Write-up courtesy of Mauritius Africa Fintech Hub:
MAFH hosted its third webinar on 30 July 2020 to explore opportunities and challenges for FinTech in a post-COVID Mauritius, with a focus on ‘The future of digital payments’.
Lisa Doosoye, Head of Skills at MAFH, introduced the session theme and welcomed moderator Darren Franks, Founder and CEO of Titc.io (formerly TalentintheCloud International), Africa’s only dedicated executive search firm that focuses exclusively on the FinTech sector. The panel was composed of four leading experts:
Aswin Ramduny – Chief of Payments Systems, Bank of Mauritius;
Sebastien LeBlanc – Founder & Director, MIPS;
Tilotma Jhurry – Head of the Payments Systems Division, Bank of Mauritius; and
Vincent Chatard – Chief Operations Officer, MCB.
How are digital payments faring in a post-COVID Mauritius?
Vincent noted that “the lockdown came very suddenly and overnight the markets were closed”, while expressing the belief that the COVID-19 crisis gave a huge boost to digital payments.
“Usage of cards boomed, especially on the e-commerce side. We had 14,000 new e-commerce customers and over 373% of new e-commerce merchants. Heightened consumer activity on basics such as food items led to an increase of 400% in e-commerce transactions by value. We have invested a lot in tap-and-go and upgrading of Point Of Sales (POS), besides increasing our contactless limit to MUR 2,500. Consequently, we saw an almost four-fold increase in contactless transactions and an over 50% grow-on-grow during COVID-19. In terms of payments, we have been looking at a very large usage of mobile channels, with 200% more Juice payments during the lockdown period. During the same period, we also saw a 20% decrease in internet banking and a 50% drop in cash withdrawals at ATMs,” he noted.
On the post-COVID situation, he interestingly highlighted that transactions are sustained at the levels they had reached during the lockdown, showing that “people are getting used to e-commerce.” Moreover, he stressed that mobile payments have gone up in terms of value after the lockdown by as much as 20%.
Meanwhile, Sebastien emphasised that COVID-19 has provided an answer to the long-standing question: Are Mauritians ready for e-commerce and digital payments in general? – while stressing that the answer to this question is as simple as answering in the past if people were ready to move from horses to cars, a resounding ‘yes’. However, he went on to note that the right question would be – Is the market ready to offer digital payments? – which he cautioned is a far more challenging ask.
How have regulatory frameworks adapted to the crisis?
In response to Darren’s question on the regulatory perspective, Tilotma noted that the Bank of Mauritius (BoM) has seen a significant increase in the number of transactions processed on their systems during the COVID-19 crisis. “Like Vincent mentioned, we saw an increase in mobile payments compared to cards,” she emphasised.
Aswin added that, while from 2019 itself there had been a slow but steady change in payment trends in Mauritius with a pick-up in mobile payments, COVID-19 has indeed been a major catalyst in accelerating adoption of digital payments across the spectrum.
“We saw a sharp drop in card usage during COVID-19 and witnessed the rise of mobile payments. For our part, we are building the ecosystem and, while BoM has a key role to play in it, we must see the other players rise to the occasion too,” he emphasised.
He concluded on the note that many countries are starting to consider the Central Bank Digital Currency (CBDC), including for low value transactions, with Tilotma adding that the BoM too is exploring the possibility of introducing a CBDC.
What are the challenges facing SME businesses now, when adopting payments?
“Coming to the challenges being faced by SMEs, logistics is a huge issue. The smaller merchants know intuitively how to sell but COVID-19 has forced upon them the challenge of learning how to go digital, and fast,” Sebastien emphasised.
In response to Darren’s follow-up question on the key advice he would give to any entrepreneur who wishes to transition to the digital payments space, Sebastien noted that SMEs must avoid falling into the trap of thinking that ‘more expensive’ necessarily equates ‘a better solution’ in the digital payments space. “I would also advise SMEs to work with pure players like FinTechs and third parties that know what they are doing. In Mauritius, we have the right people who can accompany you in your digital transformation,” he stressed.
How is the Central Bank working to facilitate FinTech in Mauritius?
At the outset, Aswin noted that FinTech exists to simplify finance and bring convenience to customers.
“FinTech brings a certain simplicity to the way we do payments and see the financial world. Since I joined the BoM, there has been a dedicated team looking at how we could have an impact on the payments system in Mauritius towards realising this objective of simplifying finance for the end customer,” he emphasised, citing lack of interoperability as the biggest challenge in the cards and mobile payments landscape at the time he started working at the central bank.
“For instance, if you went to an e-commerce website, it was not necessarily the case that it would accept Juice. The Instant Payment System (IPS) was born with the idea of leveraging off what was happening in European markets in terms of instant settlement between any two bank accounts or digital wallets to help the end customer. In addition, we are working hard to put in place the infrastructure to support merchants such as the National Payment Switch (NPS) to ensure that card payments can be processed faster and more cost effectively through us. The NPS also allows for payments through a QR code which means that any QR code from any participant in this ecosystem will be accepted by all others. We also expect new features like developers being integrated so if they unveil a new API, the other participants will learn about it. Finally, we know there is a huge amount of cash going for government payments so we are supporting the authorities to digitalise this process,” he noted.
He held up Sweden as an example of a society that is “almost cashless”, but cautioned that for Mauritius to achieve a digitalised society at a fast pace, the central bank needs support from all stakeholders. At the same time, he commended the commercial banks on their support and feedback towards ensuring a universal transition to the IPS.
He concluded on the note that the central bank can put in place the relevant digital infrastructure but “we need a lot of awareness,” requesting FinTech firms and banks to support BoM in its drive to spread awareness and take Mauritius to the next level in digital payments.
What is the existing regulatory framework around digital payments?
In response to Darren’s query on the regulatory framework being placed around innovation, Tilotma responded that the BoM has come a long way from facilitating traditional payments in the 1990s to the setting up of an innovative and interoperable digital payments platform over the last year.
“To set up the National Payment System branded as MauCAS (the Mauritius Central Automated Switch) required a legal framework. The NPS Act was made operational in 2019 to supervise all possible players in the payments journey. Thus, it provides an environment that ensures a level playing field for FinTech firms also,” she highlighted.
Tilotma cautioned that, while the NPS Act provides an enabling environment for new entrants, it equally contains provisions to safeguard the interests of consumers. “There is a requirement that the FIAT money resides with a trust account in a commercial bank. If a player were to become insolvent, the BoM will issue rules on how to redistribute money to users. The law also makes provision for abandoned funds (electronic money lying idle for more than 7 years) to be lodged with the BoM so that users can claim back the money,” she emphasised.
In terms of the process to be followed by new entrants, Tilotma mentioned that a service provider intending to provide a digital payments facility to the public must apply to BoM for a licence. “We need to assess the applicant on certain dealings. We also require information from the applicant to ensure they are bona fide. We must assess the business plan and the governance arrangements that are put in place to mitigate the risks associated with the project. In addition, the applicant must have in place consumer protection procedures such as dispute resolution and compliant procedures, as well as a data protection policy. Also, the service provider must abide by other laws such as the Data Protection Act and the Financial Intelligence and Anti-money laundering Act (FIAMLA). Finally, the applicant must undergo a pilot phase where we ensure that it complies with all the requirements. Here, we can identify all shortcomings and allow the participant to rectify such shortcomings,” she highlighted.
Tilotma added that any applicant must hold a Payment Intermediary Services licence to be eligible to participate in the IPS. Aswin joined in to say that when such payment providers apply for integration to the IPS, “they must go through certification, testing and only then would they receive the green signal to enter production – at this stage too we can identify any remaining shortcomings.”
On Darren’s query regarding BoM’s readiness to accept digital biometrics for customers, Tilotma commented that the BoM has already received such requests from market players and is aligning itself with the recent guidance on digital identity by the Financial Action Task Force (FATF) to assess such requests.
“We are looking at a framework for digital onboarding of customers. The FATF guidance asks for verification from an independent and reliable source of data for the identification of documents provided by any customer who wishes to be onboarded. We can now provide access to the central population database for verification of the digital identification documents submitted. We are also working on a central eKYC registry which participants can access. Finally, we are working with enabler stakeholders who can help us arrive at a more user friendly experience,” she concluded.
What are the upcoming innovations in SME-centric digital payments?
In response to Darren’s query on how the digital payments system in Mauritius is evolving with a view to supporting entrepreneurs, Vincent noted that MCB is well poised to leverage the ecosystem being provided by the central bank. On the cards front, he mentioned that MCB is planning to leverage the NPS which allows them to route payments through the central bank and bypass international card companies such as Visa and Mastercard. Having said that, he emphasised that a key focus areas for the MCB is SME-centric mobile payments.
“We have recently launched JuicePro which allows SMEs to manage their finances and we plan to launch additional payments on its back. For the Juice app on the customer side, we wish to integrate it with the IPS and create an interoperable QR code on JuicePro so customers can use the Juice app to make all payments,” he noted.
On Darren’s follow-up query regarding the feasibility of QR codes and virtual cards in a local context, Vincent noted that Mauritius interestingly finds itself between the Asian QR code phenomenon and the European payments landscape at the intersection of contactless payments and virtual cards. He opined that it was difficult to see where Mauritius would go first, but he believed that these ecosystems could co-exist as two technical routes to achieve the same end. In their own context, he mentioned that the MCB has invested in contactless payments but would be looking at the digitalisation of cards at a later stage.
In terms of the likelihood of the virtual or mobile POS replacing the physical point of sale terminals, Vincent emphasised that “you can plug more than payments on such a device – be it a tablet or a mobile phone.” Thus, SMEs would be in a unique position to control not only their payments but also access services such as managing their business accounts on the same device.
For his part, Sebastien highlighted that all players in the digital payments ecosystem must work together to remove the friction points in the financial flows – the pain areas in the physical or digital interaction between a consumer and the merchant. “A QR code, for instance, is a friction point because it is an identification and verification point. Making payments seamless, secure and integrated in the ecosystem of the merchant and his clients should be our ultimate objective, for which all third party providers such as hardware and software vendors must work closely with the SME retailer,” he stressed.
What are the barriers in consumer awareness?
On Darren’s query regarding MCB’s efforts as a brand to get the word out to consumers about new innovations, Vincent replied that an open banking strategy which encompasses widened access to APIs for developers holds the key to greater participation and awareness in the ecosystem.
“At MCB, we stand firmly behind an open banking strategy. The plan is to expand our open banking strategy towards giving APIs directly to FinTech or merchants to plug into their systems and do the routing through the rails. Hopefully, within the next 6 months, we will be able to offer our customers and SMEs some of these plug-ins,” said Vincent.
At the same time, he opined that a conservative culture and mindset continue to be the main roadblocks to increasing consumer confidence towards using digital payments and noted that these obstacles will need to be tackled upfront.
“People queue up at ATMs to withdraw cash to use at supermarkets as they are reluctant to swipe their cards. On cards, for instance, there is a merchant commission, so people avoid using them. There are also cheques being used in Mauritius – it is a unique place where there is a very high level of banking penetration but we are still using instruments which were popular in Europe many years ago. Coming to QR codes, if it is too complicated to use them, people will delay adoption. On the topic of eKYC and digital signatures for onboarding to a new platform, if you need to physically go to an outlet to register yourself, you will take time to start using that platform. Interoperability is key and this again leads us to the importance of open APIs to facilitate convenience and adoption behind the scenes,” he emphasised.
Aswin added that a key barrier to using cards is the psychology that when people give their cards to the merchant to swipe, it is the merchant and not the customer who has control over the instrument. As a key experiential difference, with the QR code, you continue to hold the device in your hand as you swipe it, he averred. Consequently, Mauritius might see a faster adoption of QR codes compared to the slower uptake of card payments in the past, he opined.
Accelerating adoption of digital payments
In conclusion, Aswin noted that all banks will be onboard the IPS by the end of August, demonstrating the strong will of the commercial banking ecosystem to accelerate the adoption of digital payments by offering customers a seamless and interoperable platform.
As Mauritius looks ahead to the creation of a CBDC by the Bank of Mauritius, aided by recent budget announcements which highlight the government’s thrust on it as one of the key products to give a boost to the financial services sector in Mauritius, it is clear that the island economy is poised to enter a new, and unstoppable, era of digital payments.