Wednesday 6th December 2017
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New Zealand's burgeoning fintech sector is coming of age with the likes of the Reserve Bank thinking more deeply about the impact changing technology will have on the broader financial system.
The central bank identified the new wave of fintech as having "the potential to significantly change the structure of the financial sector" in its six-monthly financial stability report last week, singling out blockchain, crypto-currencies, application programming interfaces (APIs), big data and artificial intelligence, and digital platforms for peer-to-peer services among the most important.
Head of financial stability Bernard Hodgetts said in an interview last week that the central bank is thinking deeply about various scenarios arising from the new technology, and has identified open banking - which decentralises banking through third-party APIs - and crypto-currencies as areas where it can beef up its research.
"We've put quite a bit of thought into what sort of scenarios might lead to the core banking system suddenly facing more competition than it previously did," Hodgetts told BusinessDesk. "The core level of profitability of the system could potentially be competed away if you had some form of new entrant into the market that could take business away from the banking sector and I think the banks would be very mindful of that risk."
The Reserve Bank's decision to highlight fintech in the report follows earlier efforts by the likes of the Ministry of Business, Innovation and Employment and the Financial Markets Authority to support innovation in financial services, and the bank wants to work with other authorities to make sure it doesn't stifle digital innovation.
Hodgetts said the existing banking sector has been at the forefront of adopting fintech, capturing and instigating innovations within their businesses. An example of that has been Kiwibank's sponsorship of the FinTech Accelerator run in tandem with Wellington's Creative HQ. That programme has just closed applications for its second iteration and attracted 65 teams. Of those, 13 percent were from ventures using blockchain technology with about half focused on crypto-currencies. One of the alumni from its first intake - Sharesies - has attracted veteran director Alison Gerry to chair its board.
Sharesies offers an online platform that lets people make regular, small investments in a range of funds, with a view to attracting potential investors in younger underserved demographics. The start-up is considering developing personalised automated financial advice, known as robo-advice, once FMA exemptions are in place.
Gerry, whose current boardroom roles include Infratil, Spark New Zealand and Vero Insurance, got to know the Sharesies team when she was a director at Kiwibank.
She said the platform offers "access to a suite of investment products embedded in a fantastic customer experience" targeting younger people as a means to help them access financial markets without having to go to a broker at a time when low interest rates limit returns from bank deposits.
Gerry sees her role at Sharesies as "helping them be successful" and "making sure that the governance frameworks at Sharesies are right-sized and fit for a fast moving, lean, growth company".
Sharesies launched in June and has more than 9,400 customers who have invested $6.8 million through the platform into a selection of managed and exchange-traded funds. It generates revenue through a distribution rebate on those funds.
The platform has already attracted the attention of NZX, which named Sharesies as a "channel innovator" in supporting the stock market operator's efforts to expand its ETF suite of products, according to a November investor day presentation.
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