Where Angels Prey

Where Angels Prey is a novel by Ramesh S Arunachalam. Please refer to www.whereangelsprey.com for more information

Monday, March 21, 2016

Digital Financial Inclusion and Violation of Client Rights in India: Time to Have An Independent Client Protection Agency?

Ramesh S Arunachalam

If you look at the structure of what’s happening in digital financial inclusion, you are seeing a large number of stakeholders get involved and these are not necessarily financial institutions. TELCOS, merchants, intermediaries, agents and a whole range of other NEW stakeholders are getting involved in the delivery of (digital) financial inclusion services. That is fine but what is very important and also needs to be noted is that none of them have serious regulatory/supervisory oversight and because of that client rights are being violated!

Let me give a few examples of what happened to a friend to illustrate what I am saying. This friend recently started using a digital wallet (through his mobile) to top up air time and also buy small things. On several occasions, his complaint was that due to poor network connectivity and/or some other (technical) reason, the money had been debited from his digital wallet account but the purchase did not go through. Now he claimed that this is also happened in the case of his recently acquired credit card and he offers these two instances.

First, when he tried to top up his mobile, a transaction for Rs. 500/- (about US $ 7.5) through the digital wallet, the money got debited from his digital wallet account but then the TELCO did not top up air time. He called their customer care department (with great difficulty as there was a long list of options to go through and choose from to reach a customer service staff) and the staff were extremely rude. When he told the staff about the problem, they said they would check and revert and soon enough, he got a message from the TELCO saying that due to technical reasons the top up did not happen. It is important to note that he did not get any message initially but got this only after he spoke to the customer service staff.  

He again called their customer care and told them that his money had been debited already for which the customer service staff said it will take at least 5 working days for the money to reflect back in his digital wallet. The key point to note here is that apart from not getting the airtime top up, which my friend required at that point in time, he was also poorer by Rs 500 (about US $ 7.5) for a few days. Technically that was his money and it should not have been parked with someone else – either the Digital Wallet owner and/or TELCO to whom it did not belong. In this case, the digital wallet was owned by the TELCO and so, the money was essentially with the TELCO.

The flip side is that if several such transactions occurred in a day, imagine the money that the digital wallet company and/or TELCO would be holding (unfairly). This is one serious issue with (digital) financial inclusion and needs to be noted by the regulators. And when this happens, while the amounts may be small for the individual clients, the aggregated amounts can be large on a PAN India basis for the digital wallet company and/or TELCO.

Second, the friend related a similar happening in the case of an airline booking thorough the mobile using his recently acquired credit card. Now that’s again using a digital financial inclusion service where my friend used his SMART credit card through his mobile and the money for the transaction was debited and went into the account of the airline (and/or merchant) but the ticket was not issued.

“The booking could not completed successfully was the message that flashed on my friend’s mobile and yet his money had been debited!”

Is this not unfair to my friend, the customer? Now there are serious issues here too. Also, for the money to come back to my friend’s credit card, it took more than 3 weeks.

Now, imagine that 500 rupees (about US $ 7.5) or, 10,000 rupees (about US$150) or 15,000 rupees (about US$225) are lying somewhere in between heaven and earth with somebody to whom they don’t belong because the service/product was not sold. Without doubt, this is legitimately clients’ money which is lying elsewhere and it takes more than 2/3 weeks to come back. Imagine the digital wallet company or airline or intermediary or merchant whose is making money out of this! How to regulate this is again a very serious issue for the regulators? And what happens to my friend and thousands of others like him whose accounts have been debited but who have not received the services that they desired? Have they not been unfairly treated? Who protects them now?

Three issues need to be answered given the above:

a)                 If educated and technology savvy customers (like my friend) themselves find it a huge problem to deal with such issues, what can low income and bottom of pyramid clients do, provided the same aspect happens when they use a (digital) financial inclusion product/service? Who, specifically, will provide them redressal and who, specifically will protect their very hard earned money (which in relative terms could make all the difference to their daily living)?

b)                How does a regulator/supervisor (presently, the RBI) sitting in Mumbai or for that matter a state capital reach out to customers and assure them that their money is safe under such circumstances? Specifically, how can the regulator even know that this is happening on the ground especially, when low income and bottom of pyramid clients are involved (as these clients have no real means to get back to the regulator who is presently, the RBI)? Intimidation aspects apart, there are logistic and livelihood issues which prevent low income and bottom of pyramid clients from getting back to regulators like the RBI.

c)                 What about the money (in an individual and aggregate sense) unfairly gained by the TELCO or the digital wallet company at the expense of a customer? What happens to that money? Let us not underestimate this amount as small change. Having been an enterprise architecture person for over 25 years and having been involved in development and implementation of core banking and ERP systems for a long, long time, “aggregation of small change” can indeed be very big. This is analogous to the “rounding off” phenomenon in core banking and ERP systems.

There are many more issues and examples that I can give you with regard to (digital) financial inclusion but the larger point is that when this can happen to highly literate customers, imagine the plight of low-income and bottom of pyramid clients. And most importantly, how can we expect bottom of pyramid and low-income clients to deal with these issues and who will ultimately protect them and their hard earned money?

That is why we need a specialized client protection agency focussing exclusively on (digital) financial inclusion as newer products/services using newer technologies are being delivered through newer stakeholders through newer processes. Innovation is fine but cannot come at the expense of client rights and these need to be protected! On a daily basis, client rights are INDEED being violated even as we rake up innovations through digital financial inclusion and that needs to be squarely addressed!

Treating the client fairly is a very critical component of any service and that is sadly missing in much of India’s digital financial inclusion space in real time! As noted above, I can provide innumerable examples but the key point is that the Reserve Bank of India doesn’t have wherewithal to look at all of this. And I don’t think clients (educated or low income or BoP) have the tenacity, ability and time to approach the Reserve Bank of India for redressal as some of these violations happen regularly.

And as I noted earlier in another post, I am very sorry to say this but given the past poor experiences of clients trying to contact people in the Reserve Bank of India for client protection issues, getting in touch with the banking ombudsman or other such stakeholders will indeed prove extremely difficult! Therefore, given the fast pace of innovations and given the burgeoning rate at which clients (including low income and bop clients) are being acquired in the digital financial inclusion space in India, it is about time that we set up an exclusive agency for client protection immediately!

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