The New Era of the Banking Industry

Nowadays, various entities have organised their business on the basis of technology, thus providing bank and payment services entirely online or via mobile apps. Cryptocurrencies have also left their impact on the banking industry, be they a means of payment or a source of funding. On the other hand, artificial intelligence is being employed in the implementation of data, which would otherwise not be possible.

Digital Banking: The Effects of Technology on Banking

In order to stay on top in such a competitive market, banks are investing in technology as well as modernising their services and the way they operate, thus revolutionising the way businesses function. This interlink between the financial services and technology is called “Fintech”, a concept which has emerged with the introduction of cryptocurrency and Blockchain.

By means of this technological development, clients will have more power and control over their data. It is anticipated that on average ⅔ of all bank accounts will be managed solely by the customer, and therefore give the customer the ability to control which third parties can obtain their data. In addition to this, the General Data Protection Regulation commonly referred to as the “GDPR”, stipulates further limitations upon companies, as they are obliged to obtain the consumer’s consent before making use of their data.

With the rise of cryptocurrencies and, thus, low costs and fast transaction times, the traditional banking industry seeks to stand its ground. Another technological innovation which has changed things for the better is the Faster Payment System (FPS), which allows for quicker payment or transfer either online or by phone. In fact, the US Clearing House has introduced a system referred to as Real-Time Payment (RTP), which enables businesses and clients to carry out and receive payments in real time.

Furthermore, it is emerging that various banks are founding partnerships with Fintech companies and thus continuing to increase competition within such an industry. Moreover, Blockchain based resolutions are also increasing in importance, especially with respect to security measures.

Blockchain and the Crypto World

Amidst the financial crisis of 2007, cryptocurrencies were seen, in contradiction to the traditional banking industry, as direct peer to peer connections that cut out the central clearing house - that is, a bank, together with the assurance to admit all customers, even the so-called “unbanked” ones or those not served by traditional banks.

Cryptocurrency can be loosely defined as a digital token with a certain value which is distributed on a Distributed Ledger Technology (DLT). Cryptocurrency and traditional banking can be differentiated on various levels, amongst which it can be said that:

• 1)Whilst cryptocurrency can only be used with a party which accepts such currency, fiat money is universally spendable within the economy;
• 2)Cryptocurrency function on a decentralised system, as everything is maintained on the Blockchain platform, thus increasing security;
• 3)Bank accounts differ according to the value of the underlying currency and the amount of interest paid. Furthermore, currency varies through inflation which is normally affected by government policy. Cryptocurrency, as an independent currency is not affected by financial policy.

Two of the most popular crypto coins are Bitcoin and Ripple. Both coins provide various advantages such as security, transparency, lower transfer fees than traditional payment regimes, and immediate settlements.

The Impacts of Artificial Intelligence

As opposed to a traditional computer system, artificial intelligence or “AI” is a device which examines information and data and suggests a new way forward. Google operates on the basis of AI, and therefore, it is able to provide a very high level of accuracy with respect to searches.

By using artificial intelligence within the banking sector, companies are further improving the customer experience. This is one of the biggest impacts which artificial intelligence has had within this industry. In fact, digital personal assistants and chatbots play an important part in providing customers with such a personalised experience. By using AI, chatbots are able to stimulate a human discussion or message exchange. Furthermore, various banks are introducing mobile applications which are combined with artificial intelligence, in order to provide, as efficiently as possible, the best features to its clients.

Moreover, through artificial intelligence, banks are able to offer more secure and swift transactions. This is because artificial intelligence operates in such a way as to identify fraud within various transactions, whilst safeguarding the client’s personal data.

Malta’s Legal Regime

The Virtual Financial Assets Act, which entered into force in 2018, lays down the legal framework with respect to the servicing or issuance of cryptocurrencies. Moreover, Blockchain platforms are regulated by the Malta Digital Innovative Authority (“MDIA”), which is endowed with the responsibility of promoting such technologies in a fashion which safeguards both investors and consumers.

Our Financial Services Team

Chetcuti Cauchi Advocates’ financial service team is composed of a team of lawyers which are able to provide advice to clients who seek to set up a company offering innovative solutions such as; crypto service providers, Initial Coin Offerings (ICOs), crypto exchanges or crypto funds within Malta. Headed by Dr Priscilla Mifsud Parker, our experts are able to assist with various matters relating to this fast-developing sector of law. Furthermore, our firm operates closely with other practice groups within the firm in order to provide a fully comprehensive service.