Banks are responding to the challenge with their own
innovative products and services.
But what is missing is a clear strategy from the
Government to promote New Zealand as a financial technology
(FinTech) centre. Globally, this is a highly competitive
area and, unless New Zealand moves now, we may find ourselves
vulnerable to innovation from offshore.
Consumers now expect the same seamless digital services from
banks as they receive from other industries. The banking industry
is responding but is also being 'digitally disrupted' as
banks and technology firms race to meet this expectation.
The key disruptions identified by the Reserve Bank in the
banking sector are in:
payment services – where electronic
wallets (PayPal, Apple Pay, Google Wallet, PushPay or Semble) or
digital currencies (Bitcoin) are separating banks from their
customer's payment data and may erode their traditional
customer relationships, and reduce their ability to cross-sell and
cater products to customer needs, and
lending and financing – where
crowd-funding and peer-to-peer lending providers (such as Harmoney
in New Zealand and RateSetter in Australia) take the more valuable
direct customer relationship with borrowers and lenders and cut
into the banks' intermediary profits via their own interest or
The Reserve Bank notes that there is potential for these
disruptors to move into developing technologies that could replace
traditional bank back-end settlement systems. However, this has yet
to occur and would likely be subject to prudential regulation.
Impact on banking
The primary impacts on banks from digital disruption are in
front-end payment services, the banks' ability to see customer
data, and the loss of profitability in retail payments or through
charges on lending.
In the short to medium term, the Reserve Bank says that
disruptors have little interest in providing banking services which
are captured by prudential regulation, which constrains their
flexibility and capacity for innovation and development.
In the long term, the Reserve Bank thinks that banks' role
in the financial system may be challenged. Disruptors may become
systemically important if they supply a large portion of front-end
In the meantime, the Reserve Bank intends to 'wait and
see' whether the products offered by payment or lending
disruptors should be subject to prudential regulation.
The banks' response
The banks are pursuing a range of strategies to counter the
mobile – by increasing their Mobile
Banking capabilities to allow for mobile banking apps and access to
banking services online
branches vs help centres – by
remodelling physical branches to allow for a more customer focused
environment as well as improving social media presence and
'virtual helpdesk' assistance
partnerships – by partnering with third
party providers to allow retention of customer data or the
introduction of new technology, and
upgrading core banking systems – so that
online customer interfaces allow for seamless digital banking, and
to ensure they actively respond to digital disruptors.
The Reserve Bank thinks these developments may pose operational
risks for the payments system and for lending and borrowing
decision making; but they also have the potential to improve the
overall efficiency and soundness of the financial system.
Chapman Tripp comment
In our view, there is a need for the Government to work with the
sector to establish a strategy to make New Zealand a global
financial technology centre.
Other countries are being highly proactive in producing
integrated policy and regulatory strategies to promote their
financial technology sectors. In March 2016 alone:
the Australian Government released
Backing Australian FinTech, which establishes a whole of
government strategy and priorities to develop Australia's
the United Kingdom Treasury released
UK FinTech: On the cutting edge, a report prepared by EY to
compare the United Kingdom's leading FinTech environment
against other FinTech hubs globally, and
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