Muhammad Ahsan Arshad
When people talk about protecting digital payment users, the conversation usually turns to technology: stronger encryption, biometric authentication, artificial intelligence and better fraud-detection systems.
Those tools matter. But research on mobile-money users across 35 economies suggests that another factor deserves equal attention: the quality of the institutions that oversee the digital financial system.
The study matched information from 16,387 mobile-money account holders with governance indicators measuring regulatory quality and government effectiveness. It found that stronger governance was associated with lower exposure to attempts by unknown individuals to obtain users’ PINs or passwords.
The finding becomes more interesting when digital engagement is considered. The research found that greater exposure to digital payments was associated with more fraud attempts. However, the strength of that relationship varied depending on the governance environment.
In weaker regulatory environments, increased digital engagement was associated with a larger rise in the predicted probability of being targeted. In stronger regulatory environments, the increase was smaller. In other words, governance appeared to act as a shield: it did not necessarily eliminate the exposure created by digitalisation, but it could reduce the extent to which that exposure translated into fraud attempts.
This matters because digital financial security is often presented as a technological problem. If a fraudster sends a deceptive message, the instinct is to ask whether the application has adequate security or whether the user should have been more careful.
Those questions are valid, but they are incomplete.
A payment ecosystem is also governed by rules. Providers operate under regulatory requirements. Customers need channels through which complaints can be made. Supervisors need the capacity to monitor providers and respond to emerging risks. When something goes wrong, users need to know where to turn and whether their complaints will receive a meaningful response.
These institutional arrangements can influence the incentives facing both legitimate providers and potential offenders.
The research does not establish that a particular regulator or government is responsible for a specific fraud incident. Its governance indicators are broad measures, and the study cannot capture every factor affecting fraud exposure, including provider-specific security practices, telecom controls and public awareness.
However, the overall pattern is significant.
Countries with stronger regulatory quality and government effectiveness tended to have lower predicted fraud exposure. The interaction analysis also suggested that better governance weakens the relationship between digital payment exposure and attempts at credential fraud.
The policy implication is straightforward: consumer protection should not be treated as something to be added after digital adoption has already taken place.
When governments encourage digital payments, the expansion of supervisory capacity should happen alongside the expansion of digital services. Complaint and redress systems should grow with transaction volumes. Providers should have clear obligations regarding customer communication and fraud prevention. Regulators should have access to information that allows them to identify emerging patterns.
The private sector also has an important role. Payment providers are often the first point of contact between users and the digital financial system. Clear warnings, effective monitoring and simple reporting mechanisms can make it easier for customers to recognise and report suspicious activity.
There is also a broader lesson about financial innovation. Technology can move faster than institutions. A new payment channel can be introduced quickly, while regulatory procedures, public awareness and enforcement arrangements may take much longer to develop.
That gap can create vulnerabilities.
The objective, however, should not be to choose between innovation and regulation. Good regulation should help make innovation sustainable. Users are more likely to trust digital finance when they believe that the system has clear rules, that providers are accountable and that there is somewhere to turn when problems occur.
The research therefore points to a principle that deserves greater attention as digital payments expand: the security of a digital financial system depends not only on the technology within the system but also on the institutions surrounding it.
A strong digital payment ecosystem needs both. Technology can build the payment rails; effective governance helps ensure that those rails are used safely.
(The writer is a Financial Crime Investigator in National Accountability Bureau of Pakistan.)
