As the fintech industry develops, so too do the conversations about its capability and its regulation.
Binu Paul, Managing Director of SavvyKiwi, a Fintech startup, talks to the GRC Professional about the development of fintech in New Zealand and his hopes for the industry in the future. Interview
What has been the public response to fintech in New Zealand? Fintech, as a niche business sector in NZ, is still nascent relative to the US and UK. Having said that, some of the more notable successes have been around for a few years now and are currently making big inroads into overseas markets. These include the likes of Xero (accounting software) and Vend (point-of-sale tech). As for more recent fintech start-ups, they are either in the growth or validation phases. For example, Harmoney, a peer-to-peer lender, has seen much success in terms of adoption by consumers. Since winning a license to operate in 2014, the business has now totalled over NZ$400 million in facilitated loans, an impressive outcome relative to its peers given the market size it operates in.
Other fintech businesses involved in insurance, regulation, wealth management, and so on, are still in their early stages. The NZ public has always been early adopters of technology. For example, innovation in payment solutions have been very advanced for decades now, relative to most other jurisdictions.
Are fintechs often associated with start-ups, or are the incumbents also making their own mark? Typically, fintechs are associated with start-ups; however, a number of the incumbents have been running internal projects around innovation over the past few years. In the past year or two, they have been rolling these out as part of their client feature set.
It has been argued in Australia that the problem with incumbents and innovation is that they have to go through so many checks and red tape it takes them a long time to roll out a new product, while for fintech firms, particularly for start-ups, it is easier to be agile. Would you say this is the case in NZ? Interestingly enough, the same reasons are highlighted by incumbents in the US, UK, Europe, NZ etc. But I'm not convinced it is red-tape and checks alone that hold incumbents back—it is likely just an easy excuse. My view is that their organisational design is not amenable to agile decision-making, which is critical in today's technology-enabled economy. The fact is that traditional organisational structures are becoming redundant, and those incumbents able to adapt to the new dynamics of consumer behaviour and evolving tech capabilities will stand the best chance of survival. That doesn't mean clunky regulation does not exist or is not a challenge, but perhaps not as much as it is made out to be.
Has it been a ‘fintech versus financial incumbents’ kind of situation, or has there been a lot of collaboration? Relative to its global counterparts, I believe there is a higher degree of collaboration in NZ. In some ways, you could argue this may be because our ‘start-up universe’ is relatively small, and the degrees of separation are fewer. Having said that, last year, I organised NZ's first dedicated fintech conference (Finnotec) with the aim of bringing the community together, and the response was overwhelming. Interestingly, a number of further projects got started as a result of the event, with several parties getting together on new initiatives, willing to collaborate. So, while better community engagement definitely helps the sector overall, we still have a long way to go.
What has been the regulatory response to fintech firms in NZ? The raft of regulatory reviews over the last few years have tackled various aspects of it. In fact, the Financial Markets Authority in NZ was on the front foot with creating a licensing regime for equity crowdfunding and P2P lending activities as far back as 2014, even though most of its global counterparts are only now tackling the issue.
Based on notes I have shared with my fintech founder counterparts in the US and UK, I’d like to think that the industry here finds the regulators relatively more accessible.
In that sense, NZ is quite strategically positioned in terms of its regulatory framework combined with its open innovation culture and willing consumers.
Has there been any discussion about ‘regulatory sandboxes’ for new products to be tested? There has been discussion around the concept, but currently, no initiative is under way of which I'm aware. In my view, regulatory sandboxes work best in markets whose sheer size, diversity and complexity warrants the ability for regulators to be in close touch with developments. In that sense, a smaller market size—such as what we have in NZ—helps.
While the sandbox concept may (or not) prove effective over the longer term in markets such as the UK, I'm still unsure if NZ requires one. This is just my current view on the matter. The potential is that a large volume of new start-up entrants may tip the balance enough to warrant something similar to a 'sandbox', but for now, we haven't reached this tipping point.
Is there any concern about the protection of data assets, especially since the issue of cyber-security has been gaining a lot of currency in the media? Yes, that has come onto the agenda over the last few years and is top-of-mind for most stakeholders including the regulators as well as incumbents and start-ups alike.
This also has an impact on the speed of adoption of new technology enabled tools. Ultimately, consumers vote on trust. So building up confidence from the aspect of data protection will be critical to how quickly adoption rates tick up and determine how fast the industry can grow.
What kind of regulation would you like to see in that space in New Zealand? I believe regulation should be technology agnostic.
Ultimately, if the aim is to put consumers first, it shouldn't matter how products and services are 'delivered'. The risks still lie in what is delivered. A shonky product, delivered on a robust tech platform with a great user experience, still doesn't work in favour of the consumer. What regulation should provide is a framework consistent with putting the consumer first.
Also, any regulation should be fit to be applied equally across all stakeholders (not favouring either the incumbents or start-ups). This is easier said than done, especially in those jurisdictions that have influential incumbent-lobbyists.
Finally, there would be merit in multiple regulatory authorities coordinating their individual initiatives so that business looking to comply with requirements can streamline their compliance activities.
Regulation should also stop short of dictating how a business should structure itself—as long as it fits into the framework. Given how easily ill-designed regulation can choke innovation, it’s a fine balance for regulators to maintain.
Binu Paul, Managing Director of SavvyKiwi
Binu Paul is founder of FinTech start up SavvyKiwi, a pioneering initiative and a New Zealand first, that helps users maximize their retirement savings. The SavvyKiwi app is a fully automated investment decision support system that empowers users to make unbiased financial decisions.
Binu is also a part-time consultant to the Financial Markets Authority (FMA).
Binu has spent the last 19 years in funds management and investment research, with the recent 4 years in technology development and commercialisation. Trained at the Wharton business school on corporate strategy execution, Binu has also gained MBA and Bachelor of Technology degrees. Binu organizes Finnotec, New Zealand’s only dedicated FinTech conference series, and is passionate about establishing a FinTech community in New Zealand.
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