Access to banking proving to be one of fintech’s biggest roadblocks

Fintech firm Superior Pay has had three major banks close its accounts since it set up shop in New Zealand in 2015 – and it isn’t alone in its banking woes.

First ANZ Bank closed its account, then the company opened an account with ASB which got closed, now Westpac is shuttering its account – all citing the anti-money laundering compliance risk of the financial technology category.

Superior Pay, which enables Chinese travellers and residents to use their Alipay accounts with New Zealand retailers, insists it is doing everything by the book.

It isn’t alone in feeling New Zealand’s major banks are treating it unfairly and using anti-money laundering requirements as a reason to drop it.

The concern was raised in the Commerce Commission’s personal banking market study.

Commerce Commission chair John Small said fintech companies were one of the groups that struggled to access bank accounts, including refugees, prisoners and people fleeing domestic violence.

Small said the commission had a half-day session with 50 fintech outfits during its personal banking market study.

“Fintechs find it difficult to obtain and maintain a bank account because their business model is regarded as inherently risky under the anti-money laundering provisions,” Small said.

“That’s a real concern. We need to we need to figure out what’s going on there.”

The Commerce Commission’s draft market study into personal banking said fintech companies that did manage to get “banked” faced an ongoing risk of “de-banking”, where the bank opts to close its account, often with detrimental effect.

There are two types of banking services needed for such companies: a typical business banking transaction account; and agency banking services, which involve the provision of banking services to a user.

The study said only a limited number of banks in New Zealand can meet the banking needs of fintechs, particularly for agency banking services.

“This can increase the dependency that a fintech has on their bank and limit their ability to negotiate terms. If a bank declines or de-banks a fintech, that fintech may not have another viable option it can approach.”

Compliance with requirements under the Anti-Money Laundering and Countering Financing of Terrorism Act was most commonly given as the reason for companies’ accounts being shut.

Under the act, fintech companies need to develop a risk-based anti-money laundering platform, monitor transactions, conduct customer due diligence, and more.

When a bank onboards a fintech it accepts the compliance risk of the fintech not meeting those requirements.

It said there was a perception that banks have both the incentive and the opportunity to restrict fintechs’ ability to compete with them, through limiting access to business bank accounts, and some suggestion that this may occur from time to time.

“The internal bank processes and guidance we reviewed are appropriately competitively neutral and do not lend support to the perception, although the reasons behind a bank’s decision to decline a fintech’s (or other customer’s) application for services are not always made clear,” it said.

De-banked three times

Superior Pay’s New Zealand operations director David Li said after being de-banked three times it was very hard to find any room to grow.

He said he would understand the closures if the banks of the Department of Internal Affairs had alleged any wrongdoing, but they hadn’t and it was meeting all of its anti-money laundering and countering financing of terrorism obligations.

Li feels the risk-reward ratio is off for banks. “They don’t make good money from us. That is obviously the most important part, right?”

He said because there was more money to be made with mortgages there was no imperative to supervise or take the time to properly understand its business and believed legislation could be put in place to support banking for fintechs or alternatively mandate bank accounts for fintechs meeting their obligations.

Six months

Janine Granger, the chief executive of cryptocurrency exchange Easy Crypto, said it took the company about six months to get a bank account. “We approached every bank in NZ – multiple times each.

“We were fortunate to eventually find someone within one of the banks who was willing to sit down with us and actually understand our approach to compliance, and not just lead with ‘no’ as the easy answer.”

She said it was a problem holding back fintech providers. “It is hard to get banking for crypto businesses in New Zealand and that stifles innovation.

“It’s not purely based on an accurate understanding of risk profile because there are a lot of ways in which it is actually more transparent and better at combating anti-money laundering and countering financing of terrorism risks in traditional finance.”

Shane Marsh, the co-founder and chief executive of the money app Dosh, denied Easy Crypto a loan when he was working at ANZ managing fintechs and other financial institutions.

Marsh participated in the Commerce Commission’s personal banking study and said difficulty opening a bank account was one of the top three problems holding back fintech in New Zealand.

The other two are de-banking and the Reserve Bank’s capital requirements, which he says are the highest in the world.

Despite his history in banking, having worked for ANZ in New Zealand and Singapore for more than a decade, he said it took a long time to tie down bank accounts for Dosh.

“There’s not a lot in it for the banks. They’re bringing on these new businesses, and they’re trying to manage their risk. That can be quite a high effort to start with because you’re a new entrant and they’re not going to make a lot of money off them. So the risk-reward returns are not really there.”

He said remittance was considered to be particularly high risk because of a string of fines issued to New Zealand banks for anti-money laundering breaches for moving money across borders by remittance providers using their accounts.

Bank’s perspective

BNZ’s head of paytech and emerging payments Joe Rastrick said it was proud to offer banking services to a wide range of fintechs, which he said was reflected by its strong presence at the recent industry body FinTechNZ Hui.

Its head of growth sector technology Tim Wixon serves on the executive council of FinTechNZ.

“BNZ has dedicated resources, including two subsector leads within our wider tech growth sector, focused on fintech and paytech,” Rastrick said.

“These teams work hard to address the unique challenges faced by fintechs and to provide the necessary support during their foundational stages, including around things such as anti-money laundering obligations.”

He said when it was unable to provide services to a fintech, it promptly communicated its decision and provided a clear rationale. “Our experience working with fintechs has shown that they value a swift and transparent response, even if it is not the outcome they were hoping for.”

No account at all

Though some took a while to find their feet and get an account, others haven’t been so lucky.

Binance is one of the most recognisable brands in cryptocurrency and became a registered Financial Services Provider in New Zealand in 2022.

Despite getting that accreditation, New Zealand general manager Ben Rose (also the chair of BlockchainNZ) said the company hadn’t been able to open a bank account here.

Rose said Binance worked through the list of registered banks, meeting with them all, and was declined by each one for customer banking services and operational accounts for payroll and other overheads.

“We got given a number of different reasons, but none of them would look at it.

“Some of them cited AML risk of crypto as a category, so we presented our fully audited AML, processes and procedures, but that still wasn’t enough, so there’s just a lack of comfort I think with the category.”

He said banks were private businesses responsible for making their own decisions about who they wish to bank and not bank with. “But when all of them come to the same conclusion that poses a real challenge for web3 and blockchain businesses in New Zealand.”

Rose said there were a whole raft of concerns ranging from a lack of understanding of the category to competitive concern around disruption of centralised banking.

“There’s a whole range, but the reality is businesses that want to set up in the blockchain space in New Zealand either have to use the bank services of an intermediary who they have to pay for, which passes on cost and friction to their users, bank offshore or choose another market entirely.”

Currently Binance New Zealand uses an external payroll provider, an international credit card gateway, “Ultimately, our customers, New Zealand finance users, are not able to buy and sell crypto via bank transfer, which their counterparts in many, many other countries can do.”

Rose said if New Zealand truly wanted to nurture innovation in fintech it needed to address peripheral issues such as banking. “They do hold us back and they hold back investment from local companies and international companies.”

Banks’ concerns about crypto platforms are a little understandable – for example googling Binance before speaking to Rose yesterday brought up breaking news of it being blocked in the Philippines and its Africa regional manager escaping from custody in Nigeria.

Rose said traditional banks had paid billions of dollars in fines for mistakes they’d made, and that Binance was fully registered to operate in New Zealand, working with the Department of Internal Affairs and the New Zealand Police on suspicious transaction reporting just like any other financial services provider.

“There is no reason why businesses in our position shouldn’t be able to access a bank account and ultimately all of those Kiwis who use digital assets through us and others, surely if that money is going offshore that introduces more risk into the equation not less.”