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What Does Responsible Online and Digital Credit Look Like?


More and more online credit providers have started to offer loans to not only consumers but also to SMEs around the world.

Online lending for consumers and especially SMEs is highly relevant and important to expand access to finance and overall financial inclusion. However, trust, confidence and responsible lending practices need to be in place in order to ensure that this industry is able to continue to offer access to credit.

Outside of digital banking platforms, new alternative online and digital platforms that target consumers and small SMEs include:

  • Peer-to-peer (P2P) SME lenders
  • Online balance sheet lenders
  • Loan aggregator portals
  • Tech and e-commerce giants
  • Mobile data-based lending models

While the rise of alternative data-based lending has opened new and innovative credit opportunities for individuals and SMEs, these new technologies and providers also come with several consumer protection challenges. These can be categorized into seven main areas:

  • Data privacy and opt-in vs. opt-out challenges
  • Underwriting practices
  • Potential for exclusion of certain categories of clients
  • Cyber security and individual data protection
  • Clear and effective disclosure over pricing and terms
  • Customer recourse, complaint management and dispute resolution
  • Collection practices

To address these issues, both regulators and online lenders are analyzing various actions and standards to better protect online borrowers. In the U.S., the Department of Treasury, the Small Business Administration, the Federal Reserve Bank, and the Consumer Financial Protection Bureau have all started to focus on consumer protection issues related to online lending providers.

Outside of the U.S., regulators and online lenders in jurisdictions like the U.K. and Singapore are proactively engaging with each other to discuss new consumer protection standards. Based on challenges within the growing P2P lending industry, Chinese regulators are now implementing strict guidelines while Indonesia’s financial regulator is just releasing new consumer protection guidelines to address P2P lending practices. On the other hand, in most other markets, online lenders outside of the banks are lightly regulated or not regulated at all. International organizations like the World Bank, the Consultative Group to Assist the Poor (CGAP), the Alliance for Financial Inclusion (AFI), the G20, and groups like Consumer International have all proposed various consumer protection principles which apply to online lenders. While online lenders are still outside of most regulatory and supervisory frameworks in many emerging markets, there are proactive approaches and standards that can be proposed.



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