Digital Banking Cryptocurrency and AI in Banking

Digitalising the Banking Industry

Mr. Steve Muscat Azzopardi | Published on 13 Sep 2019

Digital Banking Cryptocurrency and AI in Banking

Whilst many physical banks provide some of their services through technological means, there are other companies have structured their banking business entirely this way, by offering payment and bank services exclusively online or through mobile apps. The rise of cryptocurrencies has also impacted the banking sector, be they as a source of funding or as a means of payment, whilst Artificial Intelligence is also influencing the banking sector, as it is being applied to the implementation of data that would otherwise not be possible.   

The Impact of Technology on Banking – Digital Banking 

For banks to remain competitive, they are investing in technology as well as digitalising almost every part of their business, and in doing so revolutionising the way businesses provide their services and the way they operate. This link between technological innovation and financial services is commonly referred to as “Fintech”, a concept that has gained momentum with the emergence of Blockchain technology (or Distributed Ledger Technology (DLT)) and cryptocurrency.  

One result of this technological development is that customers will have more control over their data. It is expected that around 2/3rds of all bank accounts will be controlled specifically by the consumer, and it will be left to the consumer’s discretion as to which third parties have access to their data. Furthermore, the European Union’s General Data Protection Regulation (GDPR) will impose more restrictions on companies in order to acquire the consumer’s consent before using their data.  

As cryptocurrencies herald a new order of banking, with extremely fast transaction times and low costs, the traditional banking world seeks to fight its corner. One successful technological development is a Faster Payment System (FPS), which enables a quicker electronic transfer or payment either by phone or online. Moreover, the US Clearing House is already operating a system known as Real-Time Payment (RTP), which essentially allows consumers and businesses to receive and make payments in real time.  

Several leading banks seem to have realised that they cannot innovate as fast as newer competitors are establishing partnerships with Fintech companies, whilst Blockchain based solutions are also playing an increasingly important role when it comes to security measures.  

Cryptocurrency & Blockchain - Digital Banking

In the wake of the financial crisis that started in 2007, cryptocurrencies were born as the antithesis to banks: direct peer to peer connections cut out the central clearing house, that is, a bank, along with the promise to accept all customers, even the “unbanked” or those not serviced by traditional banks.  

Cryptocurrencies can be defined as digital tokens of value which are distributed on DLT. The main differences between the traditional banking system and cryptocurrency are:  
• Cryptocurrencies operate on a decentralised system, therefore, no central entity is required. Everything is held through the Blockchain platform.   
• Bank accounts will vary in accordance with the amount of interest paid and the value of the underlying currency. Moreover, the currency will change through inflation which is highly influenced by government policy. As a non-government asset, cryptocurrency is not directly impacted by monetary policy.  
• Whereas fiat money is universally spendable within an economy, cryptocurrency can only be used with a counterparty who accepts cryptocurrency.  

Ripple and Bitcoin are two of the most popular coins, and they each have various benefits which include transparency, instant settlements, security and lower transfer charges than traditional payment systems.  

Artificial Intelligence  

The term artificial intelligence (AI) refers to machines that analyse data and are able to propose a new way forward, as opposed to a traditional computer that can do what it is programmed to do. Google uses this with a very high level of accuracy in suggesting entire phrases once a user starts typing an email.   

One of the biggest impacts that artificial intelligence has had in the banking sector is the improved customer experience through various devices. Chatbots and digital personal assistants play a big role in providing clients with a personalised experience. Chatbots utilise artificial intelligence in order to simulate a human conversation or message exchange. Moreover, many banking companies are introducing mobile applications combined with features only made possible through artificial intelligence.  

Banks can provide more swift and secure transactions through artificial intelligence. AI is equipped to identify fraud in transactions, and also serves as an important tool to protect personal data.   

The legislative framework  

In Malta, the Virtual Financial Assets Act establishes the legal framework with regards to the issue or servicing of cryptocurrencies. Innovative IT solutions such as Blockchain platforms may be regulated by the Malta Digital Innovation Authority (MDIA) which is responsible for the promotion of such innovative technologies in a manner that protects consumers and investors.  

Our Financial Services Team 

The financial services team of lawyers at Chetcuti Cauchi Advocates provide advice to individuals who wish to set up a company offering innovative solutions, crypto service providers such as crypto exchanges, ICO or a Crypto Fund in Malta. Led by Dr Priscilla Mifsud Parker, our specialists can assist with this fast-evolving sector of law.  Moreover, we work closely with other departments within the firm such as corporate, tax or immigration in order to offer our clients a full-service solution tailored to their needs. 

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Key Contacts

Dr Priscilla Mifsud Parker

Senior Partner - Corporate, Tax & Immigration

+356 22056422

Mr Steve Muscat Azzopardi

Senior Manager, Corporate & Fintech

+356 22056438

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