Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 28th April 2022

The pandemic has brought to the surface inefficiencies in traditional payments for the B2B space, due to cash management and liquidity challenges.  So, what is the future of payment applications in Malta?  

To start with, we need to multiply the number of service providers – the payment industry is witnessing a growing emergence of a wider group of players and service providers alongside traditional banks.  The pandemic has intensified this growth.  

Why has Malta waited so long to invest in digital transformation?  Is the clientele well served by the dwindling number of ATM service points thus creating inconvenience to the public?  Quoting John Consiglio in an article on local banking, he argues that the continued closing down of branches and ATMs, combined with the reduction of tellers in branch banking halls, certainly do nothing to endear the banks to the people. In his words, it is pointless to cite an increased take-up of technology among young people or immigrants because these figures do not reflect the feelings of the grumbling masses. 

Consiglio, himself a lecturer in banking and finance, placates bank management saying that they tend to dedicate much more time and money on what the regulators continuously insist upon rather than on what “the people” really need.  

Certainly the quiet revolution of open banking has not yet lowered its anchor in Maltese waters.  Is it Utopian to feel, that we are on the cusp of seeing a belated revolution in alternative payment methods away from the duopoly of two main banks in Malta? If, this happens, we can witness improvements in payment mechanisms away from the traditional banking services offered so far.  

This dynamic has been driven in Europe by retail customer demand and the diversification of banking services in an increasingly consolidated and competitive market. With the benefits of digital payments extending beyond borders and institutions, new eWallet providers have been established in Europe. One may ask why is the traditional structure of local banks not amenable to form new groupings to provide alternative payment solutions?  

In Europe, we have seen many traditional banks evolving and re-evaluating their services to remain competitive, in addition to partnering with FinTechs, and buying software companies. Standard Chartered Bank, for example, recently launched a virtual bank called Mox in partnership with a number of technology companies, including Trip.com.  Utility providers, for example, are enabling pay transactions and tying payments with billing and contracts through one centralized portal.  

Next we need to look at regulation and compliance.  Heightened awareness of transaction risks and user risks has further pushed the onus for regulations on digital governance.  This task falls squarely on the shoulders of MFSA and FIAU. The MFSA took a bold initiative in 2019 to issue a consultation document on Fintech and lately it published a policy paper dated April 2021 -aptly titled - Fine Tuning Our Strategy for 2022/2023.  Inter alia, it said that quote “The Authority will need to factor this into its longer-term planning process while ensuring that appropriate timely initiatives and targeted legislative interventions also feature among its more immediate priorities”. 

This does not specifically push for the necessary promotion to attract Fintech companies. Malta, together with small and remote economies, is hugely exposed to economic and natural shocks (including imported price inflation).  Recall, how the new Abela administration - promised cutting edge reforms in the financial services sector.   

A common problem for the well-being of any island´s economy is usually the limited space of its territory.  With a lack of space and resources to pursue large-scale industrial or agricultural, clean energy undertakings, it is a great opportunity for us to utilize fintech by making use of this new way of financing and by becoming a home for fintech operators (an ominous shadow of the botched Blockchain bubble lingers on now).  

The future of fintech is increasingly specialised and is dependent on technological progress and innovation. Ideally, Malta aims to establish itself as a global thought leader in the innovative economy, focusing its efforts on supporting the “fintech revolution”, and establishing a holistic and robust fintech sector for both start-ups and industry incumbents. At this stage, we associate another subset of fintech which is becoming quite popular in Western countries. 

Welcome the technology styled: Decentralised Finance (DeFi). This eliminates intermediaries such as brokerages, exchanges, or banks by allowing people, merchants, and businesses to conduct financial transactions through emerging technology such as smart contracts.  DeFi is being designed to use cryptocurrency in its ecosystem. 

Introducing open banking. This is part of the global trend of the economy based on the use of API (application programming interfaces).  An Application Programming Interface (API) is a software interface that lets information be exchanged between two different applications.   APIs provide a standard and safe way for applications to work together and share requested information and functionality – without the need for user intervention.  

Open banking is also called API banking because it uses fintech to connect banks, fintech, and third-party service providers to give them far richer data and greater functionality.  APIs can connect data from banks and non-banking institutions, process it, and send it to third-party applications.  The customers can access these applications to view and manage their financial details in a single interface.  Integrating financial data with APIs also gives businesses a clearer picture of their customer’s financial situation and risk profile, which helps them offer more personalised products and services.  

With its popularity growing amongst consumers, ppen banking payments are expected to grow exponentially by 2024. Will Malta catch on to the banking revolution?  

One can only hope so, as this guarantees better service and reduced transaction costs. Open banking is often talked about in conjunction with the (PSD2) Second Payment Services Directive. PSD2 has provided a European-wide regulatory framework that allows third parties safe and secure access to accounts to either gather transaction data or initiate payments on the customer’s behalf (with their permission).   

Regrettably, lots of these potential overlay services and innovations in Malta are still in the pipeline from fintechs. Can Malta succeed in joining the fintech revolution? The answer depends a lot on the foresight of banks, MFSA, FIAU and the commercial community.

Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 28th April 2022
Get in touch: info@pkfmalta.com