Problems in Fintech Design

Over-Reliance on Informal Lenders

Exclusion from formal credit channels pushes subprime borrowers into unregulated or illegal lenders.

over-reliance-informal-lenders

Overlapping Consumer Credit and AML Objectives

AML/KYC frameworks designed for crime prevention inadvertently block access to safe small-dollar credit.

overlap-consumer-credit-aml

Overreliance on Employer-Sponsored Plans Without Portability

Workers outside formal employment lack equivalent investment channels for retirement.

overreliance-employer-plans-no-portability

Overuse of Credit for Essential Consumption

Households rely on small, expensive loans for rent, food, health, and utilities, deepening vulnerability.

overuse-credit-essential-consumption

Patchy Coverage of Credit Reporting

Micro and digital lenders do not consistently report to bureaus, limiting holistic risk assessment.

patchy-credit-reporting-coverage

Payment Denial Based on Risk-Profiling

Automated risk engines and blunt policies disproportionately block legitimate users and NGOs.

payment-denial-risk-profiling

Payment Fraud Targeting Low-Literacy Users

Social engineering, phishing, and app scams are prevalent among newly digitized, low-literacy users.

payment-fraud-low-literacy

Predatory High-Fee Investment Schemes

Unsuitable, high-fee or commission-heavy products are pushed to vulnerable investors.

predatory-high-fee-investment-schemes

Predatory Marketing of High-Cost Loans

Advertising targets financially stressed consumers with misleading claims about affordability and benefits.

predatory-marketing-high-cost-loans

Regulatory Arbitrage Between Investment and Gambling

Speculative products blur lines with gambling, escaping stricter investor protections.

regulatory-arbitrage-investment-gambling

Regulatory Barriers to Microinsurance and Embedded Cover

Legacy rules on licensing, distribution, and product approval make small-ticket and embedded cover hard to launch.

reg-barriers-microinsurance-embedded

Regulatory Evasion by High-Cost Lenders

Lenders structure products or licensing models to avoid rate caps and consumer rules that would protect subprime users.

regulatory-evasion-high-cost-lenders

Regulatory Gaps for Digital Investment Platforms

New platforms and apps operate in gray areas regarding suitability, marketing, and custody rules.

regulatory-gaps-digital-investment-platforms

Regulatory Lag on Usage-Based and On-Demand Insurance

Rules do not fully cover pay-per-use, gig, or on-demand models, creating risk and uncertainty.

reg-lag-usage-based-on-demand

Regulatory Uncertainty for Fintech PSPs

Unclear licensing categories and fragmented oversight create friction for new payment providers.

regulatory-uncertainty-fintech-psps

Reliance on Overdraft as Credit

Overdrafts and NSF practices function as expensive, back-end credit for small-dollar shortfalls.

overdraft-as-de-facto-credit

Restrictions on Youth and Minor Accounts

Teens and young adults face barriers opening safe starter accounts, pushing them to informal tools.

restrictions-youth-minor-accounts

Scams, Ponzi Schemes, and Unlicensed Investment Promoters

Fraudulent schemes target small and first-time investors with promises of unrealistic returns.

scams-ponzi-unlicensed-promoters

Shadow Payroll Deduction Arrangements

Unregulated payroll deductions for loan repayment reduce take-home pay without transparency or consent safeguards.

shadow-payroll-deduction

Short-Termism and Lack of Long-Term Savings Instruments

Households lack accessible products and incentives to invest steadily over the long term.

short-termism-lack-long-term-instruments

Slow Adoption of Real-Time Retail Payments by Banks

Banks delay enabling instant transfers and 24/7 access, hurting low-income users who need immediacy.

slow-adoption-real-time-retail-payments

Slow and Frictional Onboarding Processes

Account opening processes are slow, manual, and intimidating, deterring first-time users.

slow-frictional-onboarding

Slow and Onerous Claims Processes

Claims require excessive documentation and long processing times, discouraging use and renewal.

slow-onerous-claims-processes

Slow Settlement and Funds Availability

Delays in clearing and settlement mean recipients cannot access urgently needed funds in real time.

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