The success of Digital Financial Services (DFS) in developing countries and its contribution to increasing financial access to previously unserved and underserved populations is indisputable. Even though the exponential growth of DFS is praiseworthy, it has caused a number of spill-over effects, some of which are not so laudable. In this regard, one key area that is worthy of examination relates to the consumer experience with user agreements. User agreements are standard form contracts which spell out the terms and conditions of use, and quite a few are unduly burdensome for consumers. Others may actually cause direct harm to consumers.
This report explains the findings from an analysis of DFS user agreements in nine African countries and attempts to understand the overall consumer experience and whether or not there is a disconnect between contract provisions and the legal and regulatory provisions governing DFS. It highlights key findings, and makes a number of recommendations for action by the appropriate regulator in the various markets examined. Countries need to take these considerations into account as they continue to nurture their DFS markets so as to safeguard customers from harmful practices and ensure trust in the market.
The summary of findings below indicates that consumers face a number of challenges as they use DFS, including:
- Lengthy contracts: Some contracts run quite long, which discourages consumers from reading them. Findings from behavioural science further support this conclusion. Consequently, this throws doubt as to whether there is truly a meeting of the minds when consumers enter into user agreements with providers.
- Fees and charges associated with transactions, including for money transfers, bill payments, interest on loans, and USSD charges for transactions are not always stated in the agreements. Thus, consumers may not be aware of the cost of services prior to entering these binding arrangements.
- Language barriers: Contracts are predominantly in English, which is not spoken by a large number of the populations at issue. Furthermore, these contracts often use complex legal language and consequently even those consumers who are fluent in English may still fail to understand the true implications of the provisions.
- Providers stipulate a number of obligations towards customers in these agreements. Areas such as fraud and funds protection are of concern. Of the agreements reviewed, only 50 per cent of agreements outlined specific obligations related to fraud and funds protection. Moreover, the customer must notify the provider as a pre-condition for providers to address incidences of fraud, when consumers may not be in the best position to identify a fraud.
- Over 80 per cent of contracts contain clauses permitting providers to share information with third parties, such as credit reference bureaus, provider agents and subsidiaries, and also “for reasonable commercial purposes related to the provision of services”. This is quite vague and may give providers overbroad license to share consumer data, which raises privacy concerns. Management of privacy and data protection is further complicated by the lack of specific data protection legislation in the jurisdictions reviewed. Consumers have to rely on provisions contained in various pieces of legislation that do not comprehensively protect them.
- Half of the contracts included clauses requiring consumers to indemnity providers for legal fees incurred in pursuing a legal matter related to their offer of service to the consumer. Such clauses could result in customers avoiding pursuing redress, even where they have a valid complaint, for fear that they may accrue legal fees that they cannot afford.
- Clauses governing a change of terms and conditions by providers can be problematic, such as those that result in customers being legally required to accept terms and conditions that are retroactively introduced, whether they have read and agreed to these new terms or not.
Clauses governing a change of terms and conditions by providers can be problematic, such as those that result in customers being legally required to accept terms and conditions that are retroactively introduced, whether they have read and agreed to these new terms or not.
The contracts reviewed provide a useful snapshot of practices in the area of DFS user agreements and it is possible that the findings may not apply across the board in the various jurisdictions. However, regulators and policy makers would do well to carry out a more detailed analysis, looking at a greater number of contracts and potentially conducting consumer surveys in order to establish whether the issues highlighted are indeed representative of the challenges consumers are encountering in their respective markets. If they are encountering these challenges, the recommendations detailed in the report will be a useful starting point for revamping the DFS landscape.
In addition to the contract specific concerns highlighted above, an examination of the country legal frameworks revealed that in some instances, laws/regulations might need greater specificity in order to ensure that consumers are better protected. It was observed that in instances where providers may not be directly flouting laws or regulations, the existing provisions as framed have the net effect of causing consumer harm. For example, with regard to provisions requiring transparency of fees and charges: Often the law will state that providers need to make consumers aware of the fees prior to signing on to contracts or purchasing services, but the provisions do not specially require that this should be stipulated in the user agreement itself. As such, a provider may technically be complying, as they make this information available in another location (on their website for instance), but customers may not be able to access these sources, especially those who do not have access to the Internet. This means that they are not informed of the associated charges at the point where they accept contract terms and conditions.
Overall, in order to ensure improved consumer experience as they navigate the DFS landscape, we
need to have:
- User agreements that are consumer friendly in terms of language, length of contracts, and transparency of provisions.
- Greater scrutiny by regulators of these provider agreements. They might look at how providers word their obligations to ensure that consumers are not facing undue burdens and they might also generally analyse agreements to ensure key areas of consumer protection are captured in the agreement.
- Legislative amendments, as required, to improve protection for DFS consumers.
- Consumer education and awareness to help them understand their legal rights and how to navigate redress when those rights are violated.