In today’s Finshots we talk about the rise and rise of the State Bank of Mauritius
Imagine that you are on vacation in the United States. He visits the coffee shop to pick up a cup of coffee in the morning and swipe his forex card as usual. The machine emits a loud beep. The card has been declined. You’re confused.
And then you see an email from Niyo, the fintech company whose forex card you use. They have had to suspend your card! Your money is stuck.
As she scrolls through the email, she discovers that the problem isn’t actually with Niyo. He is with an entity called SBM Bank. And that’s when you look at the card and finally pay attention to SBM Bank printed at the bottom. You realize, “Oh, this is not the State Bank of Mysore! This is the State Bank of Mauritius.”
See, Niyo wasn’t really a bank. They were a fintech. They gave you the card, yes. But they had to use a banking partner, SBM Bank, to actually enable these banking transactions.
But then the RBI stopped SBM Bank last week. The authorization of international transactions was suspended. oops.
Now we don’t know why RBI has made such a decision out of the blue. The central bank hasn’t revealed much in its public notice, except to say “supervisory concerns.” But the collateral damage is clear: It’s people like Niyo’s clients who are stranded on foreign shores and panicking.
And while Niyo’s clients wait for a resolution, this fiasco got us thinking: SBM Bank has partnered with more than 40 fintech companies in India. BNPL, credit cards, foreign stock investments, you name it and SBM Bank is there in the middle of it all. So how the heck did this obscure bank from a faraway island nation become a darling among Indian fintechs?
Naturally, the story begins on the island of Mauritius off the coast of southern Africa. The country has never been an economic powerhouse and survived largely on tourism. But he needed to find a way to attract capital. So it became a tax haven. And it became a huge offshore financial center serving the banking needs of foreigners. At one point, these assets were 50 times more than its GDP. And banks like the State Bank of Mauritius also benefited from this influx of money.
But tax treaties were slowly being reworked. Countries did not like that Mauritius was a tax haven. India also modified its agreement with Mauritius in 2016.
And the banks in Mauritius felt the heat. His growth was slowing down. So they had to expand and look outside. It was then that SBM Bank decided that the opportunity was quite big in India.
Although it had a presence through a regular branch in the country since the 1990s, it wanted a full license. Get the complete banking experience. So he applied for a license and got approved in December 2018. SBM Bank India had arrived.
But here’s the thing. It never harbored any intention of becoming a traditional bank. He did not want to set up branches costing Rs 2 crores each across the country. I didn’t want to hire thousands of relationship managers to find business. It did not want to be a capital intensive bank.
Instead, as Sidharth Rath, CEO of SBM Bank India, said, “What we want is open architecture banking where startups and fintechs etc. do the work for us. It will be a great value lightweight model where we will only own the brand and check for misuse.”
Essentially, the bank will do everything a typical bank does: deposits, credit, and wealth management. But it will do it silently in the background. He will wait for his partners to drive the business forward. and then do
his way quietly collecting small deposits.
Not many people are aware that behind their fintech cards there could be an SBM Bank.
But why did fintechs partner with SBM Bank in the first place? Couldn’t they have just gone with more established banks?
Well, for starters, as LiveMint reported, the big banks were a bit wary of the partners they brought on board. They would take their time getting the paperwork and approvals in order. They would easily take 8-9 months. After all, legacy banks aren’t dependent on fintech startups to do business. They got customers through their own branches.
Now, startups don’t have the patience to wait that long to get their business up and running. They like to move fast and break things. And SBM Bank was only too happy to oblige. He was not demanding with his partners. Pay the money to the bank and you would help launch the startup’s product. All in just a couple of months. Or less.
And SBM Bank needed this business. Basically, it allowed startups to take advantage of its banking license for a fee: it was “banking as a service (BaaS).” And that’s how this little bank made money.
Second, as The Ken pointed out, SBM Bank was perhaps willing to go where other banks were not.
For example, you know about Slice, the fintech BNPL, right? Well, Slice issued physical cards that looked and behaved like a credit card. You can swipe the card and just pay the money later. But Slice couldn’t do it alone. I needed a banking partner who had the required license. That’s when SBM Bank stepped in. It allowed Slice to use its prepaid payment instrument license. And while prepaid cards are like debit cards, they modified the card so that it could dole out credit instead.
It was clever.
Now, the established banks probably didn’t want to try their luck with the banking regulator by doing that. They had too much at stake to lose. But SBM Bank was still trying to make headway. They jumped in and took a risk.
And it was a winner! Slice saw his business grow. Other fintechs saw this and also wanted SBM Bank to be on their side.
SBM Bank had become a fintech darling!
But here’s the thing. Fintechs might be a bit worried about this RBI order against the bank. Remember, your business is basically dependent on this shadowy foreign bank. And if the business is dependent, so are its valuations! And that doesn’t inspire much confidence. Especially when things go wrong like Niyo did. These fintechs could try to hedge their bets and look for other banking partners. Maybe like Federal Bank, which has also been a favorite among fintechs.
And we’ve seen him play in the past. Remember when the RBI blocked withdrawals from Yes Bank a couple of years ago?
Well, fintech payment giant PhonePe relied almost exclusively on Yes Bank. If you were a PhonePe user who created a UPI identifier in the app, you would have been assigned a Virtual Payment Address (VPA) linked to Yes Bank. Regardless of where he had his actual bank account. But when the ban was enforced, all these @ybl and @yesbank UPI identifiers were also blocked. Merchants using PhonePe QR codes were also unable to accept payments. With Yes Bank in the middle of 39% of all UPI payments, it became an absolute mess for a while.
Overnight, PhonePe had to reach an agreement with ICICI Bank and resolve the issue. And Yes Bank lost steam.
So yes, while the State Bank of Mauritius has taken the Indian fintech scene by storm thus far, we will have to see if this RBI dictate will change its fortunes for the worse.
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Ditto Insights: Why Millennials Should Buy a Term Plan
According to a survey, only 17% of Indian millennials (25-35 years old) have purchased term insurance. The actual numbers are likely to be even lower.
And the most worrying fact is that 55% had never even heard of term insurance!
So why is this happening?
A common misconception is the dependent conundrum. Most of the millennials we spoke to want to buy a term policy because they want to cover their spouse and children. And this makes a lot of sense. After all, in your absence you want your temporary policy to pay out a large sum of money to cover your family’s future needs. But these same people don’t think of their parents as dependents even though they support them extensively. I remember the moment when he hit me. I routinely send money home, but I had never considered my parents as my dependents. And when a colleague talked about his experience, I immediately put two and two together. They depended on my income and my absence would surely affect them financially. So a term plan was a no-brainer for me.
There’s another reason millennials should probably consider looking into a term plan: debt. Most of the people we talk to have home loans, education loans, and other personal loans with a substantial interest charge. In his absence, this burden would pass to his dependents. It’s not something most people think about, but it happens all the time.
Finally, you actually get a good deal on term insurance prices when you’re younger. The idea is to pay a nominal sum each year (something that won’t burn through your pocket) to protect your dependents in the event of an early death. And this fee is lower when you are young.
So if you’re a millennial reading this, maybe you should reconsider buying a term plan. And don’t forget to chat with us on Ditto while he’s at it.
1. Simply go to our website by clicking on the link here
2. Click “Book a FREE call”
3. Select term insurance
4. Choose the date and time at your convenience and RELAX!