Consumer Reports Delivers Next-Level Transparency for Fintech Customers
The pandemic accelerated the transformation and adoption of digital finance. Today, more than 80% of consumers use at least one fintech app, with the average consumer using four different apps to manage their financial lives.
This represents an exciting opportunity for consumers, as well as fintech entrepreneurs, but it also comes with risks. As Marta Tellado, president and CEO of Consumer Reports, put it, digital finance is “rife with both market-changing innovation and bad actors."
Consumers have lacked unbiased guidance in navigating fintech apps and arguably in navigating the digital realm more broadly. Most of the content is ad- or referral-based and there hasn’t been unbiased evaluation and comparison of digital fintech products like exist for, say, the automotive industry. Consumer Reports has a long, rigorous, and trusted history of evaluating consumer products, and in 2021, Flourish gave Consumer Reports a grant to pioneer its model in the digital finance space.
At Flourish, we invest in ideas and innovations that aim to advance a fair financial system and help households and businesses achieve financial health. We recognized the need for a neutral third party that could both help consumers navigate this rapidly growing space while also helping businesses be more friendly to consumers. Consumer Reports was uniquely positioned to be that partner. Now, two years after the initial grant, Consumer Reports has published independent, groundbreaking analyses on two digital finance products — peer-to-peer payments and buy-now-pay-later — with new reports on consumer insights and digital banking coming soon.
Recently, I led a webinar discussion with Delicia Hand, the Director of Financial Fairness Advocacy at Consumer Reports to discuss the key findings from the first two years of evaluating digital finance products.
"We want to continue to be relevant to consumers by being responsive to the digital marketplace,”Hand said. “This is why we're examining the benefits and risks of digital finance apps […] We are evolving. We want to become known as the reliable source that lets you know what happens when you use these digital products."
To conduct these analyses, Consumer Reports created a seven-part framework for evaluating each app: privacy, transparency, user centricity, financial well-being, inclusivity, ESG, and safety. The process starts with the survey of 2,000 people on questions like how they use the app, whether they are happy with the product, and if they’ve had any issues. Then, Consumer Reports works with a third-party to use the apps and test them against these criteria. Editors meet with the surveyed companies to share their findings, check the accuracy, and give the apps an opportunity to change their practices to be more consumer-friendly. Working with both consumers and companies also creates a platform to engage with policymakers on what the fintech sector needs to move forward.
Key Findings from P2P and BNPL App Reviews
The initial analyses into peer-to-peer payments (P2P), buy-now-pay-later (BNPL), and digital banking yielded interesting findings. Overall, consumers are happy with these apps:
- Nearly 8 in 10 P2P users have never had issues,
- Nearly 9 in 10 BNPL users plan to use it again, and
- Nearly 8 in 10 consumers believe their banking app supports their overall financial health.
However, there are some common pitfalls, namely inadequate security practices, data collection and over-sharing, and insufficient transparency. For example, none of the four P2P apps commit to fully reimburse users for unauthorized transactions; just 1-in-8 BNPL apps has committed to real-time fraud monitoring and notification; and only 1-in-5 traditional bank apps offers a free basic checking account.
“There's a real opportunity here to have a different kind of dialogue about digital finance apps,” Hand said. “We're conducting cross-product comparisons to put information out there that consumers might use, but frankly, we’re also keen to work in the ecosystem with the companies that are delivering those products and see how they and their competitors can also identify opportunities for improvement."
Strong Need for Greater Transparency
Consumers often assume that protections are in place and that the apps they use are keeping them secure from fraud and breaches, when they aren’t. There is a strong need for greater transparency, especially with the constant flood of new products, the risk of discriminatory practices, and the importance of giving people control over their financial lives and personal data. Furthermore, Consumer Reports is looking at how products promote financial well-being—for instance, by offering tools that help users set goals, like weathering a financial difficulty—and discovered this is an area for improvement. For example, many apps have educational content, but they don’t have dynamic tools available to help users, or if they do, users might not be aware of them.
This focus on financial well-being is a newer concept, but one that both Consumer Reports and Flourish believe is essential moving forward. Regulations are rarely tied to consumer outcomes, and outcomes-based policymaking is an area that's underdeveloped in the US (and globally). Through these rigorous and independent analyses of digital finance, Consumer Reports is helping create the guideposts to build a fairer digital financial system that serves customers better.
To read the reports, click here.
To watch the interview that I had the pleasure to conduct with Delicia Hand of Consumer Reports, click here.