A national payments strategy and supporting architecture would lead to Malta becoming an innovative hub and ecosystem that is further enabled by the presence of other strong sectors such as insurance, remote gaming and technology, according to advisory firm Seed Consultancy.

Such a move, it said, should provide a cluster in payment services excellence that will be supported by the required infrastructure and regulatory sandboxes, noting the local market is ripe for innovation.

“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,” it said, basing itself on the findings of research it carried out on the local adoption of the EU’s Second Payment Services Directive (PSD2) and open banking among Maltese-licensed credit and financial institutions.

Seed noted that, in 2015, the EU set up a ‘digital single market’ for payment services in Europe through the PSD2, which, it added, strengthened consumer rights, introduced new security measures, and provided the regulatory infrastructure for its own form of open banking.

“This game-changing directive opens up consumer bank accounts to third party providers, unlocking banks’ data-lakes and providing a level playing field with other financial services providers. As such, it represents a fundamental change in the European banking sector, and a significant step towards open finance.

“PSD2 became law for member states in January 2018, and its measures are to become active in stages through to December 2020,” Seed noted.

Its research found. among other things, that although local players - banks, financial institutions and fintechs - fully recognised the long-term potential and short-term benefits that solutions can present, they had initially taken a cautious approach to venturing into the new field provided by PSD2. The study shows such initial teething problems are gradually being overcome with interest in open banking solutions slowly but surely ramping up.

Seed also found that local consumers and merchants remain largely unaware of the open banking concept and the added value it can bring to the table. It, therefore, feels that a nation-wide education effort spurred by both the private and the public sector will be key if Malta is to enjoy the success experienced in other jurisdictions in this field.

PSD2 and open banking, it noted, will go down as a first important step towards more consumer empowerment with respect to the utilisation of consumer data. However, it suggested that 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 that can be made available to third parties must be sufficiently widened in both scope and purpose.

Seed also recommended that the discussion on PSD2 is elevated to strategic, C-Suite and Board level so executives can determine how they want to respond, what opportunities open banking offer and what risks are created through inaction.

It advised against PSD2 being considered merely as a compliance exercise but, rather, 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, the advisory firm said.

JP Fabri, Partner at Seed, stressed the power of regulation to spur innovation. “We also strongly believe in the interplay between technology, regulation and entrepreneurship to not only sustain growth but to add value to consumers, businesses and the economy at large,” he said.

Nicky Gouder, also a Partner at Seed, pointed out that the interplay of technology, changing consumer preferences and regulations is unleashing an innovative and disruptive wave in payment services across different industries.

“As Seed, we are convinced that the future is one of an open banking world. But we are equally convinced that only those players that proactively shape their own future will succeed in it,” he noted.