In the 21st century, it simply is not possible to enjoy your political freedom or to operate in a free market economy if you don’t have a bank account. This applies to individuals but also businesses.

I was shocked and surprised last week when the chairman of BOV  stated that: “While I am willing to stand alongside any prime minister or minister that wants to make it easier [to bank], not everyone can get a bank account in Malta, nor should they.” He justified this quasi-dogmatic statement by saying: “It would be wrong to change a bank’s risk appetite unnecessarily”.

If local commercial banks do not guarantee basic banking services such as the holding of a current/savings account, making or receiving payments including online payments, withdrawing cash from an ATM and paying third parties, this would be tantamount to second-class citizenship. It would also choke out entrepreneurship and start-ups which is key to economic growth and economic renewal.

In today’s day and age, no business can operate without a bank account and basic banking services. Moreover, with cash and cheques being intentionally phased out, my point becomes more obvious and fundamental.

Should local commercial banks obstinately persist to preclude people or start-up businesses and novice entrepreneurs from having access to basic banking services, it would be an invitation for the government of the day to consider direct intervention in the market:

▪ To legislate in favour of basic banking rights in favour of individuals and/or business entities;

▪ To empower the Central Bank of Malta to provide universal bank accounts to all citizens; and

▪To accelerate digital currencies and e-payments which would lead to industry disruption in the banking industry.

Looking at the issue from a macroeconomic level, if the EU or individual EU governments want to digitalise currencies and enable digital payments within the eurozone, there must be an effort to ensure and guarantee financial inclusion. The only way one can guarantee financial inclusion is by ensuring that all citizens have access to a bank account but also basic banking services.

In my opinion, the local banks currently enjoy a quasi-monopolistic position and they dominate the market like no other industry does. One example to make my point: try to read a bank’s sanction letter and notice how one-sided the terms and conditions are or, even better, try to negotiate a sanction letter and take note of the cool ‘no’ the bank will give you. Banks are now tempted with the notion of refusing customers basic banking services.

Digital currencies are the future

If this is allowed to continue, I fear the creation of a second-class citizenship and the brakes on e-money and universal e-payments. The government will and must intervene, if this situation persists or worsens, and I think this would lead to a type of legislative reform in the banking industry which would readjust the balance of power and local banks could be the losers.

My understanding is that digital currencies and electronic payments are the future, which will mean the elimination of paper money. China is leading the way with its Central Bank Digital Currency (CBDC). During the 2022 Winter Olympics, the Chinese experimented with e-yuan and it was deemed a success. Sweden, Singapore and South Korea are experimenting with CBDCs. The US is currently designing a CBDC prototype.

From what I can understand, in a CBDC world, the digital code for each virtual currency unit is held in a digital wallet and transferred seamlessly by the wallet holder to other people’s digital wallets. Users scan barcodes on their phones to make in-store payments or send money to other mobile wallets. The Central Bank uses blockchain consisting of time-stained record blocks with encrypted transaction activity. The role of the traditional bank, therefore, changes and the Central Bank becomes more and more important. 

My point is that the traditional model of banking, which is some two centuries old, is about to change drastically in the next two to three years. I suggest the local banks tread carefully since technological innovation, coupled with left-of-centre inspired legislation, could render their business models outdated. 

Last weekend, a centre-left party was elected to government for a five-year term and I wouldn’t be surprised to see new legislation which seeks to protect consumers and businesses alike. I also predict a futuristic world of money and payments which downsizes the importance of banks and empowers the individual. 

We are about to witness the democratisation of money and payments led by technological innovation and inspired by a left-of-centre government not scared to legislate in favour of the individual. Tread carefully I say. The future is near, dear banks.