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The rise of digital banks
Kia ora,
Aotearoa New Zealand’s financial landscape is undergoing a change with the rise of digital banks, also known as challenger or neobanks. Over recent months, three local fintechs; Dosh, Emerge and Debut have announced plans to expand their offerings, moving towards offering digital only services (spend, save, and borrow). Essentially they are challenging many aspects of traditional banking.
The founders agree the time is right to broaden their presence here. Globally, fintechs have faced significant hurdles, including tough competition from traditional banks, high customer acquisition and retention costs, complex regulatory and capital requirements. Examples from the United Kingdom (UK), including Revolut, Starling Bank and Wise show finding the balance in user experiences, scalability and regulatory navigation can lead to success. Without a doubt the UK’s Open Banking framework has also contributed to the thriving fintech sector where export revenue is the main beneficiary. Just this week Revolut celebrated nine years and over 45 million customers. It now operates as a licenced bank in over 30 countries.
Closer to home, Australia has celebrated five years of Open Banking legislation. Despite the challenges, UpBank and Juno (crypto focus) have achieved commercial success while many other contenders have been unable to achieve scale to succeed.
Locally, the rise of digital banks also presents opportunities. Digital natives, who are accustomed to seamless, customer-centric digital experiences, are likely to respond positively to these new offerings. The customer acquisition numbers show good evidence of demand. Features including immediate payments, lower transaction costs and ease of use all make digital banks attractive. In our view, New Zealand’s banking sector will benefit from increased competition, driving better value and services for customers.
However, one of the major hurdles for Digital Banks is obtaining a banking licence. Currently, digital banks rely on legacy banking infrastructure to offer digital wallets and personal loans. Achieving official bank status will enable them to hold customer funds directly and enhance their competitiveness. To obtain a licence involves lodging NZ$30 million with the Reserve Bank of New Zealand (RBNZ), which is a significant barrier compared to many other countries. Raising sufficient capital also remains an ongoing challenge for any Fintech (especially at the moment), but this hurdle is a barrier not only too high but stands in the way of balancing stimulated market over prudential caution.
To help address these challenges we have launched several initiatives. These include a new FinTechNZ Hub in Auckland, proceeding with advocacy meetings with Government ministers and officials and the forthcoming FinTechNZ Growth Capital Summit.
Meanwhile, the Commerce Commission has issued a draft determination on Payments New Zealand’s application to further develop its open banking framework. Read more. Also, we were interested to read Future proofing with Digital Cash by RBNZ’s Ian Woolford, consultation on Digital cash in New Zealand closes on 26 July. The Commission has also published a consultation paper on the Retail Payment System.
In event news, discover Fintechs of the Future on 8 August in Wellington. Learn more.
In member news, a special welcome to Constantinople, FundTap, SmartSense, Taggun, Velex, Vester, Volley and 3Plus Consulting.
Ngā mihi nui
Jason Roberts
Executive Director
Read full news here: The rise of digital banks
