cryptocurrency among low-income consumers. Over a decade of learning about the needs of this customer segment has shown us that appropriate product design requires a feedback loop between consumers and those developing the products. We know that payments can be an on ramp to access, but that <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-hype-vs-reality-deconstructing-the-2017-findex-results/">does not guarantee consumers will make meaningful use</a> of other core financial services, such as credit, savings, or insurance. Thinking through the last mile use cases for Libra, including cash out points and merchant transactions, will be key, as will anticipating the risks that can damage consumer trust. Our goal is to ensure that new financial products aren’t just exciting new innovations, but that they actually deliver quality, appropriate, fair and trusted services.

Libra: With Opportunity Comes Responsibility to Safeguard

The Smart Campaign

Consumer Protection

Delivery Channels

Digital Financial Services

Payments

Responsible Digital Finance

Blog Post

Discussions about digital credit default rates have critiqued the "how" it gets delivered, but an alternative view is to blame "what" is being offered and conclude that more diverse and useful DFS are needed sooner. The digital credit so far in the form of the uniform, very small amount nanoloans aren’t delivering a strong enough value proposition in meeting specific needs to rank them high in a person’s order of expenses to cover and debts to repay.

How do we know that improving value propositions of DFS hold promise as a solution to defaults? Looking to two markets whose mobile money ecosystems have had more time to develop credit products can provide clues.

In this post, I'll compare digital credit in Kenya and Tanzania. CGAP’s research reveals <a href="https://www.cgap.org/sites/default/files/publications/Working-Paper-A-Digital-Credit-Revolution-Oct-2018.pdf">Tanzania’s default rate is 31 percent, almost 3 times higher than Kenya’s</a>. Why do these neighbors have such drastically different default rates? Apart from other <a href="https://fsdkenya.org/blog/four-differences-and-five-similarities-of-digital-credit-markets-in-kenya-and-tanzania/">distinctions</a>, two differences embedded in the research are:
<ul>
 	<li>Kenya has diversified the range and number of products on the market.</li>
 	<li>Tanzanians consistently preferred to use informal sources rather than digital credit.</li>
</ul>
Compare the data from the graphs below, from "<a href="https://www.cgap.org/sites/default/files/publications/Working-Paper-A-Digital-Credit-Revolution-Oct-2018.pdf">A Digital Credit Revolution: Insights from Borrowers in Kenya and Tanzania</a>," a CGAP/FSD working paper published October 2018.

Diversifying Digital Financial Services: A Way to Tackle Defaults and Over-Indebtedness

Kenya

Sub-Saharan Africa

Tanzania

Credit

Informal Credit

Nano Loans

Over-indebtedness

Griffin is a long-time consumer protection expert in financial services. She advised CGAP on outcomes-driven market conduct approaches, focusing on jurisdictions incorporating TCF concepts into their regulatory system. Griffin is currently a senior advisor with the Consumer Financial Protection Bureau. This blog post is the result of the author’s independent research and does not necessarily represent the views of the <a href="https://www.consumerfinance.gov/">Consumer Financial Protection Bureau</a> or the United States.
<h2>What is "Treating Customers Fairly?"</h2>
TCF is an emerging outcomes-based regulatory and supervisory approach that shifts the responsibility for protecting consumers somewhat from the regulator to the financial services provider. The UK developed the <a href="https://www.fca.org.uk/publication/archive/fsa-tcf-towards.pdf">TCF approach</a> to market conduct regulation, implemented through its <a href="https://www.fca.org.uk/">Financial Conduct Authority</a>. Under the UK’s approach, also adopted by South Africa, firms are expected to demonstrate that they deliver the <a href="https://www.fca.org.uk/firms/fair-treatment-customers">6 TCF outcomes</a> to their customers throughout the product life cycle, from product design and promotion, through advice and servicing, to complaints and claims handling. Other jurisdictions have taken on the approach, customizing it to fit their regulatory framework and capacity.
<blockquote>TCF shifts responsibility for protecting consumers from the regulator to the financial services provider.</blockquote>
Under this approach, regulators are challenging financial service providers to demonstrate the value of their products. They’re saying, “You’re selling products to consumers. You’re telling consumers these products are going to help them achieve their financial goals. So show us!”
<h2>Why is TCF important right now?</h2>
In the past 10 years, we’ve experienced a global financial crisis, and we continue to experience round-the-world mis-selling and overselling of financial services and products. More and more countries are realizing the connection between financial services and the ability of consumers – particularly vulnerable consumers – to achieve key financial goals. Whether it is moving out of poverty or achieving a milestone such as purchasing an asset, having access to appropriate financial services is critical.
<h2>You mention that TCF is often outcomes driven. Could you elaborate on this?</h2>
Rather than focusing only on compliance or firm behavior, an outcomes-driven approach looks at results: how have consumers fared in the marketplace and are they being treated fairly. The six outcomes assess whether or not firms are treating their customers fairly, and whether the products they sell meet the needs of the consumers for whom the products were developed. Companies are marketing their products more and more by linking them to improved financial and other outcomes for their customers. TCF is asking to see some proof.
<h2>Could you tell us more about the difference between various levels at which customer suitability for a product is addressed: ability to repay, affordability, and suitability?</h2>
In financial services markets characterized by information asymmetry – where consumers do not have the relevant information, they need to make decisions – <em>caveat emptor</em> (buyer beware) has been the norm. As stronger protections are put in place, the situation moves from companies being required to “do no harm” to consumers to placing the consumer’s interest ahead of their own. Between those two standards lies different levels of protection – from selling products that are affordable, to selling products that are not unsuitable, and on up to selling products that are suitable to the needs of the particular consumer (see illustration below).

&nbsp;

Taking Consumer Protection to the Next Level: The Treating Customers Fairly Approach

Client Treatment

What technology can out-compete smartphones in getting attention of people in low-income countries? Radio.

Radio may not get a lot of fanfare, but it's still a hugely influential source of information in developing countries like Ghana. That’s why the Smart Campaign decided to use radio to help make Ghanaians more savvy consumers of financial services.

In Ghana, just over a quarter of the population has <a href="http://www.internetlivestats.com/internet-users/ghana/">internet access at home</a>. Smartphone penetration in Ghana is between <a href="https://www.pewglobal.org/2018/06/19/2-smartphone-ownership-on-the-rise-in-emerging-economies/">27 and 35 percent</a>, much lower than in more affluent countries (the US is at 77 percent, Columbia at 56 percent). And more than half of those who can connect do so at 2G speeds, with intermittent connectivity and often on feature phones, none of which is ideal for streaming high-impact content. Moreover, a quarter of the population are not literate and so do not consume print messages. For many people, the old standby – a battery-powered or hand-crank radio – remains the more reliable and practical option for staying informed.

With this in mind, the Smart Campaign launched #YouDeserveToKnow, a 16-week radio campaign in Ghana to raise awareness about consumer protection in financial services. Designed to inform while entertain, each episode starts with a short dramatic story on a theme important to Ghanaian consumers, like fraud or transparency. After the drama, a free-flowing discussion between the host and an expert commentator underscores the main messages.
<blockquote>The Smart Campaign launched this radio campaign to raise awareness about consumer protection in financial services.</blockquote>
Actually, the campaign reflects today’s environment where digital and traditional forms of communication are both present. Because many radio listeners have feature or basic phones, the #YouDeserveToKnow campaign sends approximately 10,000 users SMS messages weekly, asking users to tune in.

And for those who use digital media, animated public service announcements in Twi – the most widely spoken language in the country – with English subtitles, ideal for sharing on social media – are broadcast on CFI and Smart Campaign’s Twitter feeds (<a href="https://twitter.com/CFI_Accion">@CFI_Accion</a>, <a href="https://twitter.com/SmartCampaign_">@SmartCampaign_</a>) and Facebook pages. Three animated shorts have been shared on social media so far: one on fraud, one on transparency, and one on responsible borrowing.

In one episode, a young couple are at home when the woman receives a text message stating that she won 1 million Ghanaian <em>cedis</em>, and all they have to do is reply with their bank account information. The couple are very excited, but – spoiler alert – they soon realize it’s fraud. In another episode, a young man hastily signs on for a loan with and 80 percent interest rate. Later on, he’s shocked that his payments are hardly making a dent in his principal. The dramatic impact may not rival Game of Thrones, but the messages are likely to be much more useful.

The third short, “Responsible Borrowing,” is intended as much for bank professionals as clients. It depicts a client going to a loan at a local bank, where he’s pleasantly surprised to find client-centric staff who explain interest and repayments, ask him to take the loan agreement home to read carefully, and “make sure nobody pressures” the borrower to take the loan.

The campaign was created in partnership with the <a href="http://www.fiforumafrica.org/about/">Financial Inclusion Forum Africa</a>, a Ghanaian-based capacity building and knowledge sharing organization that promotes financial inclusion across the continent.

The episodes are airing in Ghana on <a href="https://radio.com.gh/adom-fm/">Adom 106.3 FM</a> in Twi and <a href="https://radio.com.gh/citi-fm/">Citi FM</a>, 97.3, in English. In addition, in the last week of the campaign, a trivia contest will be held for those who have access to the radio stations’ Facebook pages.
<h2>Promising Early Listener Numbers</h2>
The campaign has <a href="https://citinewsroom.com/2019/02/26/global-consumer-advocate-launches-youdeservetoknow-campaign/">received attention</a> from the Ghanaian national media. Early listener numbers have shown that the campaign to have wide reach. In the past week, the estimated combined audience for the program on CitiFM and Adom was more than 500,000 listeners. On social media, the campaign has on average reached upwards of 30,000 Ghanaians with each animated short. The series may be picked up by other stations in the future, and the Smart Campaign is planning similar series in Benin and Uganda.

Radio to the Rescue in Ghana: Building Awareness of Consumer Rights

Ghana

The <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign/">Smart Campaign</a>'s senior director discussed the motivation behind the survey and forthcoming report with <a href="https://www.newtimes.co.rw/"><em>The New Times</em></a>, a leading Rwandan news provider.

“We want all stakeholders to understand the actual experiences and concerns of the clients they are serving, protecting or advocating for, because there hasn't been a comprehensive survey underpinning the conduct of this digital financial service before,” <a href="https://content.centerforfinancialinclusion.org/people/alexandra-rizzi/">Rizzi</a> said.

Fraud was a "major problem" for about 40 percent of respondents (with 10 percent falling victim themselves), and while nearly 90 percent trust mobile money services, that trust extends to specific services, namely person-to-person (P2P) transfers. There are approximately 11 million mobile money users in Rwanda.

The report will be available for download on this site in the coming weeks. The results were discussed at a workshop of regulators in the Rwandan capital Kigali in March and will be discussed at the <a href="https://sptf.info/annual-meetings/2019-summit-inclusive-digital-future">Inclusive Digital Future Summit</a> in Nairobi in June 2019.

Read the<a href="https://www.newtimes.co.rw/business/mobile-money-services-enjoy-public-confidence-fraud-remains-threat-survey-reveals"> full article</a> and learn more about the <a href="http://smartcampaign.org/tools-a-resources/1075">Client Voices Project</a>.

&nbsp;

&nbsp;

Smart Campaign's Alex Rizzi Interviewed About Client Voices Project Survey in Rwanda

Rwanda

Enabling Environment

Fraud

News

I remember a time, back in the 1990's, when almost everything in my life was computer-less. I didn’t use email or the internet and didn’t own a cell phone. Other than some government, education, medical and financial records that may have been stored electronically, I essentially had no digital footprint. That all changed in 1996 when I subscribed to dial-up internet.

Fast forward to 2019, and we now have the term “data exhaust” to describe how we are constantly generating new data about ourselves as we go about our daily lives. Data has become so fundamental to our existence that a growing number of people, including Satya Nadella and Tim Cook, CEOs of Microsoft and Apple, respectively, have been calling for data privacy to be treated as a human right. But despite all the attention data is getting, there’s tremendous confusion and uncertainty among consumers and businesses alike as to what to do about it.
<h2>Urgency to Act at a Fever Pitch</h2>
In terms of what this means for financial services, we at CFI are living the growing sense of urgency with respect to data use and protection, and we’ve been responding, most recently with the new draft <a href="https://www.centerforfinancialinclusion.org/help-us-shape-standards-for-responsible-digital-lending">standards on responsible digital credit</a> from CFI’s <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign">Smart Campaign</a>.

We’ve also begun to explore more ways in which we can better support financial service providers in getting data right. Last month, we partnered with <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab/">Accion Venture Lab</a>, which has also released a new <a href="https://www.accion.org/data-protection">data protection resource</a> targeted to fintechs, in a convening of about 30 stakeholders with a shared interest in this topic to consider the primary data protection issues financial service providers are grappling with and ways in which we can make progress.

Not surprisingly, there was an ample supply of challenges put forward on issues: from informed consent and data minimization, to regulatory complexity and the limited resources and expertise of smaller providers. There were no easy answers, but about halfway through the discussion, one participant said, “Maybe we need to bring it down a level to basic blocking and tackling. We can’t own the philosophical discussion.”

While the larger questions are important to consider, this served as a reminder that it’s easy to get swept away in the ocean of issues. So the best approach may be to look to players and solutions that already exist to help anchor our efforts around more practical steps.

What this means for us is that while new standards and resources are good first steps, they're stepping stones for establishing good practices and building trust between providers and clients. There’s a need for greater awareness and more concrete guidance and solutions through audiences that can help to maximize influence, such as boards, investors and regulators. Throughout the conversation, the ideas that emerged hinted at a two-part approach:
<ul>
 	<li>working at an ecosystem level to develop principles around data protection, and</li>
 	<li>seeking out existing organizations and resources in adjacent spaces that could be leveraged to develop more practical tools.</li>
</ul>
So how might we go about this? One path could be to try to work with larger technology players to develop high-level principles as a guiding framework. Whether or not there would be an appetite among larger technology players to collaborate on such an undertaking, principles need broad-based buy in to achieve scale.

Martin Tisne, Managing Director at <a href="https://luminategroup.com/about">Luminate</a>, recently made this point in “<a href="https://www.technologyreview.com/s/612588/its-time-for-a-bill-of-data-rights/">It’s Time for a Bill of Data Rights</a>,” published last December in <em>MIT Technology Review</em>. He discussed the importance of data rights, such as the right to be secure against unreasonable surveillance and the right to not be discriminated against. “The details should flow from basic principles, as with America’s existing Bill of Rights. Too often, attempts to enunciate such principles get bogged down in the weeds of things like ‘opt-in consent models,’ which may fast become outdated,” Tisne wrote.
<h2>From Frameworks to Specific Actions</h2>
As for specific actions, another path could be to scan the landscape for existing resources that could be adapted and applied in the financial inclusion space. Some specific organizations mentioned include the <a href="https://www.sifma.org/">Securities Industry and Financial Markets Association</a> (SIFMA) and the <a href="https://www.sei.cmu.edu/about/divisions/cert/">CERT Division</a> of the Software Engineering Institute at Carnegie Mellon. While they don't specifically focus on BOP markets, consulting with these organizations could serve as a good reference point for relevant data protection frameworks and policies, procedures and best practices. They could also provide listings of third parties that specialize in services around data privacy and security, such as audits, penetration testing and threat intelligence.
<blockquote>There’s a need for greater awareness and more concrete guidance and solutions.</blockquote>
CFI’s goal is not to become technical advisors, but rather to provide overall direction and practical tools that are tailored to smaller providers in geographies where assistance of this nature is harder to come by. Despite all the attention that the topic of data has been getting, the level of risks and uncertainties only continues to rise, especially for smaller providers. There's nothing more core to our purpose than to confront these types of emerging challenges head on. We did this in 2009 when we launched the Smart Campaign to take on consumer protection, and we see this new phenomenon of data as being just as pressing.

Please join us in our pursuit of getting data protection right. Leave a comment below and let’s get the discussion going on actionable best steps!

On Data, Let’s Anchor Ourselves in Practicality

Extensive coverage of the "You Deserve to Know" (#YouDeserveToKnow) campaign in the national Ghanian media features quotes from <a href="https://www.centerforfinancialinclusion.org/bio/alexandra-rizzi">Alex Rizzi</a>, Director of the Smart Campaign.

"This series aims to equip clients with the knowledge they deserve to know to make the best financial decisions for themselves,” Rizzi stated in a <a href="https://www.pulse.com.gh/lifestyle/events/consumer-protection-global-consumer-advocate-launches-you-deserve-to-know-campaign/72tlsjv">Pulse</a> article. Coverage of the campaign also appeared in <a href="https://www.graphic.com.gh/news/general-news/financial-literacy-campaign-launched.html">Graphic Online</a> and <a href="https://citinewsroom.com/2019/02/26/global-consumer-advocate-launches-youdeservetoknow-campaign/">Citi Newsroom</a>.

The campaign focuses on improving the financial enabling environment by educating the public in two topic areas, transparency and fraud.

Listeners in Ghana can tune in to <a href="https://www.facebook.com/adom106.3/">Adom 106.3 FM</a> on Thursdays, 5:30 pm local time, to hear the programs. The episodes include drama and expert interviews on the topics. <a href="https://radio.modernghana.com/station/adom1063fm">Live streaming</a> of Adom 106.3 FM is also available.

The "You Deserve to Know" campaign is in collaboration with <a href="http://www.fiforumafrica.org/">Financial Inclusion Forum Africa</a>.

This Smart Campaign video below provides an introduction.

Smart Campaign's "You Deserve to Know" Radio Campaign Featured in Ghanaian Media

Transparency

You’re invited to join the Smart Campaign on Tuesday, February 26, at 11 am EST for a virtual event to discuss the newly released draft Consumer Protection Standards for Digital Credit. We’ll be talking with the Smart Campaign’s Global Director Isabelle Barres and Senior Director Alexandra Rizzi joined by Lucia Spaggiari, Chiara Pescatori, and Ben Wallingford of MFR about how the digital credit standards were developed and major updates in areas such as transparency, data privacy and security, and algorithm governance.

Based on the latest industry research, field assessments with digital lenders conducted by Smart and MFR, and discussions with the Fintech Protects Community of Practice, the draft standards consolidate what we have learned about good practices for responsible digital credit and provide a starting point for discussion.

This webinar is part of the six-week public comment period on the standards and serves as an opportunity for the industry to ask questions and provide feedback before the standards are finalized.

Webinar: Draft Digital Credit Standards

Webinar

More and more low-income customers around the world have access to digital loans that promise improvements to their lives. At the Smart Campaign, we believe that financial service providers and their customers can both benefit from transparency and fair treatment in financial services. Customers need to be confident that they can trust their provider and its products.

With an emerging consensus around the importance of responsible digital credit, demand is rising for a shared set of criteria to assess the practices of digital lenders. Investors and regulators want a way to evaluate consumer protection practices among the financial service providers they invest in or regulate. Digital financial service providers also want guidance to improve their practices and demonstrate that they are committed to putting responsible finance into action.

This is why the Smart Campaign has been working to develop a revised set of Client Protection Standards that address the risks involved in digital credit. Today we are releasing a set of draft standards that reflect input from consumers, researchers, financial service providers and on-the-ground testing.
<blockquote>We're releasing a set of draft standards that reflect input from consumers, researchers, financial service providers and on-the-ground testing.</blockquote>
To prepare these standards, the Smart Campaign has engaged in research to understand emerging risks to clients (see, for example, "<a href="https://www.centerforfinancialinclusion.org/smart-brief-tiny-loans-big-questions">Tiny Loans, Big Questions</a>") and mapped these risks to the Client Protection Principles through CFI Fellow John Owens’ work on <a href="https://www.centerforfinancialinclusion.org/responsible-digital-credit">responsible digital credit</a>. We have learned about the <a href="https://www.centerforfinancialinclusion.org/digital-finance-and-data-security-2">state of data security</a> through the work of CFI Fellow Patrick Traynor. In collaboration with <a href="https://www.mf-rating.com/2018/10/05/mfr-smart-campaign-and-fintech-protects-pilot-digital-client-protection-assessments/">MFR</a>, the Campaign has worked with providers, including <a href="https://www.centerforfinancialinclusion.org/building-trust-and-growing-digital-financial-services-a-look-at-jumo/">Jumo</a>, <a href="https://www.centerforfinancialinclusion.org/partnering-with-providers-to-set-dfs-standards-for-client-protection">4G Capital</a>, and <a href="https://www.centerforfinancialinclusion.org/app-based-lender-weighs-in-on-standards-for-responsible-digital-credit">Tala</a>, to conduct research and field assessments to ensure that the draft Client Protection Standards for Digital Credit would be practical. We have had extensive discussions with providers who are members of the Fintech Protects community of practice. We have benefitted from and built upon the high quality research produced by institutions including CGAP, GSMA, Microsave, Financial Sector Deepening, and the Better than Cash Alliance.

These draft standards consolidate what we have learned about good practices and where to set the bar. They provide a starting point for further inquiry and discussion across the industry.
<h2>Familiar and New Territory for Financial Consumer Protection</h2>
The Standards for Digital Credit are anchored in the <a href="http://smartcampaign.org/certification/4-demonstrate">Client Protection Principles</a> (CPPs) that serve as the north star of Smart Certification. We found that many of the standards already in place for traditional forms of lending apply equally to digital lending. In other cases, standards remain the same, but practices differ. For example, the principles of transparency have not changed, though in practice standards must be adapted to products that interface digitally with customers. For example, clients must be able to access terms of service agreements and receive provider notifications in a local language whether the channel is a loan officer, an app, or a chat bot.

More important changes involve areas at the heart of digital business models, notably data privacy, data protection and digital underwriting. The sections on these topics have been greatly enlarged, and we are especially eager to receive input on them. For these areas in particular, we recognize there is more to learn to <a href="https://news.un.org/en/story/2019/01/1031092">strike a balance</a> between the benefits and risks of new data-rich business models.
<h2>Comments Please!</h2>
Now, we’d like to hear from you, so we’ve opened this initiative to public comment.

Per <a href="https://www.isealalliance.org/credible-sustainability-standards/iseal-codes-good-practice">ISEAL’s Codes of Good Practice</a> on standard setting, we will collect feedback over the coming six weeks and incorporate these ideas into an updated set of standards. We will host a <a href="https://register.gotowebinar.com/register/8253670247853286401">public webinar</a> to discuss the standards and field questions on Tuesday, February 26, in addition to hosting a <a href="https://www.smartcampaign.org/about/evolution-of-standards/public-comment-2019">feedback form</a> on our website (see "How to Give Feedback" below).

As you comment on the new standards for digital credit, we ask you to approach them as a minimum viable product (MVP). In much in the same way as an MVP is the starting point for product testing, iteration, and improvement, so we expect to iterate these standards quickly to develop standards backed by industry consensus. We are also hopeful that during this public comment period providers will evaluate their own practices against these standards. We would love to hear the results, and we would be even more excited to hear if providers upgrade their policies and procedures to reflect the standards.
<blockquote>We’d like to hear from you, so we’ve opened this initiative to public comment.</blockquote>
Following the public comment period, we will revise the standards based on input received and integrate them into our Smart Certification program as a roadmap for digital lenders. Smart Certification has been a catalyst for improvement of consumer protection practices at more than 110 financial institutions, and we expect to offer <a href="https://www.smartcampaign.org/certification/2-assess">Smart Assessments</a> and <a href="http://smartcampaign.org/certification/all-about-certification">Smart Certification</a> to digital lenders shortly after revised standards are published (exact date TBD). To support providers to implement the standards, we will develop publicly available tools for providers, investors, and others, as well as products for more formal assessments offered through our expert network of trainers and certification bodies.

Ensuring trust in the next generation of digital financial services is an effort that involves all participants in the sector. We can all work together to ensure that clients remain at the center.

Help Us Shape Standards for Responsible Digital Lending

Consumer protection is essential for ensuring that financial inclusion works for consumers and results in a healthy sector. That’s why the <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Global Microscope</a> includes indicators on the state of consumer protection regulation in its overall assessment of a country’s enabling environment. The <a href="https://www.smartcampaign.org/">Smart Campaign’s</a> expertise in consumer protection give its team an informed perspective on these issue. We sat down with Isabelle Barrès to get deeper perspectives on this relationship and her general reactions to the Microscope.
<h4>Did the Microscope reveal any surprises from a consumer protection perspective?</h4>
What stood out to me was the way consumer protection cuts across all of the domains in the Microscope framework. Indeed, while specific consumer protection and privacy regulations are key, as I look through the Microscope indicators, I’m struck by how nearly all of them contribute to minimizing consumer harm.

For instance, a favorable environment for consumer protection requires government and policy support and a solid infrastructure. Consumers stand a better chance of being protected if financial literacy programs enable them to make more informed choices and advocate for their rights. Thoughtful product design is critical to mitigate risks – for example in designing a loan product, it’s important to build in restrictions against excessive borrowing. The way agents and outlets are supervised can make a critical difference in the way clients are treated.

This 2018 Microscope has increased its weighting on cybersecurity one of the rising risks to consumers and the industry, which the Smart Campaign is tracking.
<h4>How do you get a robust regulating environment that doesn’t stand in the way of new players? Where’s the balance?</h4>
The Smart Campaign helped draft a <a href="https://responsiblefinancialinclusion.org/?page_id=2353">model legal framework</a> – a guideline for regulators – largely for this purpose. It builds on existing <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/28996/122011-PUBLIC-GoodPractices-WebFinal.pdf?sequence=1&amp;isAllowed=y">guidelines</a>, <a href="https://clmr.unsw.edu.au/sites/default/files/content_files/Regulatory_Diagnostic_Toolkit-June 2018.pdf">tools</a>, and <a href="https://www.itu.int/en/publications/Documents/tsb/2017-DFS-ConsumerExperienceProtection/mobile/index.html#p=1">recommendations</a>, and is drafted in a way that leaves room for regulators to factor in the level of competition in the market, the types of players, the level of maturity, prep regulation to support a balance between regulation and innovation. In developing standards for digital credit providers, we see a number of practices that, if we were looking at a traditional provider, we would have been very critical of (e.g., portfolio quality and pricing). While still very much focused on these issues, we recognize that many of these models are nascent and providers are still refining their models and need time to innovate and adapt. We are therefore providing space for early stage providers to innovate rather than have more stringent guidelines from the get go, as long as risks to clients are mitigated.
<h4>The Microscope states that, "in the best-performing countries, traditional consumer protections are coupled with data privacy and cybersecurity safeguards... strong performance on traditional consumer protection (countries that scored greater than 80) does not necessarily indicate that a country has a sufficient framework for digital consumer protection." What does this mean to you?</h4>
That means that countries have traditional consumer protections in place, but these are not sufficient to deal with newly arising risks. So just because a country has a good consumer protection framework, doesn't mean it's up to date with the emerging digital risks.
<blockquote>Just because a country has a good consumer protection framework, doesn't mean it's up to date with the emerging digital risks.</blockquote>
The main adaptations that we see needed for an adequate framework for consumer protection in a digital world are the need to account for 1) the increased reliance on agent networks for sales and service; 2) the reliance on technology and technical interfaces and the client risks linked to data collection, use and storage; and 3) more complex value chains. These are taken into consideration in the current <a href="https://www.centerforfinancialinclusion.org/partnering-with-providers-to-set-dfs-standards-for-client-protection">update</a> to the Client Protection Standards for digital services.
<h4>Would the countries that have done well in traditional consumer protection be well positioned to adopt digital consumer protection?</h4>
In some ways, yes. Digital consumer protection builds off of traditional consumer protection. The “traditional” consumer protection dimensions (appropriate product and delivery design, prevention of over indebtedness, transparency, responsible pricing, fair treatment, recourse) are still relevant, with adaptations needed for the new risks that come with low touch/ high tech models. The biggest changes from the digital revolution that affect consumer protection are linked to data: data privacy, data security and data use, and the confluence of industries that used to work independently: technology and finance. While data privacy and protection was part of the traditional consumer protection, the extent to which the data protection frameworks need to be extended to cover consumer risks in a digital world is considerable. Countries that have strong data protection policies and enforcement (e.g., The Philippines, Colombia) are getting a head start to address consumer protection issues in a digital world.

The extent to which countries are well positioned to adopt digital consumer protection also depends on the extent to which they embrace innovation, the extent to which non financial digital providers can be integrated to the financial infrastructure, and the extent to which telcos and banking regulators cooperate. As highlighted by the Microscope, The Philippines is a good example of a country making headway in building an effective digital finance ecosystem and increasing the collaboration between regulators and industry. Their work under the <a href="https://www.r2accelerator.org/bsp/">R2A program</a> in developing and testing technology based solutions that can support good consumer protection is an interesting example to follow.
<blockquote>The Philippines is a good example of a country making headway in building an effective digital finance ecosystem and increasing the collaboration between regulators and industry.</blockquote>
<h4>Are there any country-level assessments that especially caught your attention?</h4>
For Cambodia, in terms of key barriers to financial inclusion, the Microscope authors worry about the expansion in the number of MFIs and MBIs, and it does reference the surge of refinanced loans. In our work, we’re seeing self-organization efforts in response to a surge of lending and a fear of over-indebtedness that has been well documented through <a href="https://mimosaindex.org/living-on-the-edge-is-it-worth-it/">Mimosa</a>. We see ongoing efforts from investors to share information on their portfolios. There are industry efforts in the form of lending guidelines that have started. It’s an example of an industry-based initiative that is complementing what regulators are doing.

Kenya is another example. The Microscope highlights the Consumer Protection Act, which aims to protect consumers from aggressive lending. Yet, regulations are not yet going far enough, because of the proliferation of digital lenders that aren’t regulated. It would be great if the Microscope analysis could dig deeper into the institutional landscape.

<em>Read the <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Microscope</a> and let us know what you think!</em>

Digital Standards and Nascent Business Models: Smart Campaign Reacts to The Global Microscope

Global Microscope

Policy, Regulation and Government Initiatives

Appropriate Product Design and Delivery

Privacy

Social Performance

Amit Gupta

Senior Manager

Leah  Wardle

Accreditation Manager, The Smart Campaign

Elisabeth Rhyne

Iain Brougham

Michael Schlein

Mona Kapoor

Vikas Raj

Virginia Moore

Colombia

Costa Rica

Egypt, Arab Rep.

Europe and Central Asia

Honduras

India

Netherlands

Pakistan

Peru

Philippines

United States

Data Analytics

Financial Inclusion Strategy

Financial Technology

Governance

Impact Investing

Trends

Article

Case Study

Inclusive fintech CEOs work in the most highly-regulated sector on earth. They have to hire talented teams, navigate opaque regulations, and work hard for funding. In addition to entrepreneurial challenges, they’re also trying to create impactful businesses that help build a financially inclusive world.

That doesn’t overwhelm the founder-CEOs that we work with. Being in a room with roughly 50 of the most innovative fintech CEOs and company leaders at the Inclusive Fintech CEO Forum in The Hague was absolutely thrilling: they’re all working on a common mission and trying to bring new financial tools to people who need them.

[caption id="attachment_18223" align="alignleft" width="500"]<img class="wp-image-18223" src="https://content.accion.org/wp-content/uploads/2019/04/FintechForInclusionGlobalSummit_2019_NicoAlsemgeest_0116-1-1024x708.jpg" alt="" width="500" height="346" /> <em>At the Inclusive Fintech Summit, leaders came together to discuss how we can drive financial inclusion.</em>[/caption]

Hosted by <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab">Accion Venture Lab</a>, <a href="https://quona.com/">Quona Capital</a>, and <a href="https://www.fmo.nl/">FMO</a>, the Forum allowed CEOs to learn from one another: whatever a CEO’s top problem was, someone else there had solved it, thought about it, or, at the least, could commiserate about it.

More often than not, their conversations returned to basic issues like hiring staff, creating an effective corporate culture, overcoming adversity, or engaging customers. These issues are more important today than ever before: by understanding peoples’ behavior, needs, and goals, we can use technology to provide more customers with better, faster, cheaper, and safer financial products and services. Knowing our customers is the only way to develop a scalable, sustainable, and impactful company — and building those companies is how we’ll create a financially inclusive world.

Our CEOs’ energy and passion were inspiring; I’m still impressed by some of the highlights from their conversations:
<h2><strong>It’s all about people – not technology </strong></h2>
Companies everywhere are wrestling with how to use technology to achieve scale and efficiency while meeting customers’ preferences for <a href="https://www.accion.org/does-human-touch-still-have-a-place-in-a-high-tech-world/">human touch</a>. Being well-informed about and responsive to your customers is the only way to come up with appropriate solutions:
<ul>
 	<li><strong>Technology is not the product. </strong>Instead, it’s a background layer that should enable product delivery. For financially underserved customers, the technology tends to work best when it automates internal operations in the background — not when it’s foregrounded as the product itself.</li>
 	<li><strong>Don’t assume. </strong>Talk to prospective clients first. What technology do they use? How do they use it? What are they willing to try?</li>
 	<li><strong>Shrink your time zones</strong>. Have your tech team near your customers so they can respond quickly. Create a feedback loop where both your tech team and customers inform one another.</li>
 	<li><strong>The more your team knows your clients, the better</strong>. Make sure your entire team knows who your customers are. Arrange client visits or allow back-office staff to join customer calls.</li>
</ul>
<h2><strong>Tips for hiring teams in emerging markets </strong></h2>
Hiring is the only challenge that gets more difficult with time: as roles become more complex and as an organization takes on more work, hiring the right candidates becomes harder and inhibits companies’ ability to scale.

This is a challenge for startups everywhere — but it’s particularly pronounced in emerging markets, where top talent can be difficult to recruit and retain. Here are some of the ways our CEOs address this:
<ul>
 	<li><strong>Always be recruiting</strong>. Extend your talent pipeline as far as it can go, because even if the seats aren’t open today, they will be soon.</li>
 	<li><strong>Treat recruiters as business partners</strong>. Ultimately, you’re both working to build a better organization.</li>
 	<li><strong>Value the right attitude and generalists over specialists</strong>. Specific skill requirements can change over time, so it’s better to get someone who can adapt to multiple future needs. And attitude should count as much as skills: <a href="https://news.harvard.edu/wp-content/uploads/2015/11/16-057_d45c0b4f-fa19-49de-8f1b-4b12fe054fea.pdf">Harvard Business School</a> found that avoiding toxic employees is worth twice as much as the returns that top workers produce. Toxic workers also diminish productivity and drive out other employees.</li>
</ul>
<h2><strong>Corporate culture results from CEOs’ choices and behavior</strong></h2>
[caption id="attachment_18217" align="alignright" width="500"]<img class=" wp-image-18217" src="https://content.accion.org/wp-content/uploads/2019/04/Fintech-For-Inclusion-Global-Summit-2-1-1024x678.jpg" alt="" width="500" height="331" /> <em>CEOs’ actions and choices have an outsized role in creating corporate culture.</em>[/caption]

High-performing organizations have great corporate culture: it gives them a competitive advantage.

CEOs’ actions and choices have an outsized role in creating corporate culture; the values they exhibit and the behaviors they reward shape an organization’s character:
<ul>
 	<li><strong>Explain what you believe. </strong>Every organization should explain its values in concise, memorable language. Those values should factor into hiring new employees or evaluating current employees.</li>
 	<li><strong>Cultivate psychological safety. </strong>The feeling that a team “is safe for risk-taking” was the biggest contributor in <a href="https://rework.withgoogle.com/print/guides/5721312655835136/">Google's</a> review of successful team dynamics. Psychologically safe teams brought in more revenue and were twice as effective as ‘unsafe’ teams.</li>
 	<li><strong>Develop <a href="https://www.accion.org/hiring-and-talent-employee-value-proposition">employee value propositions</a></strong>. These identify why a prospective employee should work for a given startup. They elevate the organization’s mission and explain how an employee could grow from their work at a particular company.</li>
</ul>
<h2><strong>How to help your team get through a crisis </strong></h2>
One session on overcoming adversity resonated with many in the room. Founder-CEOs routinely face any number of crises; professionally, there’s nothing harder than trying to lead your team through a major challenge.

But it’s something that every entrepreneur needs to be prepared for. And while there’s no one way to overcome adversity, CEOs did reflect on a few measures that helped:
<ul>
 	<li><strong>Keep the right people with you.</strong> Rely on the team you trust to help turn the ship around. Promote them if that’s what it takes to retain them.</li>
 	<li><strong>If bad news is coming, you want to be the one sharing it.</strong> Don’t let someone else tell your story. This is true for your investors, employees, and family.</li>
 	<li><strong>It’s important to be honest and transparent.</strong> In good times — and especially in bad times — let people know what’s really happening. That said, you don’t need to bring everyone through every twist and turn. Focus on the most important issues and communicate them well.</li>
 	<li><strong>Protect your health. </strong>Founders emphasized basic self-care, including exercise, sleep, cutting alcohol and sugar, and seeking advice from mentors.</li>
</ul>
By focusing on our users and understanding their needs, behaviors, and goals, we’re more likely to create valuable financial products and services. And by building teams that know their end-clients, founder-CEOs can create impactful and successful companies.

That’s easier said than done. But after meeting and speaking with so many extraordinary people who are all working so hard to pursue a common vision and change the world, I’m more optimistic than ever about our chances.

<em>Many thanks to CGAP, Catalyst Fund, Triodos, Citi Inclusive Finance, Mastercard Foundation, and Community Investment Management for helping to convene the Inclusive Fintech CEO Forum.</em>

The fintech event that puts people first

Business Leader

Financial Inclusion Practitioner

Institutional Funder

Accion Venture Lab

Regulators and policymakers are key to creating a financially inclusive world: their decisions affect financial service providers, fintech innovators, investors, and individual clients. And they’re instrumental in establishing responsible, standards-based industries that protect and empower clients.

Working alongside the Center for Financial Inclusion at Accion (CFI), Accion’s legal team sought to develop a new model tool and legal guidance that would help policymakers and financial service providers contribute to a financially inclusive world.

This ambitious project demanded the right type of legal support: Accion relied on New Perimeter, a nonprofit organization established by global law firm DLA Piper. New Perimeter’s global focus and demonstrated commitment to large-scale pro bono projects made it an ideal partner to take to on this long-term, industry-shaping work.

Partnering for consumer protection: DLA Piper, New Perimeter and Accion

DLA Piper

Since 2008, the Mastercard Foundation has supported several Accion initiatives, underscoring our shared commitment to building prosperity through financial inclusion and education. The Mastercard Foundation-Accion relationship has evolved over a decade, and each has enabled the other to explore new areas and reach underserved populations, especially in Africa.

&nbsp;

<strong>The Smart Campaign</strong>

The Mastercard Foundation was an early sponsor of the Smart Campaign, a global campaign committed to embedding client protection practices into the institutional culture and operations of the financial inclusion industry. Spearheaded by the Center for Financial Inclusion at Accion (CFI), the initiative is focused on creating an environment in which financial services are delivered safely and responsibly to low-income clients. The Foundation’s initial and continuing support for educating financial service providers and consumers alike has been central to the Campaign’s progress. The Mastercard Foundation enabled the Smart Campaign’s expansion into five focus countries in Africa, where it is addressing client protection and empowerment issues emerging from new technologies and seeking to affect change at a national level.

&nbsp;

<strong>Leadership Development in Financial Inclusion </strong>

In addition, the Foundation has helped fund two innovative Accion programs for leadership development in financial inclusion. Over the course of a decade, scholarship funding from the Foundation allowed for more than 340 leaders from financial institutions around the world to participate in the annual Harvard Business School-Accion Program on Strategic Leadership in Inclusive Finance. This unique executive education opportunity brings professionals together to learn about the latest challenges and breakthroughs in financial inclusion and develop their problem-solving skills. The Foundation also supports CFI’s Africa Board Fellowship, a peer learning, and exchange program for executives and board members from African financial institutions that focus on building capacity in governance and risk management. More than 230 fellows from approximately 60 African institutions have taken part in the program to date.

&nbsp;

<strong>Accion Venture Lab in Sub-Saharan Africa</strong>

Most recently, the Mastercard Foundation has been a key sponsor of Accion Venture Lab’s work in Africa. In addition to general support for Venture Lab’s efforts to identify, invest in, and support promising fintech start-ups in Africa, the Foundation is also sponsoring pilot projects, such as the new “Company Builder” initiative, which recruits experienced business executives with entrepreneurial aspirations to create fintech startups from scratch in Nigeria.

The Mastercard Foundation-Accion partnership has yielded multiple pioneering initiatives whose legacy is only beginning to take shape, as financial service providers and fintech entrepreneurs build a more inclusive economy in Africa and beyond.

&nbsp;

Mastercard Foundation and Accion: Building prosperity through financial inclusion and education

Mastercard Foundation

Credit Suisse has been a longstanding partner of Accion, notably in helping to launch both the Center for Financial Inclusion (CFI) in 2008 and Accion Venture Lab in 2012. Its support has gone well beyond financial contributions and has developed into a valuable relationship of mutual advice, referrals, and opportunities to engage public audiences.

A leading global financial institution, Credit Suisse is committed to, as it states in its corporate responsibility report, “fostering inclusive growth by addressing socio-economic challenges.” Through its involvement in the founding of impact investment asset manager responsibility in 2002 and its own Financial Inclusion Initiative (formerly the Microfinance Capacity Building Initiative), Credit Suisse was one of the first Swiss banks to recognize the power of microfinance as both a transformative tool for the financially excluded, and an investment opportunity for its clients.

Credit Suisse and Accion: Exploring new frontiers in financial inclusion

Credit Suisse

<p id="4a25" class="graf graf--p graf-after--figure">Advances in how we can collect and analyze data have disrupted the financial services industry. Organizations are now able to learn more about customer behavior and preferences than ever before, and they’re applying these insights to improve the customer experience. However, as this capacity continues to grow, so do concerns about identity, privacy, and data protection. In the <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/what-is-identity-and-why-does-it-matter-3febb558785f" target="_blank" rel="noopener noreferrer">previous blog</a> in our digital identity series, we looked at the definition of identity. Now, we’re investigating the implications of digital identity from a privacy perspective and analyzing the impact of the EU’s General Data Protection Regulation (GDPR) as a demonstration model for emerging markets.</p>
<p id="b452" class="graf graf--p graf-after--p">If the recent congressional hearing into <a class="markup--anchor markup--p-anchor" href="https://www.theguardian.com/technology/2018/apr/11/mark-zuckerbergs-testimony-to-congress-the-key-moments" target="_blank" rel="nofollow noopener noreferrer">Facebook’s data</a> practices wasn’t enough to make you wonder about the privacy of your online identity, the barrage of emails from companies chasing GDPR compliance likely was. While the scope of the legislation is only applicable for organizations dealing with the personal data of EU residents, it is likely to influence privacy protection principles worldwide.</p>
<p id="d3d6" class="graf graf--p graf-after--p">Despite the fact that GDPR addresses<a class="markup--anchor markup--p-anchor" href="https://iapp.org/news/a/top-10-operational-responses-to-the-gdpr-part-2-lawful-bases-for-processing/" target="_blank" rel="nofollow noopener noreferrer"> 6 different legal grounds</a> for processing customer data, media coverage of its introduction has honed in on two key themes: 1) consent for access to data, and 2) transparency in communicating precisely how that data will be used. The focus on customer consent has sparked analysis of the effectiveness of enhancing privacy through increasing consumer rights to control their identity information.</p>
<p id="e5e9" class="graf graf--p graf-after--p">Although, in theory, the right to consent will allow consumers to prevent access to their information in certain circumstances, in practice it may fall short of driving data protection. Consumers often do not read lengthy communications on legal terms and conditions, and when they do, many may still be unclear about the implications of permitting access to their data. This issue is exacerbated in emerging markets where consumers are typically less literate, less familiar with technology, and as a result, are potentially more vulnerable to exploitation.</p>
<p id="5619" class="graf graf--p graf-after--p">With this in mind, it’s uncertain whether the right to consent inherently enhances consumer privacy or whether it simply provides a privacy-enabling structure that can be leveraged only by the highly informed. Given this context, we need to take the discussion beyond consent when considering how to protect user privacy in developing economies.</p>
<p id="8fe5" class="graf graf--p graf-after--p">To explore this topic further, we hosted a webinar on <a class="markup--anchor markup--p-anchor" href="https://www.youtube.com/watch?v=yhdTyqjUMEI" target="_blank" rel="nofollow noopener noreferrer">Digital Identity for Financial Inclusion (click here to watch).</a> During the session, we took a look at some of the solutions being utilized to manage personal information and the impact they are having on financial inclusion, privacy, and commercial viability for financial service providers.</p>

Is data privacy in emerging markets feasible?

Accion Global Advisory Solutions

India is a global leader in financial inclusion. For over a decade, Accion has worked with and learned from India’s innovators, investors, and policymakers to expand economic opportunity for its people and businesses.

<p class="graf graf--p">Reports of data security breaches have become increasingly prevalent in recent years. As various countries across the globe establish national identity databases and centralized credit bureaus, such as DNI in Peru, NADRA in Pakistan, Aadhaar in India, and CNIC in Thailand, media coverage of incidents is amplified. In 2016, <a class="markup--anchor markup--p-anchor" href="https://www.riskbasedsecurity.com/2017/01/2016-reported-data-breaches-expose-over-4-billion-records/">over 4.2 billion data records</a> were exposed globally. These attacks are not limited to emerging markets, as proven by the recent breach of US-based credit bureau service Equifax, which exposed several hundred million <a class="markup--anchor markup--p-anchor" href="https://www.consumer.ftc.gov/blog/2017/09/equifax-data-breach-what-do">consumers’ information </a>— including names, Social Security numbers, birth dates, and addresses. Late last year, researchers discovered <a class="markup--anchor markup--p-anchor" href="https://www.wired.com/story/macos-high-sierra-hack-root/">a flaw in Apple’s macOS</a> that enabled super-user access to any Apple device, enabling malicious software to be installed easily and remotely. Now, India’s Aadhaar database has joined the long list of data breaches, as <a class="markup--anchor markup--p-anchor" href="https://www.cnbc.com/2018/01/04/aadhaar-database-breach-investigation-opened-in-india-on-tribune-report.html">recent reports</a> indicate that access was purchased through a WhatsApp group to the Aadhaar portal and the private data of over 1.2 billion Indians, all for a paltry sum of 500 rupees — about US$ 8.00.</p>
<p class="graf graf--p">When you see news of a crack in data security, you may picture savvy hackers exposing cryptographic vulnerabilities to access your banking information, but this isn’t always the case. Human error, process failures, and policy violations are overwhelmingly the most significant causes of such breaches and leaks of sensitive personal information.</p>
<p class="graf graf--p">In addition, while it is true that the majority of data attacks are executed outside the targeted organization, more often than not, the exposed weakness that enabled them was initiated — unwittingly — by internal staff. According to a <a class="markup--anchor markup--p-anchor" href="https://www.recode.net/2016/5/24/11756584/cyber-attack-data-breach-insider-threat-steve-durbin">survey from the Information Security Forum</a>, in most cases, employees were doing ordinary tasks, like taking files home to work in the evening, with no malicious intention of harming employers or their customers.</p>
<p class="graf graf--p">In other words, the human-driven processes that compliment secure technologies are equally as important as the technologies themselves. These processes can be easily overlooked or become out-of-date, leaving even the most robust of digital security systems useless for preventing criminal access.</p>
<p class="graf graf--p">The Aadhaar security breach is a prime example of this type of internal process failure. <a class="markup--anchor markup--p-anchor" href="http://indianexpress.com/article/opinion/columns/all-is-not-well-with-aadhaar-leak-aadhaar-details-5013305/">Analysis indicates</a> that this is a case of mismanagement and poor administration within the government bureau that manages Aadhaar, <a class="markup--anchor markup--p-anchor" href="https://uidai.gov.in/">UIDAI</a>, where UIDAI’s operations team failed to block (or delete) defunct legitimately issued access rights.</p>
<p class="graf graf--p">To meet the government’s ambition of registering hundreds of millions of Indians with Aadhaar identity cards, approximately 300,000 Village Level Enterprises (VLEs) were initially employed under the government’s Common Services Centres Scheme (CSCS). Once the targets were met (or the initiative had reached a logical conclusion), these jobs went away. But the access rights were not disabled by UIDAI staff, enabling malicious individuals to abuse the privilege.</p>
<p class="graf graf--p">From a financial inclusion point of view, robust identification is a fundamental requirement for micro-entrepreneurs to access the financial tools that provide growth and stability. Centralized identity databases enable customers to access their accounts remotely, and they limit leakages by preventing multiple enrollments by the same individual. Without a clear identity that can be proven, it is nearly impossible for any individual or business to obtain the necessary financing to grow. As Makhtar Diop, the World Bank Vice President for Africa, stated in the Identification for Development annual report, “Identification provides a foundation for other rights and gives a voice to the voiceless.”</p>
<p class="graf graf--p">However, any system is only useful if people trust it. Trust is instilled if the system is easy to use and understand, if issues are resolved immediately, and if people believe their transactions are safe.</p>
<p class="graf graf--p">In India, trust in the central identity database has been shaken. This trust needs to be re-instated and amply demonstrated through better policies, governance, controls, and operational processes. These improvements should be backed by unscheduled internal and external audits to test the core system, internal operations, and the extended distributed network, which is more susceptible to such breaches. Interestingly, the Aadhaar team has now come with Virtual ID to replace the Aadhaar number for third-party verification purposes. Let’s hope this is not a knee-jerk reaction but a well-considered solution that can earn the trust of the more than 1.2 billion people of India who look to Aadhaar for their unique IDs.</p>

Is India better off without Aadhaar?

<p id="e820" class="graf graf--p graf-after--figure">In a landmark ruling yesterday, the U.S. Federal Communications Commission (FCC), led by Chairman Ajit Pai, voted to end net neutrality — the requirement for internet service providers to treat all the content they carry equally regarding access, price, and speed/quality of delivery. This decision, overturning Obama-era internet regulations, is a big deal and may shape the way Americans experience the internet in the future.</p>
<p id="d31d" class="graf graf--p graf-after--p">Under the new ruling from the FCC, internet service providers (ISPs) may give preferential treatment to content from applications they favor — unlimited access, differential pricing, or faster/better download speeds — while slowing or even blocking other applications.</p>
<p id="7fb3" class="graf graf--p graf-after--p">Defenders of net neutrality call it the First Amendment of the internet. They see it as protecting the open culture of the net with web access available to anyone who wants to hear or be heard. Without net neutrality, say its defenders, the internet will begin to look more like the cable TV industry of a few years ago, in which competition is limited, and consumers are offered only a few pre-packaged bundles of services. They fear that ISPs will engineer consolidation in the industry by favoring companies they own, buy, or negotiate sweetheart deals with — and these will probably only be big companies. Some consumer advocates imagine a tiered internet emerging in which high-end consumers pay for deluxe packages and lower-income people receive poor quality and limited services.</p>

<h2 id="5ce1" class="graf graf--h4 graf-after--p">Net neutrality around the world</h2>
<p id="50f3" class="graf graf--p graf-after--h4">Yesterday’s ending of net neutrality ruling applies only in the United States. Europe retains the principle, though it may not always enforce it. In emerging markets, regulations vary widely, and in some areas, they are hotly debated. <a class="markup--anchor markup--p-anchor" href="https://www.bnamericas.com/en/news/Lower_house_approves_internet_neutrality_law/?position=524428" target="_blank" rel="nofollow noopener">Chile enacted net neutrality in 2010,</a> becoming one of the first countries to introduce rules on internet neutrality. Mexico, as well, has such legislation. Despite much discussion around net neutrality in India, there’s still no legislation in place there. At issue in India has been telcos’ interest in maintaining their core telephone revenue in the face of competition from digital telephone service providers like WhatsApp.</p>
<p id="e0d6" class="graf graf--p graf-after--p">At this point, we can only speculate about the effects of yesterday’s decision on financial inclusion in the U.S. and around the world. But if the net neutrality advocates are right, such changes in the shape of the internet could substantially hurt financial inclusion, primarily by making it harder for smaller companies and startups to succeed.</p>
<p id="03e1" class="graf graf--p graf-after--p">To illustrate how ISPs and big tech are likely to team up, <a class="markup--anchor markup--p-anchor" href="https://www.nytimes.com/2017/12/10/business/net-neutrality-europe-fcc.html?action=click&amp;contentCollection=Technology&amp;module=RelatedCoverage&amp;region=EndOfArticle&amp;pgtype=article" target="_blank" rel="nofollow noopener">recently in Sweden</a>, Telia, a telco offering internet services, sought to provide a package of unlimited access to Facebook, Spotify, and Instagram (owned by Facebook), among other top platforms, while charging for content from other sources. The offering has been challenged under European net neutrality rules, but it marks a path toward industry consolidation.</p>

<h2 id="70fe" class="graf graf--h4 graf-after--p">Why web access matters for financial services</h2>
<p id="dff9" class="graf graf--p graf-after--h4">As large internet companies increasingly enter the financial services arena, payment services offered by internet giants would likely be part of packages like the example from Sweden. Other companies — like fintech startups and smaller financial institutions — would not have the market power to negotiate their way into favored packages. If the fears of supporters of net neutrality come true and extend into financial services, that would mean less innovation, less competition, less variety, and possibly higher prices for the same (or worse) services.</p>
<p id="18d0" class="graf graf--p graf-after--p">In such a scenario, it would become harder for lower-income customers to use internet-enabled financial services if their end of the market is differentiated from the premium end. Reaching customers would become more expensive and difficult for fintech startups and small financial institutions aiming at a mass market if the ISPs shut both companies and customers out of the premium internet. Companies with deeper pockets may be able to afford faster (or any) access to potential customers, and it is conceivable, under the new rules, that an ISP could completely block a service that competes directly with one of its initiatives. If fintech startups are trying to nudge and disrupt the often massive, well-entrenched financial service companies, these companies will face fewer innovations challenging their business models.</p>
<p id="c4c8" class="graf graf--p graf-after--p">In the worst case, we are worried that the “big five” tech companies, who already have the data and the access to make any other fintech startups irrelevant, just became even more powerful. Not only do they have the data they need to better understand and serve any customer on the planet, these major tech companies soon may be the only ones that can afford to access and engage with those customers, and we know they have big ambitions in the financial services arena.</p>
<p id="a390" class="graf graf--p graf-after--p">The net neutrality debate raises fundamental and profound questions about freedom of speech, the role of a free and open internet in society, market concentration in the digital economy, and so forth. Its effect on financial inclusion may get lost in the more prominent debates and the titanic struggles for influence among powerful companies. When it comes to shaping the future of financial inclusion, a lot depends on decisions made without much thought about their effect on the financial sector.</p>
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Net neutrality ruling could block your bank

Center for Financial Inclusion

For the last 10 years, the <a href="http://www.centerforfinancialinclusion.org/microscope"><i>Global Microscope on Financial Inclusion</i></a> has systematically reported what it takes to create an enabling environment for financial inclusion. The good news is that the global financial inclusion community increasingly understands what works and is designing essential reforms. But the rate of progress is gradual and uneven, and in some areas, still lacking. The latest <i>Global Microscope</i> takes a closer look at what it takes to create an inclusive financial sector—and where intensive effort is most needed.
<h2>The leaderboard</h2>
Tying for first place in the global rankings are Peru and Colombia, scoring 89 (out of 100). Second place is also a tie, with two Asian countries, India and Philippines, each scoring 78. Pakistan earns third place with a score of 63. The spreads between first, second and third place are wider than they are between any other consecutive rungs in the index, but the top-ranking countries are in fact the same as last year. Peru, Colombia, Philippines, India, and Pakistan are longtime financial inclusion institutional and regulatory leaders.

With this much consistency in the leaderboard, the more fascinating stories may lie with this year’s “most improved players”: India, Costa Rica, Honduras, and Egypt. Each country has made notable progress on financial inclusion, but none more than India. With a national biometric identification system in place, continued progress on access and usage of bank accounts, an improved institutional framework and commitment to digital payments, India—already among the top countries—is increasingly seen as a model for ongoing progress.
<h2>Keys to success</h2>
<h3><b>Commitment and consistency matter. </b></h3>
An enabling environment for financial inclusion does not happen overnight. Colombia’s and India’s financial inclusion policy efforts predate even the first <i>Global Microscope</i>. Peru and Philippines signed on to the Maya Declaration, the first global platform for commitment to financial inclusion, back in 2011, with a small group of only 15 other countries. In short, it has taken years of concerted effort and political will for the top countries to earn and keep their spots in the <i>Global Microscope</i> index.
<h3><b>Broad-based policy pays off.</b></h3>
The <i>Global Microscope</i> measures 12 components of the financial sector, ranging from the level of government support to strength of dispute resolution mechanisms. None of the leading countries scored below 50 percent in any of the 12 components, and all but India achieved 100 percent in at least four components. (Colombia achieved perfect scores in a whopping eight components.) The leading countries demonstrate that you have to proceed on multiple fronts simultaneously to make meaningful progress in financial inclusion.
<h3>Consumer protection is a winning strategy.</h3>
Treating consumers right is an essential part of successful financial inclusion, but when it comes to fair treatment, especially mechanisms for airing and resolving customer complaints, most countries are underperforming. By contrast, leading countries prioritize consumer protection, and their scores show it. Colombia and Peru receive perfect scores in the consumer protection-focused components, and the rest of the leading countries rank in the top eight. Prioritizing consumer protection, as the leading countries have done, is a key to expanding financial inclusion.
<h2>Remaining challenges</h2>
<h3>Enforcement is limited.</h3>
Rules don’t mean much if you can’t enforce them, and that’s the story for many countries’ financial sectors. The average score for regulatory and supervisory capacity for financial inclusion, which spans credit portfolios, deposit-taking activities, insurance for low-income people and branch/agent models, is only 48 out of 100.
<h3>Consumer protection is especially weak.</h3>
Again, consumer protection is an area of particular weakness, constituting some of the lowest average scores in the index. For example, monitoring of consumer protection for insurance for low-income people netted an average score of just 15 out of 100. Most countries are grappling with widespread lack of market transparency and predatory sales and collection practices.
<h3>Usage still lags policy.</h3>
Countries like India and Philippines have successfully enacted policies to increase access to formal banking, but are still exploring how to get people to actually use the accounts they open. Those countries are pursuing tactics like government-to-person (G2P) transfers to build familiarity and instill the habit of using accounts. On the other hand, countries like China that are experiencing the fallout from unregulated peer-to-peer (P2P) lending are now exploring how to protect investors without prohibiting the flow of capital.

As the financial sector expands thanks to digital advances and new product offerings, the policy environment will also need to evolve accordingly. The <i>Global Microscope</i> continues to report what the policy environment for financial inclusion should entail.

<em>This post originally appeared on <a href="http://partners.wsj.com/metlife/multipliers/articles/financial-inclusions-best-in-class/">Multipliers of Prosperity</a>. </em>

Financial inclusion’s best in class