The Development of Payment Services

The Emergence of Digital Currencies and Blockchain Technology

Mr. Steve Muscat Azzopardi | 16 May 2019

The development of payment services

For many years, we have depended on traditional banking in order to effect payments for services and goods. However, there has been a shift from the centralised financial system, driven by recent developments in the banking sector. Physical contact with banks is decreasing rapidly as more transactions are carried out online or through digital means. 

Since the appearance of the first credit card in 1950, there have been continuous waves of advancements. Nowadays, beyond credit cards, we have witnessed the emergence of e-wallets, contactless and mobile transactions. Moreover, emerging technology seeks to bypass the current centralised payment system completely, for instance, through digital currencies built on blockchain technology.

Payment Service Providers and Electronic Money Institutions 

The Malta Financial Institutions Act, Chapter 376 that transposes the EU Electronic Money Directive, regulates the licensing of payment service providers (PSPs) and electronic money institutions (EMIs) in Malta. PSPs and EMIs have attracted a significant market share in payment accounts for merchants and customers, and they are also popular in the issuance of cards relating to a payment account. 

A PSP can be defined as a software or digital application that creates a gateway that processes payments, effectively linking merchants with various payment solutions. The PSP will usually regulate the connection and the relationship between each client and the merchant’s bank account. A PSP is a very efficient method since the merchant will not be burdened with establishing a connection himself and all the associated data protection and cyber security risks.

On the other hand, an EMI is a financial institution licensed to not only act as a PSP, but also to issue and hold electronic money. Although an EMI is not considered as a bank, it may receive money and issue it into an e-money exchange. 

The Growth of PSPs and EMIs in Malta

In Malta there has been a substantial growth of PSPs and EMIs that service both the local industries as well as passport their services to other EU Member States. The thriving iGaming and e-commerce industries have certainly helped propel the uptake in such Fintech licence holders. PSPs and EMIs have become a critically important cornerstone in the i-Gaming sector due to the fact that gaming companies require service providers that offer fast, efficient solutions for payments and withdrawals. 

Blockchain Technology for Payment Services 

Blockchain technology has made its way into the financial sector and is a major thrust towards a cashless society. In concept, blockchain technology is quite different from traditional banking or payments. 

One of the key differences is the fact that in a traditional payment system there is a central authority, such as a bank, through which the payment must pass, and that ultimately approves the transaction. On the other hand, payment systems on blockchain platforms are self-regulating through smart contracts and do not have a central authority. This offers a more transparent and platform that gives control over the transaction back to the customers. Blockchain-based payment systems enable a much more efficient and quicker payment process – a transfer from one user’s wallet to another takes mere seconds compared to 2 to 3 days for a transfer on the international banking SWIFT system.

Our Financial Services Practice

Through sound legislation and robust regulation, Malta has become the jurisdiction of choice for the licensing of financial institutions including payment service providers and electronic money institutions. Chetcuti Cauchi Advocates' financial services regulatory team has assisted various financial institutions with advice, licensing, and ongoing compliance, governance and regulatory support.

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Key Contacts

Mr Steve Muscat Azzopardi

Senior Manager, Corporate & Fintech

+356 22056438

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