The Forward-Thinking Countries Moving the Payment Industry into the Future

Wednesday October 24, 2018

As the financial technology revolution slowly takes over worldwide, certain countries have been industry leaders in moving the revolution forward. Each country has developed its own method and strategy to incorporate digital financial methods. In particular, Malta, Estonia and the United Kingdom are countries that stand out in the movement. Malta has been closely linked to the leniency of cryptocurrency regulations. Estonia is the first country to offer e-Residency. The United Kingdom has made big pushes to direct fintech businesses to their country. The main factor in these contemporary movements is receptive regulations. These countries see the benefit to move financial technology forward, and are open to serving as an example to the rest of the world that new financial technology approaches can be successful and thriving.

While most countries have been working to eliminate or curtail the use of cryptocurrency, Malta is the first country to welcome it with open arms. Malta, the smallest country in the European Union has been working over the past year to develop an appropriate regulatory situation for the cryptocurrency and blockchain industry. This past July, the Maltanese government approved three separate bills that provide a regulatory framework for cryptocurrency and blockchain. While these bills are still regulation, they are considered friendly to the industry and provide a safe and flexible atmosphere for thriving ventures. On November 1, 2018, these regulations will be officially put into place.

The reason for this movement is two-fold. Prime Minister Joseph Muscat says he thinks cryptocurrency is “the inevitable future of money.” The country leaders have strong foresight to forge the way. Additionally, cryptocurrency and blockchain companies will bring jobs and economic activity into the country. In the long run, the two purposes will ultimately create a thriving and powerful force in the small country.

Estonia is special in the financial technology revolution because of their new initiative to offer e-residency to businesses and individuals. E-Residents can do business worldwide without being in Estonia, a European Union member, but conducted as if they were in Estonia. These e-Residents are given government-issued digital IDs, create and register official Estonian companies and can open Estonian bank and security accounts. Individuals do not have the be physically present in Estonia to become an e-Resident. This concept was designed with cross-border transactions in mind. With the world so interconnected, and the majority of business being international, Estonia acknowledged that there needed to be an easier and more efficient way to conduct business anywhere in the world.

E-Residency has helped to rid of currency fluctuations, and has helped e-Residents to access European Markets, where this used to be much more difficult. Additionally, the process of registering and developing a business, particularly small-sized, has become more straightforward and cost-efficient. Like Malta, government leaders acknowledge that the change is coming and it’s better to be one of the leaders, then to scramble to adjust. Viljar Lubi, Estonia’s deputy secretary for economic development said, “if we close ourselves off, the innovation happens somewhere else.” The e-Residency program has also brought in economic activity and success to Estonia.

Within the United Kingdom, programs have existed for some time to nurture technology. In 2011, then Prime Minister David Cameron launched Tech Nation, in order to support the technology hubs around the London area, particularly the neighborhood known as London Tech City. Cameron, behind his reasons, said that, “Silicon Valley is the leading place in the world for hi-tech growth and innovation. But there’s no reason why it has to be so predominant. Our ambition is to bring together the creativity and energy and incredible possibilities to help make east London one of the world’s great technology centers.” As a result of the success of Tech Nation, and the obvious trend of financial technology, the government in the UK began new programs under Tech Nation specifically for the fintech sector.

Tech Nation Fintech brings in the newest and most creative innovations in the industry and offers breeding and training to foster the most effective financial technology companies. The United Kingdom offers these services, and as a result, reap the benefits when the fintech company proves successful. Additionally, representatives of the United Kingdom are frequent visitors to fintech and payment industry expos and conferences. Representatives are able to promote these services and generally try to convince companies to make a home in the United Kingdom. Like the previous two companies, the government in the United Kingdom has seen the advantages and power of the financial technology and payments industry. They are making investments in up-and-coming companies for an eventual pay-off.

No one can know if these nation industry leaders will stay on top when the inevitable happens. Starting the financial technology revolution in the driver’s seat will surely offer all of them an advantage. But, at the moment, payment industry positive countries are definitely profiting off of the perks. They are doing something that no one else is doing at a time in history where big changes are taking place. Slowly, we are starting to see other countries jump on board with the movement, but not as quickly as they should. It is thanks to countries like Malta, Estonia and the United Kingdom, that the sector is given an atmosphere to experiment, grow and thrive.

EU Regulations and Attitude Adjustments

Wednesday October 24, 2018

One of the most difficult challenges of the financial technology sector is the lack of consistency with regulations. Particularly in the European Union, each country has its own individual rules and regulations, which makes it difficult to start a business in accordance with a countries’ regulations, as well as conducting business with cross-border markets. The difficulty in these inconsistencies are that each country has their own standard of regulation. If you are an individual who wants to start a fintech company, or work in the sector, it is very important to acknowledge what regulators are searching for when applying for business licenses in different countries.

Take, for instance, a country like Austria. Austria has long been considered a strong country to develop a fintech startup. Austria had the foresight to see that financial technology would be a success, and that new fintech companies would bring money into their country from abroad, improving the Austrian economy. Austria’s FMA is a regulatory authority over financial institutions. Their mission statement follows; ‘as an integrated authority our overall perspective of the Austrian financial market enables us to conduct consistent and efficient supervision. We are part of the European System of Financial Supervisors (ESFS) and actively contribute with expertise and practical experience.”

The industry is continuously growing and governmental agencies like the FMA have worked to assist in this growth. In 2016, they invested approximately $204 million in financial technology initiatives. Because the government has a big investment in the financial technology sector, they also expect internal companies to comply by strict governmental regulations. To the Austrian government, they believe that these regulations will guarantee legitimacy and legal business. Therefore, when applying to work in a country like Austria, it is crucial to familiarize yourself with the government regulations, and confirm that your business plan will fit in the Austrian work environment.

Malta, a country that was one of the first to embrace cryptocurrency, has quite similar ideas regarding their regulation guidelines. The Malta Financial Services Authority (MFSA) states, “the organizational structure of the MFSA ensures that the regulatory and operational functions of the Authority are exercised within strict legal demarcations.” In this statement, Maltese regulators display their value in businesses. It is important to show results and a functioning business plan. This focus on the business has a lot to do with the small size of the country. This offers startups a small market size that is an ideal testing environment. Having startups with a business oriented aim is a perfect match for this country. Therefore, a startup should be open-minded and flexible in order to text and develop new products and services in a business-centric nation.

Later in their mission statement, the MFSA says, “the MFSA is also responsible for consumer education and consumer protection in the financial services sector.” It is clear that the needs and experience quality of the consumer is an afterthought and not something that will make or break startup’s chances to succeed in Malta. Again, due to the size, the consumer serves as more of a test model than the people being valued in the startups. Of course, regulators want consumers to benefit from the product, but first and foremost, regulators are interested in businesses that work.

In order to begin a fintech company, it is very important to do the research about the country you plan to start your business in. As detailed previously, different countries worldwide look for very different results from fintech companies. Typically, each country decides which sort of system works best within their country. It is possible that your fintech company might have values better set to a different country than the one you are aiming for. Either way, it is imperative to understand the financial technology environment of your country of interest, as well as understand the atmosphere in general, if you have the intentions of expanding into other countries as well.

Fintech: How Can We Be Better?

Wednesday October 24, 2018

In today’s modern technological climate, financial technology is becoming the preferred method of banking, particularly among millennials. Because fintech is a very new concept, it has been a slow process to incorporate its services into the already established ways of banking. Although many banks are hesitant to back financial technology companies, some have chosen to lead the way towards financial modernization. Instead of resisting the inevitable, they are jumping on-board. Fintech and traditional banking methods have a huge potential to offer one another things that the other is lacking. For instance, traditional banks have already developed strict business structures, which is important in providing stability. On the other hand, fintech companies are less stable, but are attractive for their flexibility and plans. Both infrastructures support the other where it is lacking and complement one another.

In connection to bank regulations, banks have strict regulations that discourage them from involving themselves with certain markets and individuals. People or companies are oftentimes rejected from working with banks, and it has become extremely difficult to open corporate or individual bank accounts. Fintech companies have picked up the slack when it comes to assisting these companies and individuals. Their business model has included strategy in order to assist small and medium-sized endeavors. Banks and fintech together can serve all levels of the population; allowing the big banks to model to assist their preferred customers but to give fintech companies the infrastructure to succeed in helping a different population of customers. Both sides benefit because business will reach a greater number of people, which equals profit.

Throughout the attempt to incorporate fintech and banks together, most analysts have focused mostly on how the banks can change to adjust to financial technology. And while many fintech companies have been getting a lot right, there are still some that can be doing better. The biggest example is fintech companies that are attempting to replace banks rather than work together with them. Unfortunately, in this moment, financial technology doesn’t have a strong enough base to succeed without the help of the banks. The world is only just warming up to the idea of financial technology. There is no basis or value to the industry. In today’s current atmosphere, fintech is particularly powerful in serving the under-served. Even in this very market that is their strongest, they still are not profiting more than banks.
Many traditional banks view fintech as a threat. With that, if banks continue to feel threatened, they will continue to push and support for rules and regulations that favor banks and disfavor financial technology. Fintech companies who are attempting success on their own pose a threat for other fintech companies who are complying. Financial technology on their own is fulfilling the prophecy that they are a threat to the banks. It is naive to think that financial technology companies have it all figured out. There is a huge market in the financial sector, and financial technology has a lot to learn. Luckily, the traditional banking methods are there to help fintech start-ups in this early stage of the industry. In the future, it is very possible that fintech will spread their wings and succeed without the backing of a bank, but unfortunately, that time is not now. It is more beneficial for all parties that the two find a way to work together during this transition instead of assuming we will succeed alone.

Was Blockchain Built for the Long Haul?

Wednesday October 24, 2018

Often likened to emergence of the internet, the revolutionary entrance of Blockchain into mainstream vernacular has people racing to get involved. Innovators, technologists, and entrepreneurs are all investing in Blockchain in hopes of capitalizing on what seems to them as a tremendous opportunity. As the Blockchain boom continues, skeptics are wondering how this breakthrough technology will fare under widespread adoption. Will it withstand the use of over one billion users, or will it buckle under pressure?

Blockchain is a decentralized, un-hackable ledger that is programmed to record anything of value. Comprised of “blocks” of data that build off one another, the data chain is constantly updated with new information across a network of computers. Blockchain’s data base is shared across a public network accessible to anybody, meaning Blockchain cannot be controlled by one single entity.

Blockchain relies on the assistance of a network of contributors that are constantly imputing data in order to allow exchanges to take place. Because the data stored is spread across a network, Blockchain doesn’t face the same threat to corruption and hacking that centralized databases deal with.

What is unique about Blockchain is the broad scale of its’ applications. While many associate Blockchain with the famous cryptocurrency, Bitcoin, there are many more arenas where Blockchain has a significant purpose. Blockchain can be used to exchange anything of value, including currency, data, or even something tangible such as a household item. Many industries are now embracing Blockchain to assist them in recording supply chain and data collection.

Despite the initial burst of enthusiasm in Blockchain, there are some obstacles to the widespread adoption of this technology that are cause for concern. As with anything that grows exponentially at a rapid rate, there is a danger of sudden demise. Due to the structure of Blockchain, each data block in the chain builds atop the previous one. This means that every additional block adds to the ladder of transactions. The more blocks that are added to the chain, the higher the risk of collapse.

Time must also be considered when talking about the scalability of Blockchain. Each transaction in the chain relies on peer-to-peer data input, making it extremely time-consuming. As the user volume begins to grow, more time is needed for verification, and longer waiting times for transaction processing will incur. In addition to wait times, prices will also increase as volume in parallel to the number of users as more nodes will be needed to processing, and each node costs money.

Ambiguous understanding of the virtue of Blockchain by the public may also be a pitfall. Due to its’ broad application, there is not one centralized “Blockchain” but rather many different subsets and usages. The different competing technologies make it difficult for users to identify with one specific usage. Complicated procedures required to establish a wallet deter users from taking the leap into this new terrain.

As with anything, drastic changes take time. Blockchain, once considered a fad, is still struggling to gain acceptance amongst skeptics who are convinced that eventually it will end in collapse. Supporters of Blockchain, on the other hand feel that the influence of Blockchain is comparable to that of the internet, which also took time to become widely accepted. One thing is for certain, Blockchain must be prepared to manage the scale and volume of its’ users as more and more people are turning to this technology.

Cryptocurrency vs. Fiat Money: For Better or Worse, Regulations Must Be Set

Wednesday October 24, 2018

As our world evolves, so does the way we spend money. With only 8 percent of the world’s money being represented in physical notes, we seem to be progressing toward a cashless economy. The remaining 22% of our money is being transacted in digital form through credit cards and payment apps. So, what’s in line to replace our current cash culture? The answer is one that has triggered much discussion in recent years: digital currency.

What is the big debate on cryptocurrency vs. fiat money? Many say that digital currency is the way forward and will soon wipe out fiat money (traditional bank notes) completely. Others say that cryptocurrency is essentially fiat money in digital form. What is true is that both cryptocurrency and fiat money have advantages and disadvantages to be taken into consideration.

Let’s start by comparing the two types of money. Fiat money is currency printed in paper form that backed by the government. While paper money was traditionally valued by a physical commodity such as gold or silver, nowadays, fiat money is supported by a faith-based system that depends on supply and demand. Cryptocurrency is a digital form of currency that is not backed by the government, and is based on a crypto-algorithm. Due to lack of government backing, it is impossible to use cryptocurrency for tax paying purposes.

Advocates of cryptocurrency argue that Bitcoin is more trustworthy than paper money because it immune to the possibility of the stark inflation that has been known to plague fiat currency. Due to a 21-million-dollar spending cap placed on Bitcoin, there is only a limited supply of how much of this currency can be produced, making inflation impossible. This contrasts to Fiat money, which can be limitlessly printed at the user’s expense, leading to inflated rates and an overdose of production of paper bills that have little value.

The advantages of engaging with crypto currency have many people in favor of abolishing traditional fiat money in order to be replaced by Bitcoin. It is important to note, however, that although many people view cryptocurrency as a safe stride forward, this is far from the truth. Many cryptocurrencies have failed in recent years, and the future remains unpredictable as well.

Downsides (or upsides) of Bitcoin, depending on how you view it, is that there is immense user freedom due to lack of a third-party authority approving all transactions. This means that digital currency can be used to engage in illegal activity such as buying drugs or pornography. Furthermore, due to lack of regulation, Bitcoin users are also able to avoid paying taxes. Because of this permission-less system, governments are now trying to crack down by getting involved and regulating Bitcoin to avoid fraudulent and illegal activity.

Cryptocurrency is often linked to crime because user identification is often anonymous, making it is difficult if not impossible to trace a fraudulent trail of activity. Since use of fiat money requires engagement with government institutions such as social security when opening a bank account, it is much easier to track the source of criminal behavior. Anti-Money Laundering and Terrorist Financing institutions are now cracking down on cryptocurrency companies, and there is a recent demand for heavier regulation and user-identification in this industry.

This is not to say that money-laundering and non-compliance only occurs in the world of digital currency. For years, companies and banks have been installing stronger regulations to deal with the underworld of fiat currency exchange that leads to criminal activity and fraud. Although it is absolutely more difficult to track the source of the fraudulent behavior of cryptocurrency, this is not to say that fiat money is necessarily safer than digital currency.

While believers in cryptocurrency believe that we should abolish fiat money completely in favor of digital currency, it is obvious that there is a clear call for safety measures to be set in place in order to make this type of money exchange safer and more secure.

Breakthrough for Blockchain: The New Regulatory Laws of Cryptocurrency in Malta

Wednesday October 24, 2018

The cryptocurrency market in Europe hasn’t had an easy ride thus far. Skeptics claim that unclear regulatory laws and user anonymity make cryptocurrency a breeding ground for crime such as money laundering and terrorist financing. To counteract this uncertainty, digital currency brokers in Europe are now pushing for higher standards of regulation of cryptocurrency so they can more effectively work under clear circumstances.

The European parliament has voted to bring more transparency to the cryptomarket by enacting regulation laws that govern this new terrain. Many countries are implementing their own versions of these laws, with some being more advanced than others. Regulations are born out of the belief that cryptocurrency, if monitored correctly, has the potential to revolutionize financial markets and boost economic growth throughout the continent.

Leading in the effort to bring clarity to the cryptocurrency industry is the small island of Malta. On July 4, 2019, Malta officially passed 3 laws to establish a regulatory framework for Blockchain, cryptocurrency, and DLT (distributed ledger technology). These laws are the first of their kind, and focus not just on Blockchain and cryptocurrency but also address how brokers, exchanges, and traders operate within the cryptoindustry.

Prime minister of Malta, Joseph Muscat believes that regulating the crypto-industry is the way forward, and hopes that the tiny Mediterranean island will become a crypto-hub connecting east and west. The change has already made Malta a hot spot for crypto-business and is expected to spur economic growth and job creation. International Blockchain businesses are now flocking to Malta to set up shop, attracted by the low tax rate (as little as 5 %).

The new laws in Malta are as follows:

The first law (Malta Digital Innovation Authority Act) passed in Malta deals with credibility of DTL platform. This law was set in place to assure users that they are engaging with a legal and credible platform that is regulated by the government.

The second law (Innovative Technology Arrangement and Services Act) pertains to the establishing and exchanging of companies operating within the crypto market.

The third law (Virtual Financial Assets Act) is focused on the storage and exchange of the currency itself and covers regulation of wallet providers.

The revolutionary regulations passed by Malta have given the tiny country the nickname of “Blockchain Island’. The rest of the EU, however, has not caught up with Malta, and crypto currency regulations are still in development on the remainder of the continent. Although Malta is currently one of a kind in regards to their regulatory culture, it seems that some other countries in the EU are starting to mimic their actions.

Recently in Estonia a new law has been passed by the parliament under the title of Anti-Money Laundering Act and Terrorism Finance Act (2017). The new law outlines a clear definition of cryptocurrencies and new regulations of cryptocurrency wallets. Although the regulations do not fully cover the activities involved in crypto dealings, for example mining, the exchange and maintenance of a virtual wallet are now authorized.

Regulations of the crypto-industry have been constantly under review in European countries. Although progress may seem slow, important steps are being taken to bring certainty to a previously uncertain domain. As European governments begin to step in and regulate the digital currency market, risk is beginning to taper, and more users are beginning to engage safely with cryptocurrency.