Fintech seems to be the new buzz word the world over, and Malta is no different. Accenture reports that Global investment in Fintech in the first three months of 2016 reached $5.3 billion, a 67 percent increase over the same period last year.
Fintech is not new. Startups like Oscar or Metromile in insurance, Transferwise, Venmo or Square in payments, Kickstarter and Indiegogo in funding are just a few of the thousands already in existence. Anything from accounting software to brokerage to currencies is up for disruption.
Fintech start-ups all come with the promise to increase speed, improve quality and more importantly, reduce costs to consumers or businesses they serve. The t-shirt wearing disruptors hope to take on the financial establishment in the same way Tripadvisor or Airbnb severely dented the travel agent model.
The prospect of flabby incumbents being forced to improve their service already has Maltese customers and businesses who tried to open a bank account or raise financing beaming with delight.
Thinking that Fintech in Malta will flourish in the same way semiconductors, pharma, gaming or financial services did over the years – without a cohesive body of legislation – is just wishful thinking. To top it all, Fintech is already significantly burdened with ‘one-size fits all’ regulation, which leaves much to interpretation and makes innovation a risky business.
Old laws and new models of business often do not go hand in hand. For Malta to compete, it needs to provide an innovative legislative infrastructure which supports the agile methodologies of start-ups.
The ‘sandbox’ regulatory approach to up and coming technology has been implemented within a number of advanced economies, such as Australia, Abu Dhabi, Singapore and the UK, and Malta stands to gain from implementing such an approach. This approach gives start-ups the freedom to develop and test innovative solutions to a limited consumer base and for a limited time period without fear of enforcement action and regulatory fines.
This approach needs to be subsequently supported by a framework of ad hoc licences to compress the time-to-market process, improve the prospects for additional funding and, more importantly, give these companies the ability to passport licences into the EU.
HR at the regulator
It would be foolish to think that this level of regulatory innovation will happen without a strong HR strategy for the regulator. The recent alignment of salaries has been a step in the right direction, however, better retention mechanisms need to be enforced to avoid the brain drain of valid employees moving from the regulator to industry. Our understanding is that a number of clients would be very happy to see an improvement in the regulator’s service levels to secure the speed required by start-ups.
The development of Fintech is critically important for Malta’s diversification strategy – the best paid IT jobs are found mostly within the gaming industry. While Fintech has brought about more options for IT professionals, it is also facilitating the introduction of a diversification of candidate profiles working within this new industry – candidates coming from a finance background are required to be proficient in the use of SQL and advanced database manipulation and those coming from an IT background require knowledge of financial instruments. Of course, this new requirement represents a challenge in order to support a fully-fledged sector, and attracting foreign talent is critical.
We still feel that the work permit process can be improved. It is disrespectful for people to queue for hours and wait for months to get the necessary employment paperwork. Setting up a specialised desk or even a simple appointment system would go a long way towards introducing a much needed level of professionalism.
Furthermore, work needs to be done on the taxation of pension schemes, share options as well as access to funding via the MSE Prospects. More tax efficient solutions would give Fintech in Malta a competitive advantage. The implementation of Article 6 for people working in funds and insurance (although clearly favouring expats) is a clear example of positive regulatory intervention in this regard.
Whether Fintech could represent the next 'gaming' or ‘financial services' for Malta remains to be seen. What is certain is that this will not happen on its own. We cannot passively rely on the usual attractions (people, infrastructure, strategic location) to entice the best players in this space. But with a well thought-out plan to ease the pain points typically endured by these innovators, the prospects are very promising. Disruptors are rarely patient though, so we need to act fast or risk missing out to other more agile jurisdictions.