Technology is enabling new and different investment opportunities, giving Kiwis the chance to diversify beyond their obsession with rental property and more recently Kiwi Saver investing.

With this change and the pace of it leads to questions and concern for not only investors but for regulators.

In a world that can be guilty of loving the 'new-new thing', how do you distinguish substance from hype and how do you ensure investors and lenders are adequately protected?

How do regulators strike the balance between allowing innovation and protecting investors and consumers from potentially risky products or unexpected outcomes?


What is fairly certain is that the investment landscape will look vastly different when our children grow up than it does today.

For evidence of how rapidly new advancements in technology can cause change in markets, look no further than the world's preeminent stock exchange, the Dow Jones. Five out of the 10 largest companies on the index are IT-based (Apple, Google, Microsoft, Facebook and Amazon), selling products and services that didn't even exist a few years ago.

America is not the only birthplace of modern tech titans.

China is getting in on the act, with New York Stock Exchange-listed e-commerce business Alibaba and Hong Kong-listed internet service portal Tencent both emerging from the world's most populous country and spreading through the globe via their expat communities.

Who knows which of today's start-ups will become tomorrow's corporate giants?

It could be any of the companies tapping into the so-called sharing economy, including not only innovations such as parking app Parkable and peer-to-peer marketplace Harmoney but local success story Trade Me. But perhaps the bigger story is about the business and investment opportunities being opened up by this fresh approach to commerce.

New technology can give businesses access to a broader range of funding sources, while providing investors with more options for boosting returns and diversifying their portfolios.

It can also displace traditional gatekeepers such as banks and other financial institutions who don't move with the technology and market changes, potentially reducing transaction costs to the benefit of both investors and the businesses they put their money into.


Peer-to-peer lending, of which Harmoney is one of many emerging marketplaces worldwide, involves matching lenders directly with borrowers, a big change from the usual approach of depositing your money with a bank and having them lend it out to someone else at a margin. As the finance company debacle highlighted, depositors need to be sure of who their money is being lent to.

More than 97 per cent of New Zealand businesses employ fewer than 20 people, yet they say they find significant funding challenges for these companies.

Technology is changing not only how we lend and borrow, but how we think about money.

Any New Zealand SME owner will tell you that convincing the traditional lending institutions to lend to small businesses is not easy and personal guarantees are pretty normal in addition to securing against the family house. Unfortunately, finding investors outside of the banks has proved to be even more difficult for these heroes of our economy.

Once it has matured as a market, peer-to-peer lending could give SMEs another funding option, allowing them to go directly to individual lenders.

For investors, lending to SMEs gives them exposure to different segments of the market and enables them to have a more diverse fixed-interest portfolio with higher yields than what they can get from lending to a bank.

Technology is changing not only how we lend and borrow, but how we think about money.

We now have 'virtual currencies' such as Bitcoin that people can use to trade goods and services without ever using traditional money. Then there is the We Pay and Ali Pay payment systems inside Tencent and Alibaba, which are closed end payment systems enabling transfer and payment for services, even buying assets like houses without touching a bank through the transaction.

One of the trends resulting from advances in technology is the democratisation of information. Data and analysis that used to be available only to economists and fund managers is now only a Google search away.

New technology is also democratising investment, allowing more choice and easier access to markets that used to be only accessible via stock brokers and investment managers.

Regulators know as little about new products as investors do, so perhaps the emphasis should be less on the products and more on investor education.

Information technology is only one of the types of technology changing the way we live and providing new investment opportunities. Medical technology, clean energy, transport and food science are some of the sectors that are hungry for capital and could potentially offer great returns. Who knows, the world's biggest company in 30 years' time could be a driverless car maker!

These changes in the investment landscape are exciting but will stretch the capabilities of regulators, who are often a step behind tech innovators and emerging industries.

Deciding on capital ratios for banks or disclosure requirements for financial advisers can be difficult enough, but they are straightforward compared to some of the issues raised by modern technology.

How should peer-to-peer lending be regulated? Should Bitcoin be treated as a currency and transactions taxed as such? And should the focus of regulation be on investors, products or the providers themselves?

While new investment classes create new risks, over-regulation has risks of its own. Clamping down too hard could kill off new industries and investments and damage the wider New Zealand economy by reducing innovation and consumer choice and making it more difficult for Kiwi firms to access capital.

Regulators know as little about new products as investors do, so perhaps the emphasis should be less on the products and more on investor education.

In an increasingly complex world, the old adage 'buyer beware' is more important than ever.

Let's hope that the opportunities for borrowers and investors in New Zealand are not restricted and common sense prevails, just like the taxi industry with Uber - you can't stand in the way of advancement, you need to embrace it.