[Asia Economy Reporter Kangwook Cho] As digital finance develops, the risks of fraud and mis-selling have increased, prompting calls for the creation of a proactive response system that further segments consumer groups.
According to the Korea Institute of Finance on the 23rd, Senior Research Fellow Kyubok Lee stated in a report titled "Consumer Protection in Digital Finance" that "It is necessary to establish a proactive response system throughout the entire lifecycle of financial products to encourage the activation of digital finance while preventing consumer harm."
Lee pointed out, "With the development of digital finance, a variety of complex products have expanded and sales channels have diversified, providing benefits such as improved financial accessibility, tailored product offerings, and expanded sales," but added, "On the other hand, there tends to be an increase in mis-selling, discrimination against specific consumer groups such as the elderly, and difficulties in identifying and responding to financial product issues."
He explained that as diverse and complex financial products expand, financial consumers face an increased risk of fraud or mis-selling due to a lack of information about new products or services.
He also noted that due to limitations in data, analytical techniques, and the use of digital devices, certain groups may be subject to discriminatory treatment. Moreover, from the consumer's perspective, it is common not to understand the complex technologies and mechanisms underlying these products, so even if certain consumers are discriminated against, they are likely unaware of it.
Additionally, with the emergence of various sales channels and the entry of small-scale financial sales agents leading to fierce competition, there is growing concern that financial companies may focus on short-term profit gains, which could expand mis-selling.
Therefore, Lee argued that consumer protection is necessary throughout the entire lifecycle of financial products, including development, sales strategy formulation, sales, and post-sales management stages.
At the development stage, there is a possibility that products excluding certain consumer groups lacking digitalized information may be developed, so an internal control system that fully recognizes such risks and designs products accordingly is required.
At the sales strategy formulation stage, it was pointed out that a more detailed classification of financial consumer groups reflecting diverse consumer characteristics and needs is necessary. Currently, typical financial consumer groups are classified into about 5 to 7 levels ranging from groups capable of high-risk investments to those capable of low-risk investments, but more segmented and individualized classifications are needed.
At the sales stage, a system should be established to efficiently explain financial products within a defined space so that consumers can understand them. Along with this, there is a need to create an environment where consumers can identify their circumstances and needs through questionnaires and recognize whether the product is suitable for them.
At the post-sales management stage, Lee insisted that clear notification about the right of withdrawal should be provided and that consumers should be able to easily cancel contracts.
He also called for supervisory authorities to strengthen monitoring to detect occurrences of mis-selling.
Lee emphasized, "In digital finance, there is a possibility of complaints arising from complexities in interfaces and the appropriateness of algorithms, which did not exist in the past," and added, "Supervisory authorities and companies need personnel and infrastructure capable of responding to new types of complaints."
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