Published on the 28/03/2024 | Written by Heather Wright

Banks, government and regulators in firing line…

New Zealand might have a robust fintech scene, but consumers are ‘absolutely’ missing out as fintech’s fight an uphill battle to build partnerships with the big banks and a lack of government support.

Holly Rennie, a director in Deloitte’s consulting team and author of the Deloitte 2024 New Zealand Fintech Pulsecheck, says New Zealand is significantly trailing other countries when it comes to open banking, but we’re also well behind when it comes to some technologies including digital wallets, digital payments and digital identity.

“We believe regulators have a role to play in fast-tracking that.”

“While we have got an active fintech community [FintechNZ has more than 200 registered members] trying to drive that change, what has been lacking is that real emphasis and support from the government for some of that change.”

Speaking to iStart on the eve of this week’s report, Rennie says the report calls that lack of government support out.

“We believe regulators have a role to play in fast-tracking that.

“We have had an industry approach to open banking and that has been fairly slow. I think everyone will attest to that, and I think everyone is frustrated. And ultimately what that means is a lack of innovative experiences and propositions for the end-consumer.”

It’s not just the government in the firing line, with the report also noting that more needs to be done by both fintechs and banks when it comes to building partnerships.

“Banks need to be more open, give more guidance, and have a more structured approach to partnering with fintechs,” Rennie says.

“A lot of the fintechs have challenges with really elongated procurement processes that they are probably not necessarily prepared for, so helping the fintechs as well in terms of understanding the processes they will need to go through, so they can prepare themselves and streamline that activity and therefore not burn some of their capital runway they have.”

It is, she says, a key area that needs to be addressed.

Last week the underinvestment in technology by major banks was called out by New Zealand’s Commerce Commission.

John Small, Commerce Commission chair, says the Draft Report form the Market Study reveals that an apparent focus by the four major banks on maintaining profit margins has resulted in that ongoing underinvestment in their core technology platforms and low levels of innovation – along with sustained high levels of profitability.

Small has called for ‘ongoing disruption’ to be ‘baked in’ to the sector to address the lack of obvious and aggressive competition for the major banks that means Kiwi consumers are missing out.

The four biggest banks in New Zealand, which make up 90 percent of the market, are all Australian owned.

While Rennie won’t go as far as to be scathing about the banks – Deloitte does afterall work closely with ‘a lot’ of banks, she says there is real opportunity for them to do more and be a lot more innovative.

“New Zealand is at this critical juncture point at the moment where the banks need to bolster their innovation capability, be more responsive to changing customer demands, but also more responsive and open to the fintech sector more broadly.

“Fintech can really help New Zealand’s economic growth diversify from our traditional economy where we have been reliant on sectors like agriculture and tourism. It can help create new job sectors, investment opportunities,” she says.

Last year’s Technology Investment Network (TIN) report found fintech was experiencing robust growth, driving $2.8 billion in export revenue out of $13.2 billion in offshore earnings recorded by the country’s top 200 technology export companies.

There’s also the potential she says for fintech to assist in inclusion, helping better cater to the underserved and more rural communities. She cites the example of fintechs currently working on solutions to break the traditional approach to credit modellings to provide faster acceptance – or declining – of credit applications and better cater to communities such as SMBs for whom the existing credit models often don’t cater to the way their books and financials might be done.

But despite the challenges, Rennie says there are changes afoot.
Regulatory catalysts, including the impending Open Banking and Consumer Data Right bill, the CoFI Act amending the Financial Markets Conduct Act 2013 to ensure financial institutions treat consumers fairly, and the Market Study into Personal Banking will play a big role in reshaping the New Zealand financial landscape and will help bolster trust and transparency.

She still wants to see more regulation and government support, saying it should almost act as ‘balance facilitation’ with regulators carefully calibrating their involvement to ensure they are facilitating, rather than hindering progress.

“We need really clear guidelines without excessive burdens that will stifle innovation or operational effectiveness. There have been some concerns with CoFI raised as an example.

She says more collaboration between banks and fintechs is also beginning to happen.

“BNZ as an example are doing quite a lot with fintechs. But it can’t just be fintech’s knocking on the door of banks. Banks need to recognise the opportunity that fintechs can bring to them and the collective efforts they can offer to consumers and the end output there.”

Rounding off her list of three key things that could help take New Zealand’s fintech scene to the next level is a sandbox environment.

“It’s related to both the regulation and government support but also the banks.

“Where we are seeing a sandbox environment excel in other countries is that it has really fast tracked some of that innovation and the ability to test new things and build that trust and get things out to market quicker.”

And that she says, is exactly what New Zealand need to do to be able to catch up to other leading countries in the fintech space.