Outside my legal day job, I’m currently the Co-Chair of Fintech NZ.
As the industry body for fintech in New Zealand, we’re constantly thinking about how to shift the dial for the sector in this country.
As part of our recent strategy discussions, we’ve talked about a “north star” for our organisation and our sector to aim for: that New Zealand is a Globally Renowned Fintech Nation.
This is an important goal – because fintech is not just buzzword.
It’s a sector that is key to unlocking financial wellbeing and prosperity for New Zealanders, whether through:
• democratising access to investment and wealth management;
• opening up competition in the banking, lending and payments sectors;
• increasing economic growth and employment by providing some of the country’s most successful tech businesses; or
• helping to break down barriers preventing our people from accessing the financial system.
Fintech is fundamental to the health of our economy.
If you’ve spent any time in the fintech scene in this country you will have heard, probably more than once, about how we seemed to peak in the 80s when we led the world with Eftpos, and have been slowly going backwards on fintech innovation since then.
While this is overly simplistic, like most cliches there’s an element of truth – and it cuts deep.
So how do we move beyond this mindset that we’re going backwards on fintech, that we’re still just an agricultural economy otherwise underpinned by people selling houses to each other?
How do we shift the dial to become a Globally Renowned Fintech Nation?
There is of course no magic bullet.
But I would argue that a decent chunk of the solution lies in our policy and regulatory settings.
Great fintech regulation
Fintech, more than probably any other technology vertical, lives and dies by regulation.
When you’re dealing with other people’s money, it’s a stone cold certainty that – no matter where you are in the world – governments will be interested in how you’re doing it.
But because regulation of fintech affects every country differently, it’s also an opportunity – an enabler and a differentiator – if you get it right.
Great fintech regulation can do 4 key things:
1. Drive development and access to modern financial infrastructure.
2. Light a path for safe innovation in financial services.
3. Attract quality investment in the sector.
4. Facilitate global connectedness – allowing the best solutions to thrive across borders.
And we can look to the current crop of globally renowned fintech nations to see that regulation done right is a catalyst for fintech growth.
Driving modern financial infrastructure
The development of world class digital financial infrastructure has been critical to the success of every leading fintech nation.
In the UK, the Faster Payments Network – one of the world’s first 24/7 real time payment systems – has been the catalyst for some of the most successful neo banks and payment technology providers.
Built through industry collaboration but underpinned by a clear and robust regulatory framework, Faster Payments now processes 5 billion transactions, worth around £4 trillion, every year.
When it launched in 2007, Faster Payments was estimated to have an annual net benefit of around £100 million to the UK economy.
However, this is now viewed as very conservative, given the wave of neo banks, payment platforms, fintechs and traditional financial service providers who, along with their customers, have benefitted from the speed and efficiency of real time payments.
Equivalent systems like Pix in Brazil and Unified Payments Interface (UPI) in India have had a massive impact on the economies of those nations – particularly in helping their large unbanked populations access the financial system.
India has gone one better, combining their UPI real time payments platform with a world leading digital identity system called Aadhaar –allowing instant, remote, and paperless customer verification through biometrics.
This is now affectionately known as the “India Stack”. Real time payments plus real time digital ID equals a huge impact on growth.
UPI has gone from processing 0.8 billion transactions when it launched in 2018 to 14.4 billion in 2024 – and research suggests that even a 1% increase in UPI transaction volume is enough to positively impact GDP.
In the UK, India and Brazil, the contribution of government – both through enabling legislation and active and supportive regulators – has been critical to the speed and efficacy of this infrastructure development.
Closer to home, the Aussies are doing well on this front too.
They’ve combined the “New Payments Platform” for real time payments, with PayID – which facilitates easy instant payments by linking with mobile numbers, email addresses or business numbers, and PayTo – a service for consumers and businesses to manage recurring payment consents in a fast, digital and data rich manner.
Our friends at Fintech Australia have estimated that fintech solutions relying on this modern financial infrastructure have delivered $9 billion in net benefit to the Australian economy.
And the initial driver for this was the Reserve Bank of Australia’s Strategic Review of Innovation in the Payments System back in 2010.
This is another example of forward-thinking policy work delivering big results.
Lighting the path for innovation
Great fintech regulation also lights a path for safe innovation in financial services.
There’s a widely held belief that simply reducing regulation – or the government “just getting out of the way” of business – will drive economic growth.
But in fintech, often the opposite is true.
A lack of clear or targeted regulation can cause uncertainty for innovators and entrench the positions of traditional incumbent players, whose products and services are designed to fit within existing regulatory frameworks, no matter how complex or outdated.
Great fintech regulation enables innovation, by providing targeted and proportionate guardrails.
It looks to the future, and lights a path for those who want to innovate safely.
E-money licensing
A prime example of this is the e-money licensing regime in Europe and the UK, which has made a significant contribution to the recent wave of fintech innovation – think Monzo, Revolut, Wise and many others.
E-money licences allow fintechs to offer a range of core financial services (like digital payments, prepaid accounts, digital wallets, and cross-border remittances) without the need for a full banking licence and the sometimes-prohibitive capital and regulatory requirements that entails.
On the flip side, being licensed by a reputable regulator signals to consumers, partners, and investors that a fintech is operating with high compliance and security standards.
This boosts trust in innovative solutions which might otherwise be seen as risky.
Some of these companies end up acquiring full banking licences eventually, but the e-money licence is usually critical in establishing the business model and getting traction with customers and investors.
Sandboxes
A natural corollary of fintech-enabling regulation is a regulator who also drinks the Kool-aid.
Support from regulators can come in many forms, but perhaps the most visible over the last few years has been the rise of the fintech sandbox.
The UK’s Financial Conduct Authority is the sandbox godfather.
The FCA’s sandbox was launched in 2014 as part of a wider strategy called Project Innovate, driven by the then Government’s ambition to make the UK “the global capital of fintech”.
Since then, the FCA has supported around 1000 fintech firms through the sandbox and other adjacent programmes.
Those firms on average are 50% more likely to raise capital, raise 15% more when they do, and are 18% less likely to fail.
Importantly, regulatory sandboxes are mutually reinforcing. Not only do fintech firms get a platform to safely test their solutions and understand their regulatory boundaries, but the regulator gains:
• early insights into emerging technologies and risks;
• real-world testing data to develop more effective, adaptive, and forward-looking regulations; and
• the ability to foster ongoing dialogue with industry.
This is lighting the path in its most practical form.
Regulatory uncertainty is a plague on innovation and investment – and regulators who actively seek to reduce this through sandboxes and other innovation programmes are a cornerstone of most successful fintech ecosystems.
Crypto regulation
And in the crypto and digital asset space – we’ve seen recently how the US government’s abrupt move from an ambiguous policy of regulation by enforcement, to a more certain set of legislative guardrails, has already had a major impact on the confidence, and therefore the market cap, of that sector, which is up around 40% in the last year since those changes began.
Attracting investment
A purposeful, co-ordinated approach to fintech policy and regulation can also have significant economic benefits.
If you’re in any doubt about this – take a look at Singapore.
A small country like us, Singapore has doubled down on its central geographic location and historical strength in financial services to become a globally powerful fintech hub.
In 2022, at the height of the last fintech boom, investment into Singapore’s fintech sector peaked at over US$4 billion.
For comparative purposes, 2022 was also a record year for investment in the New Zealand fintech sector – which totalled around NZ$185 million.
In addition to its natural advantages, Singapore has actively and strategically pursued fintech-enabling policy and regulation.
Its Monetary Authority is widely regarded as the world’s most forward-thinking financial services regulator.
And the “Fintech and Innovation” section of its website feels like a welcome mat laid out for fintech investment. It highlights a wide array of initiatives like:
• the $340m Financial Sector Technology and Innovation Grant Scheme to support cutting edge fintech projects;
• exploratory digital asset projects covering “programmable purpose-bound money” and central bank digital currencies;
• a tailored licensing regime for digital banking, with licences recently awarded to 4 fully digital banks; and
• an extensive menu of other projects and services covering e-payments, a regulatory sandbox, digital identity and green fintech.
Singapore’s experience shows that when your regulator and regulatory environment for fintech are globally renowned, capital will follow in a big way.
Thriving across borders
Regulation of financial services is generally a local phenomenon. But advances in digital technology mean that today’s tech companies can aspire to be global from day one.
This is the big challenge at the heart of fintech.
How do we break down the barriers imposed by fragmented financial services regulation, so that fintech companies can thrive globally in the same way as the best tech solutions in other verticals.
Regulation and policy have a key role to play here too.
And with the rise of open banking, we’ve already had a glimpse into what co-ordinated international fintech policy can look like.
Although it was initially conceived by the UK’s competition regulator to shake up competition in the retail banking sector, open banking is now a global phenomenon – with around 70 countries currently implementing open banking regulation.
Open banking is a great example of enabling regulation – a policy intervention designed to encourage fintech innovation by freeing up financial data.
And because open banking technology can be standardised, and open banking regulation is now globally pervasive, it represents a unique opportunity to test the power of regulation to help fintech thrive across borders.
What do Globally Renowned Fintech Nations do, that we can do too?
So now we come to New Zealand.
We’ve seen how great policy and regulatory settings can play a key role in creating globally renowned fintech nations.
And we don’t need to re-invent the wheel in Aotearoa.
The real question is – what do are they doing, that we can do too?
What we’re doing already
The first thing to say is that we’re not starting from scratch here:
• We’ve now passed the Customer and Product Data Act – which creates a clear and comprehensive legislative foundation for open banking in New Zealand – providing for data and payment-focused use cases.
• The Reserve Bank has recently opened up access to the Exchange Settlement Account System to non-banks – meaning fintech providers could get direct access to this core settlement infrastructure for the first time.
• The FMA has recently launched its version of a regulatory sandbox – with 6 fintechs being chosen to participate in the pilot programme from an impressive 24 applicants.
• We’re currently reviewing our AML regime with the aim of simplifying compliance for businesses. This is an area that has stifled fintech innovation in the past through a complex patchwork of regulations and lack of clear regulatory guidance – so any relief will be a welcome development.
• And our financial regulators are both comparatively accessible and well joined-up – with the Council for Financial Regulators group providing a useful forum to advance ideas around enabling innovation.
What we need to do
But there’s much more we can – and should – be doing:
Real time payments
The Reserve Bank wrote to Payments NZ in 2023 seeking faster progress on delivering real time payments capability for New Zealand. It’s not clear how much closer to that goal we are now, 2 years later. What is clear is that to make this a reality – like in other areas of our payments system – we need buy-in and leadership from both the public and private sectors.
We are falling way behind in an area that’s critical to the success of our fintech sector and initiatives like open banking.
How far behind? We are the only OECD country – out of 38 – that has not yet even committed to a real time payments system. Put simply – we need regulation to drive this, and fast.
Digital identity
We’ve also made glacial progress towards a national digital identity system, which we have seen from overseas is crucial to unlocking the benefits of modern fintech innovation.
This is surely an area where we can use our size to our advantage and move more quickly to digitise. Just look at Estonia for what’s possible when a small country really leans into this.
World-leading open banking
In open banking – we have a clear, simple framework now provided by the Customer and Product Data Act, but the detailed regime will be set out in regulations and standards which are yet to be released. We need to make sure we design a comprehensive, straightforward and globally interoperable regime that builds on the lessons from those who came before us and makes us a globally recognised open banking leader.
Crypto and digital asset clarity
I sat in a room at a financial services conference in February when the previous Commerce and Consumer Affairs Minister exclaimed that New Zealand should become a global hub for crypto and digital assets.
Are we going to leave these sorts of bold ideas to die on conference room floors, or are our policy makers brave enough to get behind a bold vision for the future of fintech in this country, and deliver the regulatory substance this requires?
Helpfully, my colleagues from the legal community Jeremy Muir and Alex Sims have already delivered up on a plate to a Parliamentary Select Committee – more than 2 years ago – a set of pragmatic recommendations to supercharge our crypto and digital asset sector in New Zealand – let’s use them!
Tailored licensing (and quick wins)
We lack a tailored licensing regime for fintech providers in this country. We need to address the sea of grey that many fintechs currently operate in, and design regulations to light the path for them.
For example, our own version of the e-money or digital bank licence – which addresses capital requirements, safeguarding of client funds, application of deposit guarantees and other matters of consumer protection, in a targeted and proportionate way.
This would go some way to levelling the financial services playing field, allowing innovators to access core infrastructure directly, and giving confidence to fintech consumers and investors.
Given legislative solutions take time, let’s also look for quick wins within the existing regime – whether it be clearer guidance on digital assets like stablecoins, or using the FMA sandbox to explore areas for exemptions or limited licences.
Our other advantages
So there’s lots to do.
But taking a step back, we also have a few other built-in advantages to leverage in New Zealand.
Another cliché you hear a lot in the New Zealand tech scene is that we’re a great test bed market.
We now want to aim even higher – our mayor wants Auckland to be the Silicon Valley of the South Pacific.
Now not everyone agrees with the test bed thesis, but I think it stands up in fintech.
Being “Global From Day One” is extremely difficult in a sector where every export market has a different, complex regulatory framework to deal with.
So, a test bed market of:
• 5 million tech savvy consumers;
• a single-layered legal system without the complexity of multiple state, federal or regional laws;
• a relatively modern legislative regime for financial products;
• easily accessible regulators;
• high ease of doing business rankings; and
• an international reputation for stability in tumultuous geopolitical times,
starts to look pretty good.
If we added a clear, comprehensive and enabling regulatory framework for fintech into that mix – it’s a powerful combination.
We should also be leveraging our international relationships to establish closer ties with the world’s best regulators and policymakers in this space, share knowledge and explore the potential for cross-border collaboration.
How ambitious are we?
So the question is – how ambitious are we?
Even as it currently stands – fintech is an almost $3 billion sector with a 24% compound annual growth rate – 3 times higher on average than the rest of New Zealand’s tech industry.
It has produced some of our most successful tech businesses and many others who are currently changing the landscape of financial services in this country.
I would argue that with an injection of smart policy-making and regulatory settings, this impact can be supercharged.
It would really only take a small increase in ambition, leadership and drive to make this a reality.
If India – with a population of 1.5 billion, a massive geographical spread and a reputation for complex bureaucracy – can in a few short years build an integrated payments and digital identity system covering 99% of its population – we have no excuse.
At a recent Beehive function hosted by Rocketlab, Sir Peter Beck suggested in his speech that we should be aiming for 10% of the 3.2 trillion dollar global space market.
When this led to some muted laughter from the crowd, Beck pounced – “no one would laugh if I had said that in the States”.
It was a powerful, if slightly withering message. We’re a great country in many ways, but we need more ambition.
And if we’re ambitious enough to recognise our potential in one sector by appointing a Minister for Space, surely we can harness a bit of that ambition for a sector that is already one of our fastest growing – and can have a direct impact on the financial wellbeing of our population.
We can see the opportunity in front of us – by looking at the success of the current crop of globally renowned fintech nations.
And a world-leading policy and regulatory framework can light our path to joining them.
So let’s do it.
