Mauritius: Creating the Perfect Environment for Financial Services

Mauritius Finance

The African Financial Services market has had a tough couple of years, mainly due to the impact of the global pandemic. The sudden and severe crisis brought on by COVID-19 dealt a cruel blow to African countries, threatening the lives and livelihoods of millions and causing a rapid economic contraction. This, in turn, has had knock-on effects for industries across the continent, including banking and the wider financial services market. However, according to McKinsey, there is room for some optimism as the market looks to recover,[1] and Mauritius is setting itself up to lead the charge.

Along with most businesses in the current climate, one of the biggest challenges facing African Banks is managing their cost-to-asset ratio, which McKinsey predict to be more than twice the global average. The impact of this revenues has been masked to some extent by high banking margins helped by high interest rates, but now that rates have been cut, the need to address the root cause of this imbalance is paramount. And the wide consensus amongst experts is that banks need to increase their operating efficiency by at least 20 to 25 percent to restore their precrisis ROE.

If they are not able to do this, those costs will undoubtedly be passed on to the customers!

Adding to this challenge are some substantive findings in the McKinsey Financial Insights Pulse Survey conducted in October 2020 which found that most consumers expect to increase their use of digital and mobile banking services after the crisis – and this has been proven right with adoption in the retail banking market alone growing at over 14%

This has created a huge opportunity for banks serving both consumers and businesses alike, and they could take advantage of the widespread adoption of electronic channels by accelerating end-to-end digitization and continuing to drive channel migration – whilst reducing their long term operating costs.

This is, however, not just a pan-African trend identified by McKinsey. The switch in preferences to digital and mobile money service platforms for basic financial services has accelerated globally since the start of the pandemic with a growth of 72% as compared to last year in digital payments over the period as per Standard Chartered measurement.[2]

This is a very real global movement as developing countries with a significant unbanked or underbanked population are directly skipping towards digital finance instead of trying to work within the constraints of physical infrastructures. This in turn has been verbally supported by local, regional, and international initiatives in favour of financial digital transformation.

As a result, many new entrants in the digital finance sphere are cross-nationals and allow for global platforms. In February 2018, for example, the London based company Revolut announced that they had hit 1.5 million customers. By 2022, this figure had grown to 18 million, a staggering increase in just 4 years. The incredible acceleration of new customers joining these digital-only banks has been mirrored by the Berlin-based N26, which saw their customer base reaching 7 million as of January 2021, and fellow London-headquartered Monzo.[3]

While these numbers point to a clear trend of customers embracing digital banking, these companies are exclusively focussed on the retail banking market. Such a strategy ignores other market sectors that are in urgent need of digital disruption, such as the B2B market, whose needs the industry as a whole seems to have so far ignored.

Fintech ecosystem

However, whilst the above graphic demonstrates the growth of the Fintech sector, Africa has long been an under-served region. Currently, only 2% of fintechs in Africa are focused on cross-border payments, according to the EIB.

But a transformation is underway. The prospects for further fintech innovation are boundless when you view them against the backdrop of the African Continental Free Trade Area, which covers a market of 1.2 billion people and a GDP of $2.5 trillion.

This is being recognised in markets looking to set themselves up as a leading African Financial Hub such as Mauritius. Following the second wave of the pandemic in Mauritius, the significance of the “holy trio” of mobile money, online banking, and contactless payments has only increased. With the Budget Speech for 2021-22 further announcing that the Bank of Mauritius (“BOM”) will introduce a national QR Code standard to facilitate digital payments and set up an Open Lab for banking and payment solutions, the scope for digital banking is set to expand exponentially, both at a consumer and B2B level.[4]

And according to the Economic Development Board of Mauritius (“EDBM”),  if banks can form smart partnerships with FinTech players to leverage digital channels for the benefit of their clients, whilst also developing in-house skills and expertise over time, it would culminate in a win-win situation for banks, FinTechs, and customers alike.[5]

Not only are the Mauritius authorities looking to adopt more digital financial services, but they are also trying to create an environment in which forward-looking digital businesses such as ARIE Finance can prosper. The local regulators have worked closely with ARIE Finance, welcoming its key differentiation compared to most players in Mauritius and Africa, to focus on corporate clients and to offer a bespoke digital platform specifically built to serve the needs of more complex businesses.

In addition, ARIE Finance has been one step ahead of the McKinsey findings and streamlined its operational structures from the outset, significantly reducing its cost-to-asset ratio, providing not just a competitive edge, but also a lower level of long-term risk and benefits to its customers.

From a customer perspective, as opposed to individuals, most corporate clients (mid-to-large) have not yet been offered a fully fintech-based service, as it is generally more complicated to onboard a corporate client than a retail client in terms of costs, compliance, and services required.

Working closely with the Mauritius authorities, ARIE Finance intends to achieve this by continuing to develop its service offering and adapting it to meet the needs of these customers, as well as leveraging its proprietary modular, powerful, user-friendly, and cost-effective digital platform, including a highly automated onboarding process.

Mauritius has clearly taken a lead in the adoption and encouragement of the development of digital financial services, and as long as they continue to do this it will further  set itself apart from other African markets. In addition, it will help attract a more diverse, international audience of corporate clients, looking to work in a jurisdiction that allows them to grow their business on the global stage.

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