Old money, new money: how Moroccan banks and fintechs can help each other out

Morocco’s unique culture and hospitable people make it a great destination to visit, but its strong economy, which boasts the 5th highest GDP in Africa, also recommends it as a good place to invest.

Unfortunately, business in the country is sometimes made difficult by the staunch reliance of cash that most Moroccans adhere to. The North African kingdom ranks last among the world’s countries when it comes to the percentage of the population with a bank account, while the fintech industry, so hallowed in other parts of Africa, is still in its infancy here. Could both sectors benefit from borrowing a page or two from each other's books?

The financial sector in Morocco has long been something of an oddity. On the one hand, the country is home to two of Africa’s largest and oldest banks: Attijariwafa and Banque Populaire, both of which have expanded their operations far beyond Morocco’s borders. On the other hand, the kingdom is among the world’s least banked countries, with less than 30% of the population using a bank account. Surveys show that Moroccans hold a high level of trust in the banking sector, but 77% of those polled also prefer borrowing money from family rather than any formal financial institution.

Perhaps unsurprisingly, the Moroccan fintech sector is similarly counterintuitive. Despite having both strong internet (84%) and mobile (138%) penetration, and one of Africa’s highest concentrations of software developers — prerequisites of a strong fintech market — Morocco continues to have an underdeveloped digital finance scene. Only 20 or so fintech startups are registered in the country, and while some are punching above their weight in terms of profit, none have managed to rise above the $100 million threshold in revenue and join such African giants like Wave, Opay or Flutterwave.

Even mobile payment methods, virtually omnipresent in other parts of the African continent, are rarely employed in Morocco, where just 17% of the population uses any sort of digital payment and only a dismal 1.6% does any sort of shopping online. Experts believe the reticence of Moroccans to go digital has to do with the low level of trust they have in online payments, particularly when compared to established banking services and especially the use of cash.

There are reasons to believe there is great room for growth when it comes to the field of Moroccan fintech. Morocco’s high level of digitisation and low level of banking makes it fertile ground for a fintech revolution similar to those taking place in Egypt, Nigeria or Kenya. But while some growth is taking place year on year, the fintech sector doesn’t seem to be taking off in quite the same manner.

As demonstrated in other African economies, a strong fintech sector would have implications far beyond the financial world, bolstering the country’s entire startup scene and consolidating the technology industry. African countries with developed digital finance sectors typically saw a rise in employment, trade and wealth that can be directly traced back to the success of fintech startups.

So what is stopping Morocco from reaching its true digital finance potential? According to Abdeslam Alaoui Smaili, the CEO of Moroccan software company Hightech Payment Systems, which specialises in solutions for digital payments, “innovation isn’t just about uncovering an idea, but also bringing it to market”. His solution was for startups to connect and collaborate with established banks in order to develop solutions that are mutually beneficial. This could indeed prove to be the way forward, as Morocco’s large banking sector can be dedicated to further developing the technology scene.

Such partnerships would prove beneficial to both parties, both having an interest in developing the financial service market. On the one hand, traditional banks could use digital solutions to reach millions of unbanked Moroccans. This strategy is particularly likely to succeed among the nation’s youth, which are more familiar and adept at using digital technology for their daily needs, as well as among rural and remote communities, where brick and mortar banks are less feasible. Indeed, digital infrastructure costs only a fraction of its physical counterpart when it comes to both setup and maintenance costs.

Furthermore, “going digital” would greatly benefit established banks by diversifying their services during what has been described as a period of instability. This was confirmed earlier this year, when global credit rating giant Fitch Rating downgraded their outlook for the Moroccan banking sector from “positive” to “neutral”, citing a deterioration in asset quality and lingering effects of the Covid-19 pandemic as reasons for the change.

Conversely, the established banking sector could serve as a springboard to launch fintech into the spotlight. The relatively high level of trust that traditional banks enjoy when compared to digital services is an advantage that could be transferred into the digital realm through bank-startup collaborations. It is a mantra often repeated that most startups fail in their first few years of their existence. Traditional banks could act as an anchor for fintech startups, offering stability throughout their tumultuous growth process, while gaining the convenience and efficiency that comes with digital finance.

Despite possessing excellent conditions for a vibrant and competitive fintech sector, Morocco is still lagging behind other countries in the region. Similarly, the banking sector is far from reaching its ceiling in a country where cash is still king. But it is the potential mix of the two industries, old and new, that gives the best hope for the future of digital finance in Morocco. Fintechs must seek to forge partnerships with traditional banks, just as established finance must learn to digitise in order to offer their services to a larger bulk of the population.

Decades after its debut, the digital service revolution is still sweeping the world — only accelerated by the pandemic — and it is becoming increasingly obvious that it does not plan to stop any time soon. After all, the 21st century is just getting started.