Nearly one in ten mobile financial service (MFS) users report to a survey team that they have been victims of fraudulent experience of some form.
The research paper styled ‘The State of DFS Consumer Protection in Bangladesh’ also highlighted certain areas where further policy attention is needed to materialise the full potential of the digital financial services (DFS) in the country.
Dr. Ashikur Rahman, Senior economist of the Policy Research Institute (PRI), and Azmina Rede, a consultant of the PRI, conducted the survey during August 2021 – September 2021, covering 9,279 respondents in both urban and rural areas.
The use of digital platforms became increasingly relevant and indispensable for both consumers and businesses during the pandemic.
Registered mobile financial service (MFS) accounts in Bangladesh witnessed a hike of 12% in September 2021 compared to the preceding year. Moreover, the total financial flow through MFS increased to Taka 73393.3 crore in January 2022 – marking an annual growth of 28.1%.
The total number of transactions stood at 34.54 crore in January 2022 – which is 15.4% higher than the previous year. The number of transactions in the e-Commerce Sector has almost doubled within the same period.
However, the consumer activities in the digital age are also inundated by growing problems related to the complexity and uncertainty around the use of personal data, as well as misleading, unethical, and fraudulent commercial practices.
“Useful policy and regulatory reforms are needed,” Dr Ashikur Rahman told Bangladesh Post.
“Extensive guidelines are required to comprehensively bring all Financial Institutions under one umbrella with specific and detailed regulations that will be equally applicable for all stakeholders in the DFS Industry. Users and agents must be instilled with adequate digital financial literacy and awareness to protect themselves against fraudulent experiences. Dedicated laws on data protection and privacy are also required to protect consumers’ data, their collection and usage, confidentiality, and security,” the researchers suggested in the paper.
When the different types of frauds are examined – the survey noticed that “compromised PINs” and “scams involving impersonation” are primary frauds experienced by the users of MFS.
The share of victims of fraudulent acts also tends to be relatively higher for users with higher educational degrees. “This does not necessarily establish any conclusive correlation between higher education and frauds faced, but instead may imply that well educated users are more aware of anomalies in their mobile wallets and can recognize fraudulent activities.”
“Interestingly, higher formal education offers no noticeable safeguard against such frauds. When faced with frauds, the majority of the users prefer complaining to the MFS Agents and/or Customer Care Centers to report them.”
According to the survey, there is no indication that users from any gender are prone to fraud – or their residency in urban/rural localities makes them more vulnerable to such malpractices. There is also no suggestive evidence that users who depend on family members (or friends) or agents to operate their MFS are more prone to fraud.
Sylhet Division has the highest propensity of fraud – more than 3-times of the national average. “More work is needed to understand exactly why certain regions experience more fraud, so that the providers of MFS can tailor their response to these reasons to mitigate such geographic heterogeneity.”
The average size of the financial loss from using MFS accounts amounted to over BDT 9,000. Although no significant difference in average loss was recorded between urban and rural residents, the size is seen to be increasing with higher educational degrees. “This may again reflect that users with higher educational degrees were more aware when financial loss incurred, hence were better able to report them during the course of the survey.”
Almost two-third of the complaints are resolved within a week, while one-third are never resolved.
Findings show that users with higher financial losses had their problems resolved within the first week of complaining. Complaints that took more than a month to resolve consist of an average financial loss of less than BDT 2000. Additional time required to resolve such complaints may indicate the reluctance or lack of urgency from the users’ end for redress due to the smaller size of financial loss.
A strong link was observed between the time required to address victims’ complaints and their choice of continuing the use of mobile wallets.
Key policy brief
There is a need to establish a single dedicated regulatory authority that will ensure effective safety for the users of MFS across different regions and social groups. The central institutional body must annually measure both the propensity of fraud in the DFS Sector and explore how the nature of fraud is changing over time, so that they can motivate the providers of MFS to address these issues seriously.
The researchers suggested introducing a ‘comprehensive’ Digital Financial Literacy Strategy by conducting training on financial literacy for the vulnerable communities and regions throughout the country.
Special measures are also needed in the regions where the propensity of fraud is found to be high after exploring its root causes. More attention must be given to frauds that stem from the users of MFS undermining the integrity of their PINs or falling victim to impersonation – as they appear to be the most common type of fraudulent acts.
They also suggested more investment in the recruitment, training and management of agents for the successful deployment of Mobile Financial Services in both rural and urban regions.
The undertaken survey is indicative that less than one percent of the agents in the DFS sector are women – indicating a strong gender bias. Consequently, the providers of MFS must be encouraged to recruit more female agents with the necessary training to reduce this disparity.
They also suggested planning a collaborative effort by the government agencies, NGOs, providers of MFS and other relevant organizations to organise awareness raising campaigns periodically on: (i) the nature of frauds; (ii) the occurrence of frauds; (iii) the possible victims of frauds; and (iv) the ways to avoid them. Insights from psychological analysis of the victims might be useful in designing campaigns that reduce the vulnerability of MFS users.
The providers of MFS must set up Customer Care Service outlets and agent points across the remote areas of Bangladesh to ease the accessibility of financial services, and make it easier for the users to address queries related to MFS.
A relatively high level of capacity building mechanism is required for all the relevant stakeholders to understand and work on consumer rights and protection issues in Bangladesh properly.
Training on cybersecurity should also be designed and initiated for employees of MFS providers, the researchers suggested.
