What We Think

Payments in Malta. Qua vadis?

A recent report by the Central Bank of Malta showed that the number of POS terminals has increased in recent years, particularly in 2020. Moreover, the vast majority of such terminals are now contactless.

The spread of POS terminals and improved functionality of debit and credit cards has also supported the increased use of these payment instruments among the resident population, as reflected in a steady increase in the volume of transactions per terminal using cards issued by local PSPs which continued unabated in 2020. At the same time, it appears that such instruments are increasingly also being used for smaller value transactions.

The way we bank and make payments is changing faster than any other financial services area. New technology and changing customer expectations are shattering the status quo and ushering in a growing number of new players that are challenging the traditional role of banks. This is also supported by regulatory developments such as Europe’s Second Payment Services Directive (PSD2) which introduces the concept of Open Banking within its regulatory framework.

The concept of open banking is gaining ground around the world with various countries embracing the spirit of Europe’s PSD2 directive and building similar strategies to it. Whereas in Europe discusseion has started on PSD3, Malta remains a laggard in its implementation. Last year, Seed had issued (r)Evolution, a dedicated report on the adoption of open banking practices in Malta.

In view of the developments and research, a number of observations can be made on payments in Malta and its future.

Open Banking confirms that data is the new gold

The liberalisation of consumer data through regulatory efforts such as PSD2, which introduced the Open Banking concept in Europe, has the potential to revolutionise not only the payment services sector but any other area which is able to successfully leverage the availability of such data to either enhance its existing service offering or otherwise create new products and services based on same.

Local players are ramping up interest following initial hesitance

Notwithstanding the fact that they have fully recognised the long-term potential and short-term benefits these solutions can present, local players (banks, financial institutions and fintechs) had initially taken a cautious approach to venturing into this new field. The regulator needs to take a more proactive approach in this regard.

Consumers need to be educated on Open Banking

Local consumers and merchants remain largely unaware of the Open Banking concept and the added value it can bring to the table both with respect to occasional transactions as well as in everyday usage. A nation-wide education effort spurred by both the private and the public sector will therefore be key if Malta is to replicate the success seen in other jurisdictions in this field. Such efforts should build on the population's capacity to embrace change and integrate new and value adding solutions into their ordinary expectations from the sector - this will create the necessary drive for local institutions to further embrace Open Banking and make the necessary developments. 

Open Banking empowers consumers and can revolutionise numerous sectors

Ultimately, PSD2 and the advent of Open Banking will go down as a first important step towards greater consumer empowerment with respect to the utilisation of consumer data. For this to happen, and for the Open Finance concept to fully permeate on a cross-sectorial basis, the remit of PSD2 and the data which can be made available to third parties must be sufficiently widened in both scope and purpose.

Strategic and adaptive leadership by financial institutions

The discussion on PSD2 needs to be elevated to a strategic, C-Suite and Board level so executives can determine how they want to respond, what opportunities Open Banking creates and what risks are created through inaction. PSD2 cannot merely be seen as a compliance exercise but one that is able to disrupt business models, gain efficiencies and enter new markets based on data and personalisation. Financial institutions need to focus on creating partnerships with fintechs to make the most of the opportunity. Speed to market is of the essence.

A national payment services strategy & ecosystem is required

The local market is ripe for innovation and the challenges that many companies are facing can be addressed through such developments. We are suggesting that Government develops a national payments strategy and supporting architecture to ensure that Malta can be an innovative hub and ecosystem which is further enabled by the presence of other strong sectors such as insurance, remote gaming, and technology. This should provide a cluster in payment services excellence which will be supported by the required infrastructure and regulatory sandboxes.

Payment services have been in evolution since the introduction of cards in the 1950s. As technology and regulatory innovations continue to pick up momentum, we believe that we are on the brink of a revolution in payment services, disrupting banks and other sectors.

The evolution in payment services continues, however a revolution is looming.

For further information on the above kindly contact:

JP Fabri