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Protecting consumers is vital to improving their financial behavior


The COVID-19 crisis is pushing vulnerable groups – those bearing the economic brunt of the crisis – to the limit. Leora Klapper, lead economist of the World Bank’s Development Research Group and member of the Advisory Board of the BBVA Center for Financial Education and Capability, analyzes the key factors to boosting these groups’ economic resilience and promoting their financial inclusion.

In the midst of the crisis triggered by the global pandemic, it is vital that policymakers adopt measures aimed at protecting the most vulnerable population segments. For example, by making it easier to send remittances. “Remittances represent an important source of finance for many developing countries, and are essential in managing economic risk,” explains Leora Klapper. “Encouraging Fintech applications could help lower transaction fees, foster the flow of money and make sure that people receive the money when they need it.”

The importance of digitization

In this context of crisis, digitization is emerging as a pivotal measure that promotes economic transactions and, at the same time, protects people’s health by allowing them to pay electronically, particularly important during this time of social distancing. “Digital transfers of welfare payments can potentially reduce administrative costs for governments and increase convenience for beneficiaries,” says Klapper.

However, digitization brings other problems. “People lacking financial experience or a basic level of literacy or numeracy may struggle with digital payments.” That is why it is necessary to develop products and infrastructures that promote the financial inclusion of the most vulnerable groups. “Ideally, payments should be credited to interoperable accounts that people can use for other financial purposes, such as for saving and making payments., which can help poor adults better manage their money.”

The keys to financial inclusion

Financial inclusion is the cornerstone of a healthy economy, and will play an important role in the recovery of the crisis. “When people have access to financial services, they can invest in business and educational opportunities. Financial services can also help people face economic emergencies, like health care costs or a job loss, and might prevent them from becoming impoverished.” Likewise, inclusion levels must be increased within the business environment, where digitization plays an significant role. “Digital financial services, such as mobile money, can reduce the risk of theft and improve transaction efficiency for merchants, helping them prosper in the economy.”

Financial inclusion depends on many factors, and spans different social and economic variables. “For me the priorities would be: responsibly digitizing payments, improving product design for excluded populations such as women, improving financial infrastructures, strengthening consumer protection and ensuring that people have access to the technology they need to access financial services,” explains Klapper.

The role of women

All these advances will only be possible when the financial sector opens up to diversity and places women in a position of equality. “We need more women in leadership positions, because gender diversity stimulates innovation,” says Klapper. This innovation could translate into new products and solutions for female clients. “Women and men’s financial interests can differ, and this is a fact that product offerings often overlook.”

The cultural context also influences the need to include more women in financial institutions. “There should be more women in customer-facing positions because – especially in economies with restrictive gender norms – customers might prefer to interact with service agents of their own gender.” In this case, having data on gender representation in the industry “would help financial service providers identify barriers and opportunities for progress.” Opportunities that will only be possible by building safe environments for people, “if the goal is to improve people’s access to appropriate financial products it’s best to focus on improving the transparency and quality of information provided to customers”.

Another point of view

A list of inclusion drivers would not be complete without financial education, although taking into account certain nuances. “I believe it would be a mistake to assume that people first become financially literate and then embrace correct financial behaviors,I think it is more experience-based,” clarifies Klapper. “People develop financial knowledge and skills as they start carrying out transactions in a healthy financial ecosystem.”

When it comes to analyzing why it is so hard for a population segment to grasp some basic financial concepts, the expert proposes a broader view. “If a survey shows that people are struggling with concepts like compound interest, is it really due to a lack of financial education or does it tell more about the broader challanges people face making complicated financial decisions?” For this reason, she emphasizes the need for strong consumer safeguards and the importance for companies to present people with simple, clear information about financial products, so that consumers can confidently use financial products that best meet their financial needs.


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