Making Malta ready for Fintech

George M. Mangion is a partner in PKF Malta an audit and business advisory firm.

Why has Malta lingered 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 (a lecturer in banking and finance) in his article on local banking featured in the Times of Malta, 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, he states how pointless it is 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.  Certainly the quiet revolution of “Open Banking” has not 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.  

Let us introduce MDIA – it is the first regulator which certifies DLT platforms and smart contracts while handling the voluntary registration of technology arrangements.  The ultimate aim of the regulation is to bring legal order to a market environment that thus far was mostly unregulated in order to ensure consumer protection and market integrity.  As can be expected, AI and IoT technologies are next on the country’s agenda.  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. Our next topic ushers in – 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 MDIA, MFSA and FIAU. We notice, 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” unquote.  Malta, together with small economies, is hugely exposed to economic and natural shocks (including imported price inflation). 

With a lack of space and resources to pursue large-scale industrial or agricultural, erect renewable structures, 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 €3M bubble lingers on). 

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 the global trend of the economy based on the use of a sandbox or an application program interface (API).  A sandbox is an environment that innovators and testers can use to mimic the characteristics exhibited by the production environment on a real-time basis to help simulate responses from all the systems.  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 personalized products and services.  With its popularity growing amongst consumers, Open Banking Payments are expected to grow exponentially by 2024.  Will Malta, now just released from the Grey list category, embrace the banking revolution?  One augurs that we do not miss the band wagon as this guarantees better service and reduced transaction costs.  

Our success to fast track joining depends a lot on the foresight of banks, FinanceMalta, MDIA, MFSA, FIAU and the commercial community.

gmm@pkfmalta.com