Consumer Financial Products Research Articles

Customized financial literacy: a boon for universal financial inclusion of PWDs post COVID-19 pandemic in developing countries

PurposeCurrently, consumers of financial products and services have become more vulnerable to predatory financial institutions, especially in the aftermath of Covid-19 pandemic. Therefore, financial consumers like the persons with disabilities (PWDs) should be equipped with knowledge and skills to help them to evaluate complex financial products on offer in financial markets, especially in developing countries to avoid being victims of fraudulent lending. The purpose of this study is to establish whether customized financial literacy mediates the relationship between financial consumer protection and financial inclusion of PWDs’ owned MSMEs in rural Uganda post Covid-19 pandemic.Design/methodology/approachSmartPLS 4.0 was used to construct the measurement and structural equation models to test whether customized financial literacy significantly mediates the relationship between financial consumer protection and financial inclusion of PWDs’ owned MSMEs in rural Uganda post Covid-19 pandemic.FindingsThe results revealed a partial mediating effect of customized financial literacy in the relationship between financial consumer protection and financial inclusion of PWDs’ owned MSMEs in rural Uganda post Covid-19 pandemic. Conducting customized financial literacy increases financial consumer protection by 12 percentage points to promote financial inclusion of PWDs’ owned MSMEs in rural Uganda post Covid-19 pandemic.Research limitations/implicationsThis study focused only on customized financial literacy and financial consumer protection to promote universal financial inclusion of PWDs’ owned MSMEs post Covid-19 pandemic. Future studies may use data collected from other vulnerable groups amongst the unbanked population in developing countries, Uganda inclusive. In addition, this study also collected only quantitative data from the selected population. Further studies can be conducted using key informant interviews and focused group discussion to get the perceptions of the PWDs on being protected from exploitation by unscrupulous financial institutions.Practical implicationsThe findings from this study can help policymakers in developing countries like Uganda to revise the existing consumer protection law to include strong clauses on protection of people with special needs like the PWDs. The law must ensure that they are not exploited by financial institutions because of their conditions. The law ought to make sure that the PWDs are educated about their rights in the financial market place and all information on financial products offered by financial institutions should be simplified and interpreted to them before they make consumption decisions.Originality/valueTo the best of the authors’ knowledge, the present study is amongst the first few studies to provide a meticulous and unique discourse on the ever increasing role of financial literacy combined with consumer protection to reduce consumption risks within the financial markets, especially in developing countries in the aftermath of global pandemic shocks. This study uses the social learning theory, theory of reasoned action and theory of planned behaviour to elucidate how customized financial literacy can enhance consumer protection to increase financial inclusion of groups with special needs like the PWDs who have become more susceptible to exploitation by unscrupulous financial institutions in under-developed financial markets, especially in post Covid-19 pandemic.

Complaint and Severity Identification From Online Financial Content

The automatic detection of <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">financial complaints</i> ( <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">FINCORP</i> ) can benefit businesses and online merchants. Compared with manually tagged complaints, they can use this information to monitor and address issues and effectively route them to appropriate teams. This can also promote greater transparency and accountability when dealing with consumer financial products and services, strengthening the firm’s brand value. In linguistic studies, complaints have been classified into severity categories based on the level of risk the complainant is prepared to accept. Furthermore, since emotions influence every speech act, an individual’s emotional state considerably impacts the complaint expression. In this article, we introduce a <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">FINCORP</i> resource, a collection of annotated complaints arising between financial institutions and consumers expressed in English on Twitter. The dataset has been enriched with the associated emotion, sentiment, and complaint severity classes. The dataset comprises 3149 complaint and 3133 noncomplaint instances spanning over ten domains (e.g., credit cards, mortgages). For a comprehensive evaluation of our dataset, we develop a multitask framework for complaint detection and severity classification with emotion recognition (ER) and sentiment classification as the additional tasks and compare it with several existing baselines. The corpus and code are available here: https://github.com/RohanBh23/FINCORP.

Credit Card Profitability

Credit cards are one of the most ubiquitous consumer financial products in the United States, with more than 75 percent of households owning at least one general purpose credit card in 2019. According to the G.19 Consumer Credit Statistical release, revolving consumer credit, which mainly consists of credit cards and related plans, stood at over one trillion dollars at the end of 2021.

DIGITAL TRANSFORMATION OF THE FINANCIAL MARKET: RISKS AND OPPORTUNITIES

The introduction of modern digital technologies into the practice of financial market entities contributes to the resolution of contradictions in economic relations between suppliers and consumers of financial products by forming a local compromise. The digitalization of financial services helps to increase the physical and tariff accessibility of financial services, reduces the costs of a financial company to expand its client portfolio. However, it should be noted that the production, sale and consumption of digital financial services and the digitalization of business processes of financial companies are associated with additional risks for all participants in economic relations.&#x0D; Purpose. Study of opportunities and risks of forming an effective financial strategy for a consumer of financial services in the context of digital transformation of the financial market.&#x0D; Methods and methodology. The article used the methodology of conflict-compromise management of economic relations, the general theory of risk, as well as content analysis of the literature on the research problem.&#x0D; Results. Results were obtained that confirm the hypothesis that the digitalization of various business processes in financial companies will lead to an increase in the process of disintermediation, which will inevitably lead to the transformation of traditional business models of companies, a revision of the factors affecting the formation of profits of financial companies, and for consumers of financial services to the need to form patterns of responsible financial behavior in the context of financial market transformation.&#x0D; Practical implications it is advisable to apply the results obtained by economic entities involved in the formation of functional strategies of companies.

Effects of perceived risk on intention to use biometrics in financial products: evidence from a developing country

To establish if the usefulness and benefits of biometrics exceed consumers' perceived risk, this research assessed the impact of perceived risks on the intention to use biometric technology by consumers of financial products in Bogota, Colombia, adapting the technology acceptance model (TAM). The design includes, first, a qualitative stage with ten in-depth interviews. Second, a survey was applied to a sample of 410 participants. Results showed users are willing to adopt biometrics in banking if they find it useful and if they have a positive perception regarding the capacity to guarantee transactions and to positively identify the user in the system (risk-free), which are mostly time, convenience and social risks. The findings-conclusions have marketing implications for academic researchers, financial services companies and professionals that take part in the design of this technology, who may propose improvements to the products and streamline management and communication processes aimed at the consumer.

Mobile money adoption and usage and financial inclusion: mediating effect of digital consumer protection

PurposeDrawing from the argument that mobile money services have a significant potential to provide a wide range of affordable, convenient and secure financial services, there have been rampant frauds on consumers of financial products over the digital financial platform. Thus, this study aims to establish the mediating effect of digital consumer protection in the relationship between mobile money adoption and usage and financial inclusion with data collected from micro small and medium enterprises (MSMEs) in northern Uganda.Design/methodology/approachTo achieve the main objective of this study, a research model was developed to test for the mediating effect of digital consumer protection in the relationship between mobile money adoption and usage and financial inclusion. The data were collected from MSMEs and structural equation modelling in partial least square (PLS) combined with bootstrap was applied to analyze and test the hypotheses of this study. The direct and indirect effect of mobile money adoption and usage on financial inclusion was tested through digital consumer protection as a mediator variable.FindingsThe findings from the PLS-structural equation modelling (SEM) showed that mobile money adoption and usage has both direct and indirect effect on financial inclusion. Moreover, financial inclusion is influenced by both mobile money adoption and usage and digital consumer protection.Research limitations/implicationsThe study used partial least square (PLS-SEM) combined with bootstrap confidence intervals through a formative approach to establish the mediating effect of the mediator variable. Hence, it ignored the use of covariance-based SEM and the MedGraph programme. Furthermore, data were collected from samples located in Gulu district, northern Uganda and specifically from MSMEs. This limits generalization of the study findings to other population who also use mobile money services.Practical implicationsPromoters of digital financial services, managers of telecommunication companies, and financial inclusion advocates should consider strengthening the existing digital consumer protection laws on the mobile money platform. A collaborative approach between the mobile network operators, financial institutions and regulators should tighten the existing laws against mobile money fraudsters and an efficient mechanism for recourse, compensation and remedy should be set up to benefit the victims of frauds and cybercrime on the Fintech ecosystem.Originality/valueThe current study gives a useful insight into the critical mediating role of digital consumer protection as a cushion for promoting financial inclusion through mobile phones over the Fintech that face great threat and risk from cyber insecurity.

FINTECH AND COMMERCIAL BANKS: COMPETITION AND OPPORTUNITIES OF COOPERATION

Introduction. Recent fundamental changes have taken place in all spheres of society, primarily related to the development of technology. The financial sector is no exception: every year both consumers of financial products and services and their producers are more and more committed to the introduction of new technologies. The pioneers of these changes are FinTech companies, which have managed to achieve significant development over the last decade, and which continue to grow. Traditional financial intermediaries are beginning to be wary of their market shares and see FinTech companies as new competitors. However, it is thanks to them that the financial market can reach a new level, and if their efforts are combined with the knowledge and experience of commercial banks - titans of financial intermediation, a number of benefits for them and for the financial system as a whole will be got. Purpose. The article aims to research the reasons for the rapid development of FinTech companies, possible ways of cooperation between them and commercial banks and the benefits that financial markets will receive from these associations. Method (methodology). General scientific research methods, such as analysis, synthesis and deduction, methods of theoretical substantiation, statistical analysis, comparison, abstract-logical, graphical and tabular methods were used. Results. The article describes the main advantages and disadvantages of FinTech companies compared to commercial banks, which are, on the one hand, their innovation, adaptability and speed of response to environmental change, and, on the other hand, the presence of additional risks. According to this, the prospects of cooperation between FinTech companies and commercial banks and the benefits that will be received by all financial market participants were considered. The article also outlines what activities banks and FinTech companies will engage in as part of such cooperation and what stages they will need to go through to achieve maximum results.

FinTech Challengers and Incumbents’ Responses: A Window into Innovation Management Strategy Modes within Australia’s Financial Services Sector

FinTech (financial technology) is asserted as a disruptive paradigm with digital technologies driving authentic innovation within the financial services industry. Much attention and hyperbole has been attributed to startup FinTech developers and the potential of applications for consumers of financial products and financial markets. Substantial emphasis has been given to the perceived vulnerabilities of industry incumbents facing disruption from technology-enabled platforms (‘BigTechs’) and entrepreneurial start-ups. However, institutional incumbents command large market franchises and possess deep financial and technical resources. Incumbents also have most to gain from leveraging FinTech developments. As the financial services industry is saturated with information systems, innovative technologies which have the potential to re-configure industry markets and institutional logics, inevitably confront regulatory boundaries. Given intense competition for technological advantage, strategic and corporate activity closely follows FinTech development. This article examines FinTech within Australia’s financial services sector and offshore. It provides a stringent scientific definition of the FinTech phenomenon, addressing a lacuna within the extant research. Recognising that disruptive FinTech deepens the financial services industry’s core intermediation function, it presents a taxonomy for readily locating innovations within the industry’s value chain, and assessing their transformational potential (and thus, systemic impact). Focusing upon the incumbent’s perspective, this article examines three collaboration strategies using exploratory case studies, to show how Australian financial institutions incorporate and appropriate FinTech innovations. The article discusses insights and suggestions for further research directions relevant to academics, industry participants, and policymakers.

Regulating the Regulator: Improving Consumer Protection Under a Twin Peaks Regulatory Framework

This article analyses a proposed framework, the goal of which is to improve protection of consumers of financial products and services, within the Australian Twin Peaks regulatory model.

The Salience Theory of Consumer Financial Regulation

Prior to the financial crisis, banks’ fee income was their fastest-growing source of revenue. This revenue was often generated through nefarious bank practices (e.g., ordering overdraft transactions for maximal fees). The crisis focused popular attention on the extent to which current regulatory tools failed consumers in these markets, and policymakers responded: A new Consumer Financial Protection Bureau was tasked with monitoring consumer finance products, and some of the earliest post-crisis financial reforms sought to lower consumer costs. This Article is the first to empirically evaluate the success of the consumer finance reform agenda by considering three recent price regulations: a decrease in merchant interchange costs, a cap on credit card penalty fees and interest-rate hikes, and a change to the policy default rule that limited banks’ overdraft revenue. The varied efficacies of these interventions suggest several insights for policymakers. First, price regulation of non-salient prices (such as late fees or overdraft charges) is desirable. This is true even in a perfectly competitive world, because the existence of shrouded prices can lead to excessive demand for consumer financial products; cause consumers to expend tremendous energy to avoid hidden fees; and result in cross-subsidy of sophisticated consumers, who incorporate these prices into their decision-making, by unsophisticated customers, who do not. In an imperfectly competitive world, regulations that target non-salient prices can also decrease overall consumer costs. A substitute for price regulation is the use of behavioral tools, such as shocks to consumer attention, to encourage consumers to take non-salient prices into account. Such simple, timely disclosure is a choice-preserving alternative to banning expensive consumer finance products.

The Financial Counseling Industry: Past, Present, and Policy Recommendations

Financial counseling plays an important role for low- and moderate-income Americans and deserves more attention from leaders in the field. As financial counseling has evolved, the providers have been challenged to find a model that is both borrower centered and sustainable. This article provides a diagnosis of the failures and challenges in the financial counseling field, as well as a discussion of steps through which the providers could optimally serve families in need. These steps include (a) enhanced funding of the industry as a result of a recognition by financial stakeholders that it would be beneficial for them if the counseling industry was markedly improved; (b) stronger training for counselors; (c) implementation of enhanced measurement tools so that both funders and consumer borrowers could choose their providers from an informed position; and (d) assertion of leadership by consumer advocates and the Consumer Financial Products Bureau in improving this industry.

What Shapes Consumer Choice and Financial Products? A Review

Central to the field of consumer finance is that consumers make financial decisions that do not always coincide with the financial decisions ideally depicted in optimal economic models. In this review, we discuss developments in the field of household finance, focusing on how consumers make suboptimal financial decisions across different types of settings and factors that affect their decisions. Rather than conducting a comprehensive survey, we focus specifically on consumer choice in the context of research on credit card borrowing, housing and mortgage debts, investment and savings decisions, and spending and consumption. We also discuss financial product design and marketing, as well as the regulatory landscape of lenders of consumer financial products. We present five future research directions and considerations for researchers and policymakers.

What Shapes Consumer Choice and Financial Products? - A Review

What Shapes Consumer Choice and Financial Products? - A Review

Policy Watch: The Consumer Financial Protection Bureau's Consumer Research: Mission Accomplished?

This article introduces readers to the Consumer Financial Protection Bureau (CFPB), a federal agency created under the Dodd–Frank Act to protect consumers of financial services and products. The CFPB has an important mission to ensure consumers have clear and timely information about consumer financial products and services in the marketplace so they can make the best decisions for themselves, as well as to foster competition and prevent unfair, deceptive, or abusive acts or practices. This article discusses some of the CFPB's rulemakings and other initiatives to achieve this transparency for consumers and questions whether the agency has conducted sufficient consumer research. The article suggests ways in which the CFPB could improve its work. Finally, the article briefly addresses how academic research may be able to assist the CFPB with its mission.

The Effects of Regulating Hidden Add-On Costs

We examine the welfare effects of price and disclosure regulation in a model where firms can shroud add-on costs, such as penalty fees for consumer financial products. Such regulation can increase or decrease welfare even when there are no direct costs. There are, however, strong complementarities between price controls and disclosure mandates: conditional on disclosure being mandated, price controls always (weakly) increase welfare, and conditional on prices being sufficiently constrained, disclosure mandates always (weakly) increase welfare.

Research on Internet Consumer Financial Products Usage Intention—Taking College Students as an Example

With the rise of Internet consumer finance, it has greatly promoted the prosperity of the stage consumption market, and the college students group is a market with great development space and untapped market. In this research background, this article combines the technology acceptance model and the rational acceptance model, and introduces consumer innovation and perceived risk to explore the influence of consumers on the willingness of e-commerce Internet consumer financial products. The study found that perceived usefulness and willingness to use had a significant positive correlation, and that perceived risk and willingness to use had a significant negative correlation. Perceived ease of use and subjective norms have a significant positive effect on perceived usefulness; Consumer innovation and perceived ease of use have significant positive impact, and consumers’ innovation and perceived risk have significant negative impact. The conclusions of this study enrich the study of willingness to use, and put forward relevant marketing strategies for enterprises to promote and occupy market share.

Regulacyjno-instytucjonalne ramy ochrony konsumentów na rynku usług finansowych - wybrane doświadczenia międzynarodowe

The main aim of this article is to introduce and systemise the most important regulatory and institutional solutions concerning the protection of consumers of financial services. Customer protection is not only essential for the development of financial systems, but is also a prerequisite for financial stability in both individual economies and in an international dimension. The present regulatory-institutional framework of the protection of consumers of financial products offers a multiplicity of solutions. There is, however, a clear trend which has occurred as a result of the global financial crisis - international efforts to develop common solutions and strengthen cooperation. It is essential to find solutions which can complement regulatory-institutional ones and raise the level of protection. One of the most effective methods is to educate consumers in financial matters.

Regulating Consumer Financial Products: Evidence from Credit Cards *

Abstract We analyze the effectiveness of consumer financial regulation by considering the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act. We use a panel data set covering 160 million credit card accounts and a difference-in-differences research design that compares changes in outcomes over time for consumer credit cards, which were subject to the regulations, to changes for small business credit cards, which the law did not cover. We estimate that regulatory limits on credit card fees reduced overall borrowing costs by an annualized 1.6% of average daily balances, with a decline of more than 5.3% for consumers with FICO scores below 660. We find no evidence of an offsetting increase in interest charges or a reduction in the volume of credit. Taken together, we estimate that the CARD Act saved consumers $11.9 billion a year. We also analyze a nudge that disclosed the interest savings from paying off balances in 36 months rather than making minimum payments. We detect a small increase in the share of accounts making the 36-month payment value but no evidence of a change in overall payments.

Does Organizational Form Impact Pricing Asymmetry? Evidence from Nonprofit Financial Institutions

Why output prices tend to rise faster in response to input cost increases than they fall in response to input cost decreases is a hotly debated issue in modern economics. In this article, I contribute to this asymmetric pricing debate by expanding the domain of organizational forms where this question has been investigated. More specifically, previous research has focused on for‐profit firms. I expand the investigation by focusing on nonprofit organizations. Credit unions are the nonprofit organization used in my analysis. Credit unions provide essentially identical types of consumer financial services and products as commercial banks but do so from a very different not‐for‐profit orientation. However, in this study, I document similar asymmetric rate‐setting behavior by credit unions. This suggests that pricing asymmetry is likely to be much more widespread, as it relates to nonprofit institutions as well as those in the for‐profit sector.

Should the FSI revisit the philosophy of financial services regulation?

The Australian government's Financial System Inquiry (FSI) is charged with, among other things, refreshing the “philosophy, principles and objectives underpinning the development of a well-functioning financial system”. However, the FSI's Interim Report gives little indication that a fundamental rethink of the dominant “conduct and disclosure” approach to financial services regulation, derived from principles of capital markets regulation, is on the cards. While that approach remains a sound basis for regulating securities issuers and participants in capital markets, it is not clear that it provides the right framework for regulating fiduciary intermediaries in the wealth management sector, or providers of consumer financial products and services.