Positive Friction for Responsible Digital Lending: A Call to Action

Technology-enabled innovation in financial services, often referred to as "fintech," has been a leading driver of the past decade’s global increase in financial inclusion and access. Some fintech innovations have improved the customer experience by reducing information asymmetries and transaction costs as compared to traditional financial services delivery, leading some to describe fintech as "a way to deliver financial services in a frictionless manner." However, the focus on reducing friction in delivering financial services, while vastly beneficial for the growth of financial services, has also created new consumer protection challenges related to the digital delivery method, speed, and ease of access to these services. These challenges are exacerbated for people in vulnerable circumstances and in the context of specific products like digital credit.

This report explores how strategically adding friction to digital financial services can benefit both lenders and borrowers. From the review of various financial and non-financial case studies, authors find that there are clear linkages between inserting positive friction into the design of financial products and delivery models and consumer protection. While it is clear that financial service providers, investors, and policymakers can better utilize positive friction to create responsible digital credit solutions, there is still a need for further testing of positive friction concepts in real-world environments.