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“We keep hearing mobile money users complain about unstable network, delayed service, missing money and many other negative comments about mobile money. Why then should we register for these services?”

After years of preoccupation with over-coming the core challenges of establishing large-scale, sustainable digital finance (largely mobile money) systems in developing countries, we are seeing growing attention to consumer protection. High time too. But actually many of the key consumer protection issues relate to basic customer service – and appear to be creating real problems for providers by undermining trust in their digital financial services (DFS) and thus reducing both uptake and usage.

Fraud: To be honest MicroSave’s initial motivation to push consumer protection for DFS was a fear that a high profile DFS provider would be subjected to widespread fraud at the agent, or even worse, customer level. And that a regulatory clamp down, similar to what we saw in Andhra Pradesh, would follow. To date this does not seem to have happened, although this is not for want of fraudsters trying, and remains still a distinct possibility. The only major DFS fraud that is in the public domain is the one committed by employees MTN-Uganda through which MTN lost $3.4 million in 2012 … but industry insiders speak of many more such “inside jobs” that have been swept under the carpet.

But when MicroSave conducted a review of consumer concerns and issues in Bangladesh, Philippines and Uganda for CGAP, fraud was not a major issue for DFS users in any of these markets; and only a relatively minor one in Uganda where it is so prevalent. Instead, DFS customers were above all concerned about service downtime, agent illiquidity, their fear of sending money to the wrong number and the charging of unauthorised fees by agents.

These concerns were have a significant negative impact on the customer experience, costing them money and, in some cases increasing their exposure to frauds by agents. They are also negatively impact customer registration and usage.

Service downtime: As with all systems, including those used to run ATMs across the globe, there are times when the service is down and unavailable for a while. This can be as a result of systems being down or (where several institutions are involved) when one system is unable to get access to another to complete a transaction. Irrespective of the source of the problem, as a result of what customers call “service downtime”, there are delays in effecting cash-in/cash-out transactions, which denies them access to their own money, a serious problem for any financial service. Service downtime also leads to another important risk: where people trust the agent, they leave their money with him to conduct the transaction as and when the network improves. This leaves scope for the agent not to complete the transaction when the network is back up. In India, MicroSave has seen at least one instance where an agent took cash deposits for four days, explaining that the system was down and he would complete the transaction as soon as it was back up again … before fleeing with in excess of $2,500.

Agent illiquidity also has parallels in ATM systems – we have all stood, frustrated, in front of an ATM that has run out of cash to dispense. It is common for DFS customers to run into agents without sufficient liquidity. As a result, customers are either denied transactions and/or are required to visit two/three agents to send or receive money. While notably less common in Bangladesh, The Helix  2013 Uganda ANA report highlights that (on average) three transactions are denied each day per agent due to lack of float. This is equivalent to 10% average daily transactions being denied across the country. In the Philippines, the problem manifests in the form of a large number of dormant agents without any liquidity at all. This causes problems for customers, who have to search for another agent and face delays in transactions. It is reported that by 2013 there were a total of 24,000 registered agents; however, it is estimated that only 10,000 agents are active.

The fear of sending money to the wrong number is prevalent amongst DFS customers in both Uganda and Bangladesh. There is a clear understanding that money sent to the wrong recipient as a result of putting in the wrong number is rarely recovered from the lucky beneficiary. Indeed it is clear that this is one of the (many) drivers of the extensive market for over the counter (OTC) transactions, with all the negative implications for the long term profitability of DFS and for financial inclusion. Agents are trusted to be able to effect the transactions accurately … and besides, the sender can call the recipient to confirm that they have received the money before handing their money to the agent.

Charging unauthorised fees by agents is common across both Uganda and Bangladesh – especially for OTC transactions. There is a growing, but no means universal, acceptance that agents will charge a bit extra to conduct the transaction for his/her clients. In the Philippines, under the regulations, different agents are permitted to charge between 1-5% depending on their agreement with the service providers. This means that different agents charge different fees – typically according to how remote the agent’s location is. This gives rise to the relatively widespread perception that some agents are overcharging.

All these issues and concerns undermine customers’ trust in DFS systems. While customers are not being defrauded of enormous amounts of money, the perceived unreliability of systems, the uncertainty about whether agents will have the liquidity to conduct transactions and the amount they will charge for doing so, as well as worries about whether money remitted might be lost, all reduce confidence.

Why it matters: Both Uganda and Bangladesh continue to see impressive growth in the number of mobile money users and transactions. But (according to the Intermedia surveys) only 29% of Ugandan and 3% of Bangladesh adults have a registered mobile money account – and not all of these are active. Driving registration, and then regular use, at scale remains one of the key challenges facing the rollout of digital financial services in Africa, Asia and Latin America. Trust is key to any the uptake of any financial system, and, because of its ground-breaking nature, this is particularly true for DFS. It is clear that there are immediate potential wins for DFS providers who address consumer protection issues.

“Poor quality of service from telecom operators appears to be holding back the mobile money sector. The most common transaction problem faced by active account holders has been for their agent’s mobile network to be down.” – DFSRespondent Intermedia’s Financial Inclusion Insights Uganda Study: April 2014

In a recent study on the customer journey for UNCDF’s Mobile Money for the Poor (MM4P) in Uganda, MicroSave examined the barriers to non-users starting to use mobile money. Non-users in urban areas cited 1. unstable network; 2. high tariff charges and 3. unreliable customer care for issue resolution as their top 3 barriers. The rural non users ranked 1. unstable network; 2. unreliable customer care and 3. lack of documents for know your customer (KYC) as their top 3 barriers. It is important to note that these barriers are attributed by non-users as a result of word of mouth from users

However, addressing these issues is challenging for providers, as discussed in the next blog in this series (See “Solving Customer Service Issues”). Assessing the cost-benefits of doing so should be a priority for providers. But ultimately, it is essential that these issues are addressed before questions about accountability for, and ownership of, these risks become too persistent and pronounced, and regulators step in to enforce many of the existing laws, or add new ones.