If we want truly dynamic and competitive pricing, we just need to empower consumers’ data to be the oil that lubricates a new type of marketplace.
Some encouraging news for consumers and competition emerged during Central Bank of Kenya (CBK) Governor Patrick Njoroge’s briefing after the Monetary Policy Committee meeting on March 28. While outlining plans for improvements to consumer protection and customer centricity, the Governor mentioned CBK will increase the quality of information on the Total Cost of Credit (TCC) website— www.costofcredit.co.ke —launched in 2017.
We will expand [the website], expanding it so…there is more information on this website. So [a consumer] can do more of the window shopping before going to a particular bank. And therefore they become better armed.” (39:20 in remarks)
The TCC website allows consumers to enter in loan terms and compare indicative product terms from multiple banks. This website could be a key tool to improve price-based competition in lending in Kenya, and so enhancements are a welcome change.
The conversation reminded me of working in Mexico in 2012 with CONDUSEF, the financial consumer protection authority. We were conducting a mystery shopping exercise, and hoped to use CONDUSEF’s cost comparison website to measure if loan offers given to the mystery shoppers in branches matched the loan terms on the comparison website.
However, in Mexico we quickly realized the information on the website was missing and incomplete in many cases, and the website was not useful for assessing real product offers. This experience has been echoed by several other regulators I have worked with globally regarding their price comparison websites.
Generally government price comparison sites are difficult to keep up to date, and so often have limited utility—and low page views by consumers. But that doesn’t mean these comparison websites can’t be useful in markets like Kenya. It just means we need to fix two flaws of most government comparison sites:
- Link the sites to live offers so that you are not just considering hypothetical, best-case offers, but actual offers from multiple providers based on your product needs and profile.
- Link the sites not just to information from lenders, but information consumers can provide to lenders as well to increase the ability of multiple lenders to make product offers to consumers on equal footing.
These simple solutions would turn comparison websites from underused government web pages that are distant from actual loan application processes, to live lending markets that promote choice, competition and consumer value.
Increased real-time choice for financial consumers is already happening globally with innovations in information-sharing. Such information-sharing models are innovations that Kenya could implement relatively soon given the advanced digital financial services market.
Imagine if a potential borrower could go to the costofcredit.co.ke website, upload their bank statements, mobile money records, and even their Integrated Population Registration System information instantly via a simple identity check and common set of Application Program Interfaces that connect those collecting consumer information with the website. The borrower could then enter the loan amount and tenor they sought, click one button, and be provided 3, 5, maybe even 10 live loan offers from firms that were making the offers based on equal information. The consumer could then select their preferred loan option, and acquire the loan immediately without visiting any bank branch. This would be a revolution in competition, and would force lenders to employ the risk-based pricing CBK has been urging them to adopt.
This enhanced version of the costofcredit.co.ke website is not a dream either. Already there are markets where these innovations occur, whether a private lending market like Destácame in Latin America, or regulator-supervised platform like the Open Banking Implementation Entity in the United Kingdom.
What is needed for Kenya is a mandate that gives consumers access to their account information instantly, and the ability to safely share this information with potential lenders in a single platform.
We already know lenders in Kenya could capitalize on this information. FinTechs employ data analytics on SMS transaction receipts from mobile money and banking to assess and disburse loans solely to borrowers 100% remotely through a mobile phone app. Further, in 2018 Safaricom was selling their customers’ data to some of these FinTechs in a lending scorecard that included mobile money and digital loan data, charging Ksh100 per score to lenders. One lender that used this data reported they were able to increase their loan ticket size by up to 100% for borrowers with records with Safaricom.
This example of a FinTech using Safaricom data shows why the costofcredit.co.ke website should include more than just banks. Digital financial services blur traditional sectoral lines, with MFIs, SACCOs and others joining the digital shift alongside banks and mobile money operators. To make sure banks are not the only ones having to share consumer information, these other providers should have to share their information if they want to offer products to customers on the TCC website.
So the technology is there, the providers exist, and the consumer benefit has actually been quantified in pilots like the Safaricom scorecard. All that is needed is policy reform. There are a few options Kenya could take now that could make the new TCC website a live, consumer-led data marketplace:
- Issue a new law like the Consumer Data Right in Australia, which establishes rights to data and information-sharing for all sectors. The implementation of this law is beginning with banking, telecoms and utility data. This effort is overseen by the Australian Competition and Consumer Commission, an entity similar to the Competition Authority of Kenya, which coordinates implementation with sector regulators in financial services, telecoms and other industries.
- Have an authority with full oversight of the financial sector implement information-sharing rules. This would require either expanding the mandate of existing authorities or creating a new authority responsible for supervision of the entire financial sector.
- Update the credit reference bureau law to make positive record-sharing a requirement for all lenders, not just banks, and make them all report in real-time, or at least same day. Already CBK is revising some aspects of the bureaus, and these reforms focused on the banking sector could be expanded to address lack of compliance in reporting from some banks, real-time reporting, and mandatory reporting of positive borrower information from non-banks. However, reforms to the bureau system likely would not address data sources like mobile money or deposit accounts, which are key pieces of a consumer’s financial history as well.
- Fix the data portability provisions in the draft Data Protection Bill so financial data must be shared in real-time and for free. The current draft not only allows “a reasonable fee” to be charged consumers for their own data, it also gives providers up to 30 days to deliver the data—which would kill the potential of a live offer credit website or any other such innovation before it is even born. If 30 days is the standard set in the Bill, then even if we want to implement real-time information sharing in the financial sector, it will now be impossible without amending a Law. This type of standard-setting should be left to the implementing regulations and guidelines on a sector-by-sector basis. It makes sense therefore to revert the language to the original “free of charge,” and not include a 30 day time period in the Bill, as some sectors of the economy may need more time, whereas digital finance should strive for real-time data portability.
The recipe is right in Kenya for revisioning what online pricing information could achieve. We have a fast-growing, innovative digital financial sector; competition challenges resulting from market concentration and barriers to entry; and the platforms in things like the TCC website to pilot this method for lending, as well as for other financial services once the value is proven. If we want truly dynamic and competitive pricing, we just need to empower consumers’ data to be the oil that lubricates a new type of marketplace.