In my previous post on my participation at the International Conference for Responsible and Inclusive Finance (ICRIF), I summarized key highlights from the panel discussion on 'The Business of Fintech in Africa'. In continuation, this post highlights some guiding principles for Fintech companies to ensure clients are protected from potential abuses and harmful risks.

Fintech and Smart Campaign Principles

• Appropriate product design and delivery: The variety of financial products and services under the Fintech umbrella warrants partnerships and collaborations that enhance the customer value proposition. In the case of MTN, product design and delivery adopt a holistic ecosystem approach involving the lion's share of stakeholders; while SureRemit's evolution from gifting (SureGifts) to cash remittances affirms recognition of the voice of the customer.
• Prevention of over-indebtedness: Tala, the only lender in our discussion group, manages and prevents over-indebtedness through customer engagement and education methods that deeply probe the credit need, value and timing.
• Transparency: The quality, appropriateness, method and language of communication between clients and Fintech businesses enhance transparency. Such mechanisms, which include the use of transaction confirmation dialogues and the provision of key fact sheets to enhance informed decision making, are but a few examples. The communication methods and processes form part of the regulation of financial institutions. However, given that most Fintech companies operate “under the radar”, operational data is privately held; unlike regulated entities like MTN that periodically report operational and performance data. On the flip side, transparency and knowledge of the customer are also important to Fintech companies. With most Africans lacking a government-issued identity, strategies to know your customer (KYC) and monitor digital financial transactions are constrained. To bridge this gap, Tala is using artificial intelligence and machine learning technologies, mine data from customer devices to enhance credit scoring and lending. Despite calls for open data, SureRemit's adoption of blockchain technology masks transaction transparency with anonymity.
• Responsible pricing: While the need to operate a viable and sustainable business cannot be overlooked, nor can the mindfulness of the burden on clients. The SureRemit business model has the merchants as the payers, eliminating any burden on recipients. While Tala sets its own interest rates, affordability and ability to collect are key components of their business model. In the case of MTN, incentives that ensure the network of agents earn decent commissions to sustain the business form a major part of the responsible pricing model.
• Fair and respectful treatment of clients: Even though we proclaim that customer is king, premium service is not often associated with customers at the bottom of the pyramid. This customer segment presents significant business opportunities for Fintech companies and hence their ill-treatment is not permissible. The reuse of mobile numbers by mobile network operators has come under scrutiny due to the associated residual "value" vis-a-vis increased business costs of registering a wider block range of numbers.
• Privacy of client data: Data protection and privacy are commonplace conversations in any online discussion. Oradian, the cloud-based software provider, emphasizes that this is always the first question asked by prospective clients. While data centers with limited personnel access, authorizations, built-in redundancy and the separation of database instances are available and in use, the situation is somewhat different in countries where data localization policies exist. In such instances, two data domiciliation options are available to clients in their respective countries. The first is to host live data in a local facility (either in a shared or independent data center). The second option is to host a data backup in a local facility. For smaller MFIs with limited digital infrastructure and capabilities, this may result in higher cost structures. For other Fintech providers, information security protocols vary and without oversight are dependent on the provider.
• Mechanisms for complaint resolution: The ability to resolve complaints is more prevalent in businesses like MTN Mobile Money which employs a network of about 40,000 agents for distribution. With so many service points, it is essential to decentralize complaints. The company has deployed a tiered complaints management system starting with the village agent all the way up to the MTN service centers. This model ensures that irrespective of the transaction origin, customer complaints can be addressed.

In conclusion, while the scope of the Fintech companies varies in the provision of retail financial services, early attention to client protection principles is critical. The call for responsible and inclusive financial institutions would only enhance financial inclusion and stimulate the associated economic benefits. However, in the absence of effective self-regulation, financial regulators will be forced to intervene. For example, in a white paper focussing on online marketplace lending industry, the US Treasury Department proposed a series of recommendations for developing robust borrower protections in online lending marketplaces. Additionally, some Central Banks are using regulatory sandboxes to test and learn the impact of innovative fintech products in a “live” environment. All in all, Fintech companies should strive to include responsible practices fromthe ground. More information and resources on client protection practices are available on the Consultative Group to Assist the Poor (CGAP) website.