Entry barriers for digital bank start-ups too high in New Zealand, fintech service says

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The Australian-owned banks which hold a 90 percent share of New Zealand’s total bank deposits.
Photo: RNZ

A fintech service says the government needs to take action on the Commerce Commission’s draft report on personal banking to make it easier for new digital banks to compete.

The digital wallet app start-up Dosh said the Reserve Bank’s capital regulations were out of step with its counterparts as “the world’s highest barrier to entry”, and needed to be lowered for new entrants from current levels.

To manage financial stability, banking regulators around the world required banks to place capital with them to commence banking operations, with Britain requiring capital of 1 million pounds, A$15m in Australia and S$15m in Singapore.

“By comparison, the RBNZ requires a whopping $30m and is considering raising this to $40m as part of the Deposit Takers Act,” Dosh co-founder and chief executive Shane Marsh said, adding there should be a lower capital requirement for most new banks, in the order of $5m to $10m.

“What it means is that there has really been no start-up banks in New Zealand in the last 25 years. The exception to that really is Kiwibank, and they got their funding from the government,” he said.

“So in other countries, you see, start-up banks, often digital banks, coming in and offering new innovative solutions in the market, providing new competition and new value for customers and we just haven’t seen that in New Zealand in the last 25 years.”

Marsh said New Zealand was also far behind the leaders, when it came to open banking, which increased competition by giving consumers the ability to share their financial information.

“In order for competition to come into the market, we both need open banking to progress and also the environment that enables competitors to come into the market.

“So that’s reducing the capital required, it’s about putting the support around new entrants and maybe making some of the funding that they need available.

“What we’re going to need is the government take action on the Commerce Commission recommendations that were put into the market last week in their draft form,” he said.

“They will need to be firm actions and outcomes in the next one, two years, in order for these firms to come in and start to compete, then absolutely within five years’ time, we could see a much different market, greater choice, new services for consumers.”