by Vimal Balasubramaniam, Renuka Sane and Srishti Sharma.
Consumer financial protection, the world over, has become a core function for regulators in financial markets. One aspect of consumer protection regulation is handling customer complaints. Analysing consumer complaints is important to not only evaluate the functioning of the consumer complaints mechanism, but also because it provides useful feedback for policy. All financial regulators in India mention consumer protection in their regulations, and have some mechanisms for consumer grievance redress and enforcement. However, systematic evidence on the grievances consumers face, and how the complaints mechanism responds to the complaints is missing. There is no work thus far that also maps actual incidence of grievances to those observed by the regulatory system --an important metric for policy and institutional design for grievance redress.
In a new working paper, Consumer Grievance Redress in Indian Financial Markets, we offer the first systematic evidence through a representative survey in the National Capital Region (NCR) region in India, on the extent of grievances in retail financial markets and how much the formal complaint mechanism actually misses. We also offer evidence on the type of grievances, and the reasons people don't complain. Our results suggest the following:
Official estimates of complaints under-report total grievances by 60-80 times. That is for every complaint on banking and payments that makes it to the regulatory system, there are 60 grievances that do not get reported. For every official complaint on insurance there are 88 complaints that do not get recorded.
Grievances in banking and payment mostly pertain to "transaction issues" such as delays in payments, and technology malfunction. Grievances in insurance, however, often pertain to "non transaction issues" such as mis-selling and fraud.
When presented with hypothetical scenarios most respondents say they would lodge a complaint. However, in reality, very few of them do. This suggests that there are a number of frictions in the process - ranging from limited information about the process, to limited faith that a resolution is even possible.
Those in vulnerable groups (with low education and low assets) are less likely to voice their complaints, and more likely to not have enough information about the redress procedure.
We hope these results provide inputs to the design of grievance redress mechanisms in financial markets in India. In order to sustain participation in, and enable the efficient use of financial markets by households, a two-fold approach is required. First, there is a need for generating meaningful data on consumer experiences with financial products, and grievance redress frameworks while they interact with retail financial products and sales practices. This will enable an understanding of how the current system works, and whether it can be scaled from a banked population of 300 million it currently serves to over a billion Indians it will be expected to serve. Second, there is a need for a contextualised learning of what the principles and design of a grievance redress system that needs to cater to more than a billion Indians ought to look like. Our research is a step in this direction.
Renuka Sane and Srishti Sharma are researchers at NIPFP. Vimal Balasubramaniam is a researcher at Queen Mary University, London.
Some thoughts on the excellent paper:
ReplyDelete1. Given that you have captured both the number of respondents experiencing grievances, and the frequency of grievances in any given year (table 3), the total number of grievances experienced should ideally be considerably higher than what is being currently highlighted. For instance, the number of grievances in banking during the year is likely to be 1000+ and not 397 (or 388 – as highlighted in table 5), which comes out prominently. Similar conclusions may be drawn for grievances in other sectors as well.
2. The data on hidden grievances is also interesting. As you have mentioned, in case of banking, 55 of 100 grievances convert into complaints at FSP level, of which 34 get resolved, and 1 of the remaining 21 complaints reach the regulator. Thus, around 1 of 65 complaints are hidden. However, when you say these grievances do not reach the ‘regulatory system’, it may be misinterpreted as only 1 of 65 grievances are filed with the ombudsman (more so, as you have given ombudsman level complaints in table 1). However, another way to look at the data is that only 1 of 100 banking grievances is visible to the ombudsman, and it is blind to the remaining 99 grievances. The proportion is higher in other sectors. The data on complaints received and apparently resolved at FSP is also quite critical and should inform policy decisions.
3. It is rather surprising that an overwhelming proportion of banking complaints are transaction related (one can understand this in payments, though), given that overcharging, lack of transparency, mis-selling and similar non-technical grievances are reportedly substantial in banking, particularly credit. It is also intriguing that only 62 percent of transaction related banking complaints get resolved at FSP level but a significantly more (78 percent) transaction related payment complaints get resolved at FSP level. It might be worthwhile to deep dive into reasons. Given that a large proportion of complaints are being resolved at FSP level, it might be useful to examine what is meant by ‘resolution’ in general. As we know, a complaint resolved from the perspective of FSP may not be resolved to the satisfaction of the complainant, and she might have just been directed to pursue a different course of action. I also noticed that the survey instrument, while quite impressive, does not have mis-selling as one of the examples in issues with banking services (15.1), but it is present in issues with insurance services (15.3). In addition, given that the questionnaire is quite comprehensive, some additional findings might also be worth highlighting.
4. As you are aware, the paradox between intent and rational action is quite prominent across sectors and comprehensively documented as privacy paradox in the privacy literature. We also noticed an absence of complaint filing culture in the country, in our CFI blog on our Consumer Care Centre. As you have mentioned, there could be several reasons for not filing complaints. We found that the 'opportunity cost' of finding about and accessing formal grievance redress mechanism is quite high, which needs to be decentralised and stripped of its formal nature.
5. While the paper mentions that the respondents for conversation regarding complaints were randomly selected, it seems that a significantly higher number of conversations happened in payments (397 of 405) as against banking (256 of 388). There also seems to be some confusion in ‘invalid complaint’ and ‘small problem’ in the paper.
Hope you find these helpful. Thanks.