Why our banks are friending FinTech startups
New Zealand has seemed strangely slow to adopt the financial technology revolution, unlike in China and the US. Richard MacManus talks to Kiwibank and its FinTech startup accelerator to find out why. He also looks at a promising young FinTech startup in Wellington
FinTech is an emerging trend worldwide and in some parts of the world, has big banking institutions on the run (so to speak). The Economist recently named China “the world’s leader in FinTech,” thanks to its thriving mobile commerce ecosystem and “backward banks.” There is a nascent FinTech industry in New Zealand too. But unlike in China and even the US, here the banks are not backward. Which means they’re cleverly assimilating FinTech, instead of fighting it.
The reason New Zealand has been slow to adopt FinTech is because debit and credit cards are a very efficient system here – much more so than overseas. I spoke with Kiwibank‘s Digital Advisor, Peter Fletcher-Dobson, about the relative lack of FinTech in this country. “In New Zealand, debit cards rule,” he told me, “but thanks to contactless terminals, credit card transactions are growing. Mobile payments, despite the hype around Apple Pay, are barely on the radar.”
In particular, Fletcher-Dobson thinks that EFTPOS technology has been nearly perfected here in New Zealand. “Thanks to EFTPOS, we top the world in electronic payments,” he said. “You can use your debit card to buy chewing gum at a dairy. Try doing that in a London corner shop!”
Meanwhile, in China, cash was king for a long time. Which meant ATM machines were much more popular than debit or credit cards. “Chinese consumers would often have to go to multiple ATMs because the machines ran out of cash,” said Fletcher-Dobson. Then mobile payments arrived on the scene, but not via China’s banks. Alibaba and Tencent created a massive online payments market through their messaging platforms, which has led to China’s thriving FinTech ecosystem of today. Fletcher-Dobson thinks this cash-to-mobile transition gave China a late mover advantage in FinTech, compared to other countries.
As I noted in last week’s column, China’s mobile payment apps combine ease of use with tremendous social utility. The majority of online transactions in China, and many offline ones too, are now done via mobile phone. Only 12 percent of online transactions are processed by credit card. But it’s not just mobile payments transforming FinTech in China. Online lending and investing have both been made much simpler by e-commerce companies, and again by routing around the banks. The Economist points out that “shoppers on Alibaba and JD.com, China’s two biggest e-commerce portals, can conveniently borrow small amounts.”
Basically what’s happening is that Chinese FinTech companies, like the online payments behemoth Alipay, are aggressively taking over traditional banking functions. Meanwhile, here in New Zealand it’s a much more polite transformation. There’s no FinTech takeover here; instead, the local banks are essentially ‘friending’ FinTech startups before they even get off the ground.
Indeed, Kiwibank is the founding partner of the country’s first FinTech startup accelerator, alongside Callaghan Innovation and the Wellington startup hub CreativeHQ. Mastercard is also listed as an “industry partner” for the accelerator, so clearly the banks and credit card companies are closely monitoring how FinTech develops in New Zealand.
I asked Kristen Lunman, Programme Director for the Kiwibank FinTech Accelerator, whether she’s seen any FinTech startups in New Zealand that might challenge the local financial incumbents? Sadly, she said, there aren’t any of those. “Incumbents have all the money and all the customers,” she told me. However there are FinTechs “nibbling around the edges and servicing underserved segments.” She pointed to Harmoney and Fuelled in lending, Simplicity for KiwiSaver, and Vendand Flo2Cash in payments.
New Zealand’s financial incumbents are in a strong position to steer the local FinTech market. Lunman notes that they “fared well in the global financial crisis of 2007/08, so trust and satisfaction is relatively strong.” It’s the opposite in the US and the UK, where banks quickly lost the trust of consumers after the crash, while Chinese consumers have never been thrilled with the poor returns and service from their state-owned banks.
Despite the local FinTech scene being far less revolutionary than China’s, there is innovation happening on the edges. Kristen Lunman pointed to a young company in her accelerator calledSharesies, which enables millennials to build an investment portfolio with as little as $50. The company was founded due to “the lack of education and high barrier to entry” for millennial investors. Also the fact it’s very difficult for young people to get on the property ladder now in New Zealand. So Sharesies developed a mobile-first platform to try and entice those young people to invest instead, and hopefully grow their wealth that way.
“Their beta is launching soon,” Lunman told me about Sharesies, “and in the past month, they’ve had close to 2000 people sign up expressing their interest. It just shows the hunger for smart and accessible FinTech solutions in New Zealand.”
Sharesies is kind of like an investment club, except it uses the Internet to reach a much wider user base. The idea came from an actual investment club that Sharesies co-founder Leighton Roberts started at age 18, with family and friends. Each of his club’s 14 members agreed to deposit $50 a week into an account, which they would use to make group investments. Fast forward to 2017 and Sharesies is applying the same principle on a Web scale. The company wants “someone with $50 to have the same investment opportunities as someone with $50,000.”
Of course the big question is: what will Sharesies invest in with all that crowdsourced money? I reached out to Sharesies co-founder and CEO Brooke Anderson to find out how the investment process will work. In the beta period, she explained that “the customer will make the savings and investment decision, from a selection of investments we have on the platform.” But longer term, the intention is to “provide an independent financial advisory service to all Sharesies customers, based on the amount of information they want to share with us.”
It will be interesting to see how Sharesies implements its expert system. Another option would be to develop a crowdsourced decision-making investment process, similar to PledgeMe (New Zealand’s version of Kickstarter). Regardless, Sharesies demonstrates that there is FinTech startup talent here in New Zealand, although currently these young companies are working with banks – and not against them.
That said, it wouldn’t surprise me if the next TradeMe in this country comes from the FinTech sector. Just as TradeMe was the eBay of New Zealand, perhaps a young Kiwi startup will become our Alipay.