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Fintech transforming New Zealand financial landscape

Disruptive technologies have been revolutionising traditional financial services for some time now, providing opportunities for digital innovators and e-commerce entrepreneurs.  Online offerings allow wider coverage and access to underbanked demographics and ensure remote transactions in general.

Beyond a doubt, the COVID-19 crisis has accelerated the role of fintech in the banking landscape. The coronavirus has also significantly affected the New Zealand financial sector and the economy accordingly to New Zealand fintech experts. While the impact has started to be felt, it is not known in what way and for how long these effects will last. There are a plethora of ways the virus could change the fintech landscape across industries.

Some sectors are fairly obvious – like insurance. The pandemic has generated a keener awareness of the need for insurance, increasing demand for health and life coverage, business interruption and cancellations of sport, music, conference and events.

But the main transition is the way the financial sector is going to be affected by fintech and online offerings. Companies with digital products are already doing well during this time and online banking is likely to be the new normal. Traditional banks transform as well as be prepared to support their customers that may not be familiar with digital products and procedures – and, in some cases, not even have the right devices, like smartphones.

Disruptive technology has given rise to new avenues of funding and access to resources that traditional banks did not offer and may not have encouraged. New Zealand’s peer-to-peer lending (P2P) and equity crowdfunding sectors experienced steady growth in the last year, according to data from the Financial Markets Authority (FMA).

In its fourth statistical report on the sectors for the latest fiscal year, there are now more than 34,000 registered investors on P2P platforms. While the number of investors with open investments increased slightly to 12,800, the total amount of outstanding loans on the lending platforms books was A$ 624 million, up 8% over the year from 2019-20. These numbers have increased substantially since 2017 when there were 8,000 open investments and approximately $360 million in outstanding loans.

Meanwhile, equity crowdfunding providers raised $16.5 million from retail investors in the year to June 2020, a 20% increase from 2019. Licensed crowdfunding platforms introduced 25 successful offers, compared to 19 in the previous year. About 5,300 investors used licensed service in 2020. The total money raised by crowdfunding platforms was $34 million, including from retail and other wholesale investors.

With such trends and growth, the question is should the Financial Markets Authority think about removing regulations to help drive and scale fintechs? One of the main intentions of the Financial Markets Conduct Act is to promote innovation and flexibility in New Zealand’s capital markets. Peer-to-peer lending services provide an alternative form of borrowing and fixed-income investment, while equity crowdfunding services provide an alternative pathway for companies to raise capital in a cost-effective manner.

According to FintechNZ, fintech investment in New Zealand quadrupled to NZ$ 4.3 billion , making the sector the second biggest in the region for growth. Instead of its physical remoteness acting as a deterrent, it has created conducive conditions for the nation to serve as a tech incubator. Combined with the government’s investment in infrastructure, incubators and its investment funds, fintech has been able to flourish. With one of the earliest fintechs that started in growing to a bn NZ$ 8.15 billion company, many other fintechs are looking to take the reins in New Zealand.

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