In a landmark ruling yesterday, the U.S. Federal Communications Commission (FCC), led by Chairman Ajit Pai, voted to end net neutrality — the requirement for internet service providers to treat all the content they carry equally regarding access, price, and speed/quality of delivery. This decision, overturning Obama-era internet regulations, is a big deal and may shape the way Americans experience the internet in the future.

It could have significant implications for financial inclusion, too.

Under the new ruling from the FCC, internet service providers (ISPs) may give preferential treatment to content from applications they favor — unlimited access, differential pricing, or faster/better download speeds — while slowing or even blocking other applications.

Defenders of net neutrality call it the First Amendment of the internet. They see it as protecting the open culture of the net with web access available to anyone who wants to hear or be heard. Without net neutrality, say its defenders, the internet will begin to look more like the cable TV industry of a few years ago, in which competition is limited, and consumers are offered only a few pre-packaged bundles of services. They fear that ISPs will engineer consolidation in the industry by favoring companies they own, buy, or negotiate sweetheart deals with — and these will probably only be big companies. Some consumer advocates imagine a tiered internet emerging in which high-end consumers pay for deluxe packages and lower-income people receive poor quality and limited services.
<h3>Net Neutrality Around the World</h3>
Yesterday’s ending of net neutrality ruling applies only in the United States. Europe retains the principle, though it may not always enforce it. In emerging markets, regulations vary widely, and in some areas, they are hotly debated. <a href="https://www.bnamericas.com/en/news/Lower_house_approves_internet_neutrality_law/?position=524428">Chile enacted net neutrality in 2010,</a> becoming one of the first countries to introduce rules on internet neutrality. Mexico, as well, has such legislation. Despite much discussion around net neutrality in India, there’s still no legislation in place there. At issue in India has been telcos’ interest in maintaining their core telephone revenue in the face of competition from digital telephone service providers like WhatsApp.

At this point, we can only speculate about the effects of yesterday’s decision on financial inclusion in the U.S. and around the world. But if the net neutrality advocates are right, such changes in the shape of the internet could substantially hurt financial inclusion, primarily by making it harder for smaller companies and startups to succeed.

To illustrate how ISPs and big tech are likely to team up, <a href="https://www.nytimes.com/2017/12/10/business/net-neutrality-europe-fcc.html?action=click&amp;contentCollection=Technology&amp;module=RelatedCoverage&amp;region=EndOfArticle&amp;pgtype=article">recently in Sweden</a>, Telia, a telco offering internet services, sought to provide a package of unlimited access to Facebook, Spotify, and Instagram (owned by Facebook), among other top platforms, while charging for content from other sources. The offering has been challenged under European net neutrality rules, but it marks a path toward industry consolidation.
<h3>Why Web Access Matters for Financial Services</h3>
As large internet companies increasingly enter the financial services arena, payment services offered by internet giants would likely be part of packages like the example from Sweden. Other companies — like fintech startups and smaller financial institutions — would not have the market power to negotiate their way into favored packages. If the fears of supporters of net neutrality come true and extend into financial services, that would mean less innovation, less competition, less variety, and possibly higher prices for the same (or worse) services.

In such a scenario, it would become harder for lower-income customers to use internet-enabled financial services if their end of the market is differentiated from the premium end. Reaching customers would become more expensive and difficult for fintech startups and small financial institutions aiming at a mass market if the ISPs shut both companies and customers out of the premium internet. Companies with deeper pockets may be able to afford faster (or any) access to potential customers, and it is conceivable, under the new rules, that an ISP could completely block a service that competes directly with one of its initiatives. If fintech startups are trying to nudge and disrupt the often massive, well-entrenched financial service companies, these companies will face fewer innovations challenging their business models.

In the worst case, we are worried that the “big five” tech companies, who already have the data and the access to make any other fintech startups irrelevant, just became even more powerful. Not only do they have the data they need to better understand and serve any customer on the planet, these major tech companies soon may be the only ones that can afford to access and engage with those customers, and we know they have big ambitions in the financial services arena.

The net neutrality debate raises fundamental and profound questions about freedom of speech, the role of a free and open internet in society, market concentration in the digital economy, and so forth. Its effect on financial inclusion may get lost in the more prominent debates and the titanic struggles for influence among powerful companies. When it comes to shaping the future of financial inclusion, a lot depends on decisions made without much thought about their effect on the financial sector.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/08/28/catalyst-fund-lessons-on-getting-early-stage-fintech-startups-investment-ready/">Catalyst Fund: Lessons on Getting Early-Stage Fintech Startups Investment-Ready</a>

<a href="https://cfi-blog.org/2017/02/27/kopo-kopo-building-on-the-rails-of-mobile-money-in-kenya/">Kopo Kopo: Building on the Rails of Mobile Money in Kenya</a>

<a href="https://cfi-blog.org/2017/10/19/the-financial-lives-of-struggling-americans-the-financial-diaries-and-the-unbanking-of-america/">The Financial Lives of Struggling Americans: The Financial Diaries and The Unbanking of America</a>

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Net Neutrality Ruling Could Block Your Bank

Chile

Sweden

From Beth's Desk

Banks

Enabling Environment

Financial Service Providers

Policy, Regulation and Government Initiatives

Blog Post

<i><a href="http://blog.paragonwealth.com/2012/12/11/should-not-be-your-only-savings-plan/" target="_blank" rel="attachment wp-att-9192"><img class="alignright  wp-image-9192" alt="" src="http://centerforfinancialinclusionblog.files.wordpress.com/2012/12/jars-of-coins_opt1.jpg" width="300" /></a>The following post, written by Tilman Ehrbeck, CEO of CGAP, was <a href="http://www.huffingtonpost.com/tilman-ehrbeck/financial-inclusion-poor_b_2317686.html" target="_blank">originally published</a> on the Huffington Post Business Blog, with the title </i>Behavioral Insights to Advance Financial Inclusion -- or Why Swedes Are Not Necessarily Better Human Beings Than Danes<i>.
</i>

In Sweden, all new drivers start out registered to be organ donors in the event of their passing. They have the freedom to opt out without negative consequences. Fourteen percent decide to do so and 86 percent remain organ donors. Across the Oresund, less than 10 miles away, Danes have to proactively decide whether they want to become organ donors. Less than 5 percent do, and <a href="http://danariely.com/2008/05/05/3-main-lessons-of-psychology" target="_hplink">more than 95 percent don't</a>. On the global scale of things, Sweden and Denmark are culturally quite similar: generally credited with being open-minded, socially responsible, common-sense Scandinavians.

The vast difference between Swedish and Danish organ donor participation rates (technically "presumed consent") despite all the cultural similarities is one of the most dramatic examples of the power of policy design that takes into account pervasive human cognitive and behavioral biases to help us do what we generally think is a good thing, but often have a hard time following through with. One such bias is that, when decisions are tough, we tend to prefer the status quo; and relatedly, it's much harder to proactively opt for something, rather than to simply stick with the offered default choice. (The approach, popularized by the term 'nudging,' even led the UK Prime Minister to set up a 'nudge' <a href="http://www.bbc.co.uk/programmes/b016ldtj" target="_hplink">policy advisory unit</a>.)

Based on the earlier path-breaking work on human decision-making by psychologists, an increasing number of economists have pushed and developed the notion of behavioral finance over the last decade, and increasingly business leaders, policymakers and regulators are picking up on these ideas to advance financial access for the poor and to improve consumer protection that actually works in financial services. New products are being developed and new policies are being formulated not on the basis of how people ought to behave, but based on what they actually do and not do.

In Malawi, Opportunity Bank <a href="http://www.opportunity.org/our-work/bank-building/" target="_hplink">observed</a> that farmers had a hard time holding onto to post-harvest cash and often reached the next planting season without the required resources. Based on this observation, the bank developed a commitment savings product that allows farmers to stash away post-harvest payouts and distribute them over the year to smooth cash flows. The introduction of this project was accompanied by a<a href="http://www.cgap.org/sites/default/files/CGAP-Forum-Latest-Findings-from-Randomized-Evaluations-of-Microfinance-Dec-2011.pdf" target="_hplink"> randomized impact evaluation</a>. The effects were significant. Farmers with access to the new product managed their savings and cash flow better, and in the subsequent season used more agricultural inputs (a 26 percent increase), had higher crop sales (a 22 percent increase in value of crop output) and a 17 percent increase in household expenditure relative to a control group without such access.

There are other such examples of behaviorally-informed product innovations. Green Bank in the Philippines offers a <a href="http://www.povertyactionlab.org/evaluation/commitment-savings-products-philippines" target="_hplink">SEED (Save, Earn, Enjoy, Deposit</a>) commitment savings product, which enables clients to withdraw from the account only once their goal date or amount is reached. <a href="http://www.cgap.org/publications/jipange-kusave-experiment-kenya" target="_hplink">Jipange KuSave </a>in Kenya has tested the provision of interest-free loans with a third of the amount held back as savings. And Bancomer in Mexico has developed a savings product concept that <a href="http://www.cgap.org/photos-videos/bancarizaci%C3%B3n-bringing-savings-product-marke" target="_hplink">mirrors</a> the savings behavior of low-income Mexican households who literally use different cookies jars to separate savings for different future purposes.

Similarly, policymakers have begun recognizing that statutes on the books that ignore the reality of low-income families are of limited value. They have started to incorporate demand-side insights into their approaches. In Mexico, for example, the financial consumer protection agency "mystery shopped" financial services to assess how well bank staff were conveying disclosure norms to consumers. They found widespread misinformation and biases towards different types of personalities and even styles of dress that prompted them to rethink their approach to disclosure.

In the Philippines, consumer testing of credit contracts has led to reforms to the Truth-in-Lending Act. And in Senegal, policymakers have used consumer surveys to test and improve the functioning of dispute resolution mechanisms.

<em>To read the rest of the post, visit the <a href="http://www.huffingtonpost.com/tilman-ehrbeck/financial-inclusion-poor_b_2317686.html" target="_blank">Huffington Post Business Blog</a>.</em>

<em>Image credit: <a href="http://blog.paragonwealth.com/2012/12/11/should-not-be-your-only-savings-plan/" target="_blank">Paragon Wealth Management</a><a href="http://www.transitionsabroad.com/listings/work/internships/articles/microfinance-internships-abroad.shtml">
</a></em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2012/09/27/child-and-youth-finance-governments-step-in/" target="_blank">Child and Youth Finance - Governments Step in</a>

<a href="http://cfi-blog.org/2012/08/29/towards-behaviorally-informed-financial-consumer-protection/" target="_blank">Towards Behaviorally-Informed Financial Consumer Protection</a>

<a href="http://cfi-blog.org/2012/08/17/an-excellent-resource-on-regulating-client-protection-ifmr-trusts-blog-series/" target="_blank">An Excellent Resource on Regulating Client Protection: IFMR Trust's Blog Series</a>

Behavioral Insights to Advance Financial Inclusion

Denmark

Kenya

Malawi

Philippines

Behavioral Insights

Elisabeth Rhyne

Mary Ellen

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

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Net Neutrality Ruling Could Block Your Bank

Behavioral Insights to Advance Financial Inclusion