James Brown, who cofounded the New Zealand Financial Innovation and Technology Association.
New Zealand’s financial technology sector is booming. Over the past decade, it has expanded at an annual compound growth rate of 32 per cent. That’s four times as fast as the overall tech sector.
That growth has taken the fintech sector to the point where it is roughly the same size as New Zealand’s wine industry.
The Technology Investment Network’s 2024 NZ Fintech Report estimates the sector earned $2.6 billion in revenue during 2023. The wine industry earned $2.7b.
A single company, Xero, accounts for around half of the fintech sector at 53 per cent of total revenue, but as the TIN report notes, the number of large firms continues to increase. Over a decade the number of fintech companies earning more than $5 million went from seven to 23.
Our fintech companies are significant export earners. The vast bulk of revenue, 84 per cent, is earned overseas. Our most important markets are North America, Europe and Australia. Fintech work is good work. It pays salaries that are well above average and almost 20 per cent higher than in other technology sectors. Last year the industry paid workers a total of $1.1 billion. The average fintech employee made $118,815.
And employment growth remains strong; last year fintech companies took on 570 workers. This was dwarfed by 2022 when there were 1746 new hires. More than half of all those working in the sector were recruited from overseas.
While the growth has been strong, James Brown, who co-founded the New Zealand Financial Innovation and Technology Association — FinTechNZ — in 2016, says there is potential for it to do better.
Brown says while there’s no question the sector has the capability, there is no overall strategy and successive governments have overlooked the sector’s potential especially when taking part in trade delegations.
Brown says: “It’s far easier to scale a tech business than to, say, grow more avocados or otherwise increase farm output. We fail to recognise that many of our agricultural exports are in areas that are being challenged or in decline. For instance, people in international markets are making different decisions about eating red meat or drinking our wine.
“Yet New Zealand governments still rely on these traditional sectors to get our economy back on track and are missing the opportunities created by fintech.”
Open banking has the potential to further accelerate New Zealand’s fintech sector. Open banking is a way bank customers can connect others to their banking data, paving the way for smoother, easier, yet still secure transactions.
Last month ANZ, ASB, BNZ and Westpac NZ finalised moves to make open banking work from a technical point of view. They now have an application programming interface or API, in effect software that lets computers from different organisations talk to each other and share data.
This allows fintechs and other financial companies access to customer bank data in a way that is secure and protects privacy.
BNZ head of payments development Jonathon Dale says open banking is all about sharing data. For bank customers, sharing data “unlocks new propositions, products or services.”
He says the potential for open data and Consumer Data Right goes beyond banking. “It could be around your telco or your electricity provider. Being able to control that data and share it with a range of different parties in a very secure manner that unlocks new services and makes existing runs faster because those services know much more about you.”
The key lies in “the technology of consent” and making sure there are controls and security over it.
“And that’s why we still need a robust customer or consumer data right regime implemented by the government to make sure that that security is enhanced and kept going through time.”
Dale says there’s an emphasis on safety because without safety you don’t have trust, and open banking isn’t going to be successful without trust. He says: “It takes years to build trust and seconds to diminish it. If something goes wrong, the entire project is dead in the water. There’s a strong focus on customer controls and, from the banking side, a focus on how that information is shared and who it is shared with. To enhance it even further, you need a robust consumer data right in place.”
The necessary Consumer Data Right legislation to underpin open banking is still working its way through the Parliamentary legislative process. Dale says at the time of writing it is at the select committee phase.
Data-sharing isn’t an entirely new concept. Dale says that without open banking a customer might go to their bank’s website, download a statement and share that information with another party, perhaps to get credit. “In the past it has been in what amounts to a manual form.
“Once you’ve shared that data it could theoretically go anywhere.
“Open banking makes this much easier, there’s no need to download anything, but at the same time it implements controls on the data and where it can go.”
Dale doesn’t expect to see instant results when open banking arrives. “You won’t wake up tomorrow morning and see a whole lot of change. It’s going to build over time. What you can expect is new payment methods. The way you pay online or at the point of sale for goods and services will change.
“You can expect to see new budgeting tools. At the moment if you hold accounts with different banks, it’s hard to pull the accounts together to get a clear picture of spending. With open banking, you will know what you actually spend, which helps budgeting.
“Internationally we are seeing open banking leading to a focus on payments. In Europe, we’re seeing simplified cross-border transactions.
“Here you can expect faster home loan applications, easier access to lending and speeding up processes like getting insurance. We also think it will be easier to do things like compare deposit rates and other financial products.
“It can go further than just comparing rates and into areas like providing advice on wealth or savings goals. It gives financial companies the opportunity to pitch around customer needs rather than focus on one price point.”
Open banking relies on open data and that doesn’t stop with banking and financial services. Dale says the idea can expand into other areas. You might see your banking data being used by your power company or telco data to provide new and interesting propositions.
One area of friction facing mobile phone companies like One New Zealand is that when customers walk into a phone store to order or change a plan, they must provide a considerable amount of information. At times the questioning can seem intrusive and unnecessary. It slows down the sales process and can irritate customers. Being able to directly share banking data with a phone company smooths the process considerably saving time and giving consumers greater choice and control.
PI Centre manager Phil Cass has been in charge of the Payments NZ project to establish a common open banking standard for ANZ, ASB, BNZ and Westpac NZ. He says the move will lead to new ways people can pay for things and that it will mean fewer drop-offs and potentially lower costs for merchants when they handle payments: “There’s less friction with open banking and that generally leads to lower costs.”
In time it could lead to fewer of the handwritten surcharge signs you find attached to payment terminals in cafes or dairies. Cass says: “It may not happen for a while but as more and more people work with merchants to develop different ways of paying, you’ll see changes.
“Potentially you may be able to scan a QR code and make a payment directly from a phone app. We expect a lot of innovation, but we don’t know what to expect. It’s still at an early stage and everyone is discovering what open banking will bring. The exciting thing is that there are so many options out there; there will be innovations that no one has thought of yet.
“We anticipate creative people will come up with some amazing ideas”. Cass says open banking puts the consumer in control and they will be able to manage their consent. That in turn will make it easier for people to manage their own money.
“You’ll have all the controls at your fingertips. You may, for example, get an invoice from your power company. Instead of going to your bank’s website to pay the bill through a direct debit, you’ll be able to pay instantly from the power company app. You may decide to pay it all at once, set the payment to go through in 10 days’ time, or pay half now and the other half at a later date. You’ll have a lot more flexibility.”
The other advantage is when it comes to managing money. Today, if you have accounts with more than one bank, you need to use multiple apps and websites to track the various accounts. Open banking allows you to run everything in one place which gives a much clearer picture of where you stand. Cass says the other aspect of this will be that single place, which may be an app or a website, will also be able to provide you with comparative information about financial products and services. This, in turn, will sharpen competition.
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