The development of the financial sector and payments services in the Maldives is challenged by the geographical nature of the country and the small size of the economy. Despite more than 85 percent of the adult population being bank account holders, there are significant hurdles to access financial and payment services. While the provision of payment services is dominated by the banking industry, the limited access to banking facilities for segments of the population living in smaller, more isolated islands have led to a high reliance on cash for transactions.

The Financial Sector

The financial sector of the Maldives is dominated by the commercial banking sector. Currently, there are eight banks in the Maldives, of which two are locally incorporated. A single bank dominates the retail banking segment, with approximately 85 percent of bank account holdings and over 80 percent of the retail payment transactions, along with key payments infrastructure. The rest of the financial sector is comprised of five insurance companies and three other finance companies which cater to the leasing, housing and SME finance markets as well as the stock exchange. The lack of an ideal level of competition and the shallowness of financial markets are challenges to the development of both the financial sector and the payments ecosystem.

Payments Infrastructure

Currently, all inter-bank transactions are executed via the Maldives Real Time Gross Settlement (MRTGS) system and the Automated Clearing House (ACH) system, which are both operated by the Maldives Monetary Authority. The MRTGS system processes and settles urgent, high value inter-bank transactions, and is based on the SWIFT messaging standard. Meanwhile, the ACH system is a session-based clearing system for low-value batch transactions consisting of three components, namely, direct credits, direct debits, cheque imaging and truncation. However, only the direct credit, cheque imaging and truncation components of the ACH system are currently in operation.

At present, the participants of the MRTGS and ACH systems are the banks operating in the Maldives. These services are only available through them during banking hours, mostly by visiting the banks in person. Further, as these systems are not fully integrated with some of the participating banks’ internal core banking systems, straight-through processing has not been achieved, leading to inefficiencies and delays.

Payment Services

Card payments have become increasingly popular over the years and are the most prominent electronic means of payment in the Maldives. Non-bank card payment acquirers play an important role and hold a share of over 50 percent of the total value of credit card transactions in the economy. Presently, in the absence of a local card payment switch, the payments via these non-bank players are sent to offshore banks.

In order to mitigate difficulties arising from the spatial orientation of the islands in the Maldives, a recent initiative has been the introduction of mobile banking and payment services. With full mobile service coverage across the country and a high penetration of mobile phones within the population, payment solutions that utilize the mobile telecommunications network have the potential to reduce the prevalence of cash in the economy. However, mobile operators are faced with challenges in linking their services with the banks due to an absence of a common platform that connects the banks and mobile payment service providers. Additionally, as the efficiency of such solutions is dependent on the underlying payments system infrastructure, the delays in settlement and other inefficiencies remain unresolved.