Until quite recently, new types of alternative finance were frowned upon by many. “A tiny niche”, “a short-lived fad with lots of misplaced enthusiasm”, they said. The tide, however, appears to be turning. Research by Cambridge University and EY clearly indicates that the exponential growth of this sector is beginning to attract institutional investors and many European governments, as well as spawning a spate of related innovations. The Economist is speaking of a “Fin Tech revolution”.
Financial technology (Fin Tech) originally referred to peer-to-peer lending, crowd-funding and online or mobile payment. Now associated there’s much more under its umbrella, combining data and algorithms to automate wealth management, online foreign exchange and remittances, cryptocurrencies and the blockchain, mobile finance and invoice trading.
The European alternative finance market (including the UK) as a whole grew by 144 per cent in 2014, reaching €3bn. Angel List lists around 4,000 Fin Tech start-ups.
A number of European countries have been quick to respond to this opportunity.
In 2014, the UK Financial Conduct Authority set up an Innov-ation Hub, tasked with fostering “useful innovation in financial services”. The Swiss Financial Market Supervisory Authority has just authorised a Bitcoin stock exchange. The Fintech and Payments Association is teaming up with government to implement Ireland’s International Financial Services Strategy. And Guernsey has just published its Fin Tech strategy.
Research clearly indicates that the exponential growth of this sector is beginning to attract institutional investors and many European governments, as well as spawning a spate of related innovations
In Malta we do have some examples of companies offering e-money and payment gateway services. But Malta could aim to be a key player and strengthen its regulatory regime. One may argue that a number of aspects are already covered by existing regulation. But if we are to compete, we need to fulfil the expectations of people in the industry and rethink the regulatory regime.
There may be a small time window in which to offer an alternative regime. And Fin Tech should be seen as complementing Malta’s existing financial services institutions and tapping skills available in the local gaming industry; it will not be a substitute.
If we are serious about this, we need to think and act quickly before it is too late. We need a national champion of this new sector from the political side and another national champion from the regulatory/technical side.
Needless to say, consensus from both parties is essential and our political history has shown that when there is a strong-enough will, it is doable. The private sector and key private practitioners also have a role to play, for instance, through the participation in consultative fora (possible through existing structures such as Finance Malta).
It is therefore with great anticipation that we keep an eye out on the local market for indications of a thrust towards this new sector. It is critical that the relevant authorities act swiftly and seize the moment to ensure that we manage to grab a piece of the action in this innovative market.
Karl Mercieca leads the Asset Management Advisory Services at EY Malta while Chris Meilak is an economist within EY Malta’s Economic Advisory sub-service line.