Malta is positioning itself as the go-to place for innovative fintech companies, and among them, its many specialists in blockchain technology, insurtech and regtech. The island is racing to develop a framework aimed at bringing oversight to the blockchain sector, while creating the right conditions for tech innovators, start-ups and larger players to grow their business from Malta. The island seeks to attract companies disrupting segments such as payments, insurance, investment as well as compliance in equal measure. In transforming itself as a safe space for fintech, Malta has a lot of things going for it. With its cost base cheaper than Europe’s number one fintech location London, Malta is worth looking at. The island offers financial software entrepreneurs the opportunity to be located in one of Europe’s fastest-growing finance centres, in close proximity to potential employers, contractors and investors. Companies are also using Malta as a springboard to nearby markets, in particular those of Africa, which is increasingly becoming a testing ground for new financial technologies.
Malta has already built up an enviable reputation as an ICT hub. The first industries to take advantage of what Malta has to offer, such as fiscal benefits, a strategic location in the centre of the Mediterranean and cultural proximity to Europe, were iGaming and eCommerce. Malta’s ICT industry has expanded considerably beyond its humble beginnings, now employing around 7,000 people and boasting a vibrant software development industry. It is constantly evolving, with growth being driven by a wide array of segments, such as cloud computing, mobile platforms and applications, social networking and digital gaming.
Malta has now become one of Europe’s favoured destinations for foreign direct investment within the ICT industry. The island has attracted not only global brands but also smaller, more specialised software developers. Today, several hundred ICT companies operate in, or from, Malta. The majority of these are micro-enterprises, but high-profile names have also been attracted to the country, including Microsoft, Cisco and Oracle. The island’s ICT firms realised early on that growth can be achieved by specialisation and moved away from generalised product and service portfolios. Many of them today offer specific solutions and tailor-made products for a range of sectors, including financial services.
Microsoft Innovation Centre is located at SkyParks Business Centre, Luqa
Regtech, Insurtech, Fintech
As an industry traditionally comprising banks, insurers and asset managers, Malta’s finance sector has recently seen new operators entering the market. New regulatory challenges in the post-crisis financial market landscape, pressure on banks and other financial services companies to cut costs, as well as changing market dynamics driven by technology-savvy consumers, have created a fertile environment for fintech. There are already fintech companies based in Malta tackling regulatory and compliance issues, as well as platform and API-driven propositions in areas such as payments and risk management. Insurance companies based in Malta are also rethinking the ways insurance is being delivered, and experts agree that it is only a matter of time before insurance business will be conducted in a different fashion. The rapid development in connected devices allows insurers to tailor insurance premiums based on customer behavior, creating cost-effective and profitable products and services. Regtech has also grown from a niche market into one of the most promising areas of the financial sector. Increased regulation of the financial market over the past few years has generated pressure on financial institutions to streamline their efforts to raise transparency levels and cut compliance costs.
Fintech companies have been drawn to Malta because the island provides a wealth of talent, both in tech and finance. The local labour pool is deep enough to meet the needs of ICT employers across the range of technical and creative skills, while specialist knowledge can easily be sourced from overseas due to an incentive programme for foreign workers. Salaries are lower than in other Western European IT centres, such as the UK or the Scandinavian countries, thus enabling small- and medium-sized companies to develop new products at affordable HR costs. International connectivity is also pivotal to the further development of this sector and is guaranteed by three operators providing international gate-way services via fibre-optic cables to mainland Europe. Regtech is different to other key areas of fintech, in that, it not only needs a sound and innovative financial services sector but also an engaged and supportive regulator. Regulatory innovation has been one of the priorities of the Malta Financial Services Authority (MFSA), indicating that support for regtech firms will gain momentum in the coming months.
Malta is also embracing the blockchain revolution as it looks for new sources of growth, and many in Malta hope that the island will be able to build up an entire blockchain industry. The Government of Malta has proposed the introduction of a regulatory framework for the sector that would pave the way for the creation of a new regulatory authority, the Malta Digital Innovation Authority (MDIA); the registration and certification of service providers of Digital Ledger Technologies; as well as the regulation of Initial Coin Offerings (ICOs) and related service providers. Malta is aware that it must act quickly if it wants to attract business and reap first-mover advantages. Other jurisdictions are also following the blockchain path, and in some cases, have already launched frameworks for ICOs or are also working on rulebooks to cover any commercial use of distributed ledger technology. Meanwhile, the MFSA also confirmed that it is set to follow other European locations to classify virtual currencies as investable assets for the investment industry, while the Malta Stock Exchange has also created a blockchain committee, which will assist in the formulation of a strategy geared towards addressing this emerging technology.
Start-up in Malta
There is widespread agreement that the level of potential disruption across many industries is vast and virtually unexplored. The opportunities seem endless and a wealth of solutions could be developed. Malta’s small size makes it the ideal test environment for new technologies and ventures in need of a flying start. Companies can develop and test new products and services on the diverse, yet concentrated, local market before exporting their services and solutions to Europe and further afield. Global giants support the small island nation in its effort to become a centre for tech innovation. The island has partnered with Microsoft to create an innovation centre, offering lab space and mentoring programmes to early-stage companies or individuals. The centre places Malta at the forefront of new technologies, such as cloud computing, and provides facilities that help tech start-ups to develop their products and overcome initial hurdles in commercialising ideas. Start-ups will also find help and support at TAKEOFF, Malta’s first technology business incubator, which is based at the University of Malta, while the Malta Information Technology Agency (MITA) also runs an innovation hub. Efforts are also underway to attract an international accelerator to Malta.
With 25 banks, 60 insurance companies and over 70 fund managers, in addition to many other financial services companies, Malta’s IFC offers software developers a large potential client base on their doorstep. The island is also home to a number of eFinancial Services companies, including payment gateways, card issuers, eWallets and online foreign exchange traders. Many of them are showing interest in collaborating with tech start-ups on pilot projects, as well as the testing of software, hardware and applications. Malta is also keen to provide a home for fintech companies targeting the African market, where large banks are now investing in digital currency outfits after leaving the market mostly to telcos.
The Race is On
Financial services companies in Malta and elsewhere have recognised that disruption is not a one-time event but rather a continuous pressure to innovate. The financial sector hopes that technology could reduce their compliance and regulatory costs by automating their operations and making them more transparent. Established companies, seeking more innovative and economical solutions, are ready to partner and collaborate with new players, while many blockchain start-ups are currently looking for a home but are unsure where to set up their businesses due to the undefined regulatory environment. In this context, many in Malta agree that Malta could win significant business by positioning itself as a secure, innovative fintech hub and a pioneer in blockchain regulation.