James Brown feels good about how FinTech is currently positioned in New Zealand.
"We're definitely seeing higher growth than in other jurisdictions," says the general manager of the New Zealand Financial Innovation and Technology Association (FinTechNZ for short).
"We're already at 14.5 per cent growth and I think we'll continue to see the foot firmly on the pedal."
He concedes a PwC report last year noted financial institutions overseas invest around 15 per cent of annual turnover in FinTech, whereas it's a mere 6 per cent in NZ. But Brown is confident that "next time we see a report like that, we'll see much more investment, leading to more product, more solutions and, hopefully, more companies scaling up and going overseas".
Hopefully the next report will also put a number on how many FinTech companies there are in NZ — Brown admits even the body whose purpose is to "connect, promote and advance" the local sector can't yet get a fix.
Still, 85 per cent of PwC's respondents in last year's sector snapshot reported they were partnered with FinTech startups. "The more the ecosystem builds out, the more we're seeing collaboration," Brown enthuses.
"Previously we've seen people trying to do it in silos but now there's recognition of the mutual benefits of partnering up, with the startup community looking to engage with the large incumbents and vice versa."
Westpac is a good example of that dynamic in action.
"We're very excited about the opportunity to partner with FinTechs," says Rhiannon White, the bank's chief digital officer.
"There's a lot of opportunity in that space to develop more products and services for our customers — FinTechs are coming up with great things around app-driven experiences and AI-driven experiences, and there's potentially a lot that can be done with blockchain.
So we're working with a number of FinTechs as well as working quite closely with FinTechNZ, which we sponsor."
Westpac's CashNav app, launched in September 2016, is an example of the fruits of collaboration.
Developed with US-based FinTech Moven, CashNav allows customers to get a great deal of information around their spending in real time "so they can manage their money more effectively, meet their savings goals and so on", White says.
"It was a partnership that enabled us to get something in our customers' hands in a quick responsive way that we may not have been able to achieve on our own."
She says the advantage of working with large incumbents for small FinTech startups is that "although they have new, nimble technology, they need to work with partners who understand the regulatory environment and have the resources to provide the security required — and they want insight about and access to the customers. So partnership works for them just as much as for us."
Another illustration of the strong symbiotic relationships between new and established local players is an Application Programming Interface (API) pilot programme facilitated by Payments NZ — the governance organisation that presides over payment systems, which combined transact over $6 trillion annually.
Simply put, APIs are a set of clearly defined methods of communication between software components, and the purpose of the pilot — which involves banks ASB, BNZ and Westpac working with third-party FinTechs TradeMe, Datacom and Paymark — is to come up with a standardised API framework for the entire industry.
"That'll make it so much easier for both sides to partner with each other — and faster too, with a broader range of players across the market," says Payments NZ chief executive Steve Wiggins. This is just one aspect of the Payments Direction programme.
As well as enabling innovation, standardised APIs will also make for smoother connectivity, which should drive better service and finance outcomes for customers.
For example, Wiggins says, it could enable a purchase on TradeMe to be transacted directly, without the buyer having to log on to their banking platform.
Those involved in the sector are quick to point to better products and services for customers as the driving purpose of FinTech.
Michael Daymond-King, head of innovation at investment firm Forsyth Barr, says the rise of smartphones was the spur for financial institutions — particularly banks — to deploy technology to enhance their customers' experience rather than to improve their own internal processes and reduce costs.
"Suddenly in 2007 you could do a lot of really good stuff with the device in your hand, including banking; then the Global Financial Crisis hit and banks, overseas especially, lost the trust of their customers," Daymond King says.
"A lot of bankers and smart people who understand technology got sacked, which internationally led to a blossoming of startups saying, 'Here's an area where the financial business performs poorly and we think we can do a better job, thanks to the convergence of technology'.
"So now the disrupters are pushing the incumbents to take FinTech on board or get out of the way."
Getting regulation right
Daymond-King says FinTech development in NZ has been a little constrained — although "we do build a lot of unbelievably cool stuff in this country that tends to fly under the radar".
That's partly because incumbents weren't assailed to the same extent as their offshore counterparts by aggressive new entrants taking advantage of the plummeting public confidence in financial institutions.
And in part it's been the result of very prescriptive legislation.
"Why did Robo-advice not start earlier here?" Daymond-King asks. "Because it was specified that advice had to be given by a person.
"New legislation tends to cover the ground that's required but doesn't spell out how you have to do it, which is good — it's a lot more technology agnostic."
One of the reasons for that, says FinTechNZ's James Brown, is that we live in a small, well-connected country.
"It's much harder in the UK, for example, to get access to CEOs of large organisations and ministers and regulators — here it's really just a matter of picking up the phone. "We've seen that in the Financial Markets Authority exemption for online advice in the past few months — we put them in a room with some of the disrupters, the innovators, in that space to allow them to have a robust discussion and then, lo and behold, the FMA announces the exemption."
Commerce and Consumer Affairs minister Kris Faafoi is pledging to help, not hinder. "We are working closely with Payments NZ and the work they're doing to ensure that not only is there a good experience in the future for consumers but that there are also flourishing FinTech companies around NZ," he says.
"It's important we nurture that so they can take their ideas beyond NZ's shores and be an export winner for us as well. So we've got work to do to make sure we create that opportunity and that playing field for them."
Asked what NZ's FinTech sector will look like in a decade, Westpac's Rhiannon White declines to guess, pointing out that "apps were only launched 10 years ago, so who knows what will happen in the next 10?"
Whatever shape things take, she's sure they'll be "customer-led."
Daymond-King reckons future FinTech impacts will range from those that are imperceptible, because the related changes to consumer services are gradual, to abrupt adjustments in banking and financial services businesses that trigger discussions around job changes.
"In 15-20 years time I think banks will just be the rails someone else drives the train on," he says.
Brown, however, prefers to believe that, thanks to NZ's "very good international reputation, we could — in theory, at least — continue to build out our financial sector, make it more transparent, and become the trusted place where people want to come and transact business and even deposit their money.
"Which could make it easier for banks to have access to new capital they didn't have before, which would then reduce the cost of borrowing and have a bit of a knock-on effect. There's more to this opportunity than just FinTech and financial products."
Playing loose with data leads to loss of trust
"Too right!" says Payments NZ's Steve Wiggins when asked whether news of data breaches like the recent Cambridge Analytica scandal make consumers more suspicious — and so less likely to embrace FinTech innovations.
"There's that great saying that 'trust arrives on foot and gallops off on a horse' — something they're really being reminded of in the UK now, where 75-80 per cent of customers are just saying, 'No, this is too scary'."
Fortunately, Wiggins notes, the majority of Kiwis still trust their banks to hold their information, and it's paramount that consumer confidence is maintained. "So we have to be fairly uncompromising in some of the standards we set — because it ain't any good if no one's using it, which is the problem they have in the UK."
Westpac's Rhiannon White concurs: "Collection, storing and sharing of data will inform a lot of opportunities that come through and we think this needs to be done with a lot of caution," she says.
"We take a very stringent approach to partnership, and third parties we collaborate with have to adhere to very strict standards around data and privacy."
To allay fears caused by bad news from other jurisdictions, FinTechNZ's James Brown believes educating the public — "Who's got my data, how are they using it and what does it actually mean for me as an individual?" — is increasingly important.
He anticipates consumers will ultimately get more control over how, when and where their data is shared, something that may well actually engender "a slightly more relaxed attitude" in some circumstances.
"We might want to share more data related to our health, like combining information from our doctor with our Fitbit," he says — as long as it's crystal clear how and what is shared, along with the benefits of doing so.
What is 'FinTech'?
While cynics might assume "FinTech" is yet another business buzzword coined to create excitement around what is otherwise a boring-as business function, they'd be wrong, says Forsyth Barr's Michael Daymond-King.
"It's actually a very useful word to describe software development and start-ups working in the financial services space, one that differentiates it from other parts of the tech sector and has spawned other useful phrases like "InsureTech" in insurance and "RegTech" in regulation," he says. FinTech covers everything from mobile-first payments to digital banks and as-yet undreamed of technology-driven finance innovations.
Coming soon to a screen near you
In addition to the Payments Direction initiative's Application Programming Interface (API) pilot (see main story), the programme presided over by Payments NZ includes five other strands:
● 365-day availability, "which will allow banks to settle every day of the year, rather than the current five days a week," Payments NZ's Steve Wiggins says;
● Proxy identifiers, which involve things like using your cellphone number for your bank account;
● Improving the speed of the existing system ("Currently most banks are settling on an hourly basis Monday-Friday — some take a bit longer — so how can we improve that to deliver a real-time customer experience?");
● Request to pay — "A pretty neat functionality," according to Wiggins, "where I can send a message to your phone reminding you about the $10 you owe me and you can just hit a 'pay now' button so the money is transferred from your account to mine"; and
● Messaging standard ISO20O22, which will allow a whole lot of other information to be sent along with the payment itself — what Wiggins and co refer to as "informative transactions".