After a rollercoaster year of epic proportions, New Zealanders are looking forward to getting off the ride and having some solid ground under their feet. The great thing is many organisations are also looking at how to make the destination better when we get there.
Not just rolling the carriages back to the beginning and hoping the experience is less hair-raising this time around, but seizing the opportunity to rebuild the whole track so we go somewhere completely new.
With financial services organisations, rebuilding is tough. A lot of the technologies and structures our financial institutions use have been fixed for so long – up to four decades – that changing direction can often require significant investment and a real leap of faith.
But while the signs are very positive that a Covid-19 vaccine will arrive in New Zealand soon, the financial issues New Zealanders face will continue unless we're willing as a sector to get on board.
Rapidly increasing house prices and social housing shortages have only been exacerbated by Covid, leading to greater social inequities and further tilting New Zealanders' investment focus towards property rather than the productive sectors.
Meanwhile, the impact of the pandemic on lynchpin sectors like tourism and retail demonstrates a need to diversify our economy and provide new ways for all businesses to grow.
These are challenges without a single or easy solution. However, while we're focused on rebuilding our economy, they're also opportunities for the financial services sector to innovate at a deeper level, beyond mere tinkering around the edges.
Let's make the world of 2021 (and beyond) better by setting a goal to address these challenges:
1. Make government spending go further
The pandemic has spurred on historic levels of government spending, including much-needed infrastructure investment and business loans. But when a non-government organisation is involved as a partner, the credit risk for lenders typically goes up. Few developers or businesses can match an AAA-rated Crown entity, which means interest will be higher and terms much less favourable for joint projects.
To help government spending go further, there's a huge opportunity for financial services businesses to innovate with new products and ways of addressing this issue. The reward for achieving this is building more and better homes, transport networks and hospitals, or even more subsidised medicines.
2. Reduce inequities created by rising house prices
The increasing difficulty of buying a first home has significant multi-generational implications – sending us back to a time of landed and non-landed classes. The conversation now is centred on stopping house prices rising, but that also has real implications for property owners and it's very difficult to get right. Well-intended LVR restrictions turn out to exacerbate inequities by making it harder for prospective new home-owners to get on the property ladder.
Why not take a new approach? Young Kiwis need an asset class that tracks the housing market that they're trying to get into. For clever financial services providers, there's a real opening for a "property ladder product" that allows Kiwis to pin their savings to house prices, so that the goalposts don't keep getting shifted out of their reach.
3. Improve the quality and quantity of social housing
This could be partly solved by addressing the first issue, of ensuring mixed funding streams from public and private partnerships don't attract higher rates of interest than they need to. But there's also an opportunity to help developers and home builders (especially SMEs) access finance better, increasing their ability to work on more projects like social and affordable housing and growing our economy.
4. Help New Zealanders see higher returns at lower risk
The value of term deposits has largely disappeared thanks to record low interest rates. This will continue to have a particularly severe impact on older New Zealanders, who often have no other way of supplementing their income that doesn't carry too high a risk.
Shares are not a great alternative, there's always the risk of losses, at a time of life when older New Zealanders have limited ability to replace them. This is our chance to fill the market gap in low-risk income-producing financial products as more of us live longer in retirement than ever before.
We have so much capacity for innovation in this country. Let's take the 2021 Financial Innovation Challenge and demonstrate that finance can truly be a force for good.
- Dave Corbett is chief executive of PowerFinance.