Director General Bruno Liebhaberg addresses the IIEA expert panel on the Digital Transformation and Consumer Vulnerability

While the digital transformation is introducing improvements to business-to-consumer practices, consumers are now having to deal with ever more complex choice environments, where firms can optimise these choice environments for their own ends. One of the biggest challenges for consumers in a data-driven environment is digital asymmetry, that is the power imbalance in the markets between consumers and data-empowered traders. Digital asymmetry has three dimensions:

1. Architectural/structural, rooted in control of the choice architecture of the service and access to data (and the related difficulty of verifying compliant use of data in the supply chain);
2. Relational, since the bargaining power of the consumer, is low – they may either accept or leave, with very limited alternatives;
3. Knowledge-based, as the trader benefits from detailed insights about the consumer while the consumer often knows (or understands) very little of how the trader and the service operate.

Therefore, when we think about the drivers of digital regulation, the first thing which comes to mind is the realisation that markets don’t self-correct and the second one is that platforms may not self-regulate. But there is a significant third driver: even if markets function well, they will not do so for everyone and a quite large number of people, of consumers, will remain vulnerable.

Initially, one thought that vulnerable consumers were a small sub-set of population with identifiable characteristics. The challenge was to find them and target interventions to protect them and/or help them make better choices whilst allowing the rest of population to continue to engage freely with markets.

The big questions were (and still are):

• Whether you can make markets work better for vulnerable customers (eg by getting them more engaged or informed) or whether you accept that the market is unimprovable and then have measures to protect vulnerable customers from its worst effects?
• How many of us are actually vulnerable, and in what circumstances (because context is often important) ?
• How to preserve the benefits of the market whilst intervening ?

We are still at a relative early stage in understanding all this. My colleague Professor Amelia Fletcher, a CERRE Research Fellow and also a non-exec director of the British Financial Conduct Authority and of the CMA, is a leading thinker working on these questions.

Now focusing again on consumer vulnerability in digital, I note a number of issues:

The first one is digital exclusion and inability of people to access markets at all – because for instance of lack of broadband connection or unwillingness to engage at all. This means that vulnerable people remain trapped in the (more costly/less efficient/ perhaps less diverse) analogue world. Similarly, digital illiteracy is an issue and when I mention it, you immediately realise that the children are not the only category which is vulnerable. A vast majority of elderly people is concerned as well.

The second issue is that once people can access markets, we realise, as I hinted at one minute ago, that we are ALL vulnerable to the effects of choice architecture which firms employ to distort our decision-making processes. Our conception of what vulnerability is and who is vulnerable is therefore likely to change. Potentially quite radically…

Thirdly, digital gives us more choices than before, but that does not mean consumers will necessarily be better off if the choices are illusory or can be manipulated

Lastly, some people react to digital content differently from others, or we react differently in different contexts. Again, how do we protect those that are vulnerable and could be harmed, whilst retaining the free flow of information for the rest?

The DSA and DMA are both directed at these issues. The DMA’s focus on ‘fairness’ in terms of the terms of trade between digital platforms and consumers, including vulnerable consumers, is a hook for further action.

The DMA and DSA complement a series of other initiatives launched by the European Commission within the framework of their New Consumer Agenda 2020. The latter recognised that new technologies and data-driven practices may limit the effectiveness of the current rules designed to protect consumers in the digital environment. It also stressed the need to ensure equal fairness online and offline. The Commission has launched last May a new targeted Fitness Check of EU consumer law.  Focussing on Digital Fairness, the Fitness Check will look among others at consumer vulnerabilities, dark patterns (i.e. deceptive design patterns, tricks used in websites and apps that make you do things that you didn’t mean to, like buying or signing up for something), personalisation practices, influencer marketing, contract cancellations, subscription service contracts, marketing of virtual items and the addictive use of digital products, etc.

Three short final points on implementation and enforcement of the new rules:

Implementation of these rules will require from regulators new expertise around technical issues such as A/B testing and algorithmic decision-making, to understand, anticipate, and remedy the myriad of ways that, in the online economy, consumers can be put at a disadvantage. The potential is there for regulators to use the same techniques to assess measures to protect consumers or influence how they make choices, And we note that regulators are beginning to acquire resources and organise themselves to do this – DG Comp is considering a CTO and say that the DMA will lead to a significant recruitment of new digital expertise.

Secondly, whatever upgrade regulators grant to their structures and processes, effective implementation will require from them a very close co-operation with the platforms.

And finally, regarding enforcement: should it be centralised (as provided for in DMA/DSA) or current system in EU consumer law (consumption country coordination)? hopefully not origin country coordination such as GDPR because, as demonstrated by experience, this would provide a very limited incentive to efficiency.