We’ve all heard about AI and its potential to revolutionise our daily lives. A related but not so well known phenomenon is that of Fintech. Fintech is the use of software and other related technology to support banking and financial services. Used in conjunction with AI it has the capability to drastically change the way we manage our finances and investments. It provides new ways for people to digitally access, manage, and gain insights into their finances and new opportunities for investment. Fintech empowers people – to feel in control of their money, to save time and to save money.

A fintech company is one that offers services or applications that rely heavily on technology. Fintech companies are ‘disrupting’ the banking sector by providing solutions which potentially bypass banks or which increase the level of competition for banking services. Because they rely on technology rather than bricks and mortar, their cost structure is low.

The Reserve Bank of New Zealand is moving towards ‘open banking’ arrangements. What is open banking? In essence, it is a system where bank customers have greater control over their banking data, allowing it to be aggregated across multiple banks and shared with third parties. For example, at present, if you bank with more than one bank, you must log in to each bank separately to see your account details. With open banking and the assistance of a third party provider, you will be able to see all your bank account details on one platform. But it is much more than just that. A revolution in banking is underway and fintech companies are making the most of the opportunities that arise from this change.

In other countries there are already many fintech companies providing customer solutions using open banking. For example, there are systems that allow you to analyse your banking data, do budgets and tap into your bank account directly without a card when you make a purchase. Consumers have a better idea of their overall financial health, including spending patterns, saving habits and investment portfolios. With open banking, consumers are in full control over what happens to their data.

To further encourage innovation and competition in the fintech space, the Reserve Bank has recently created what it calls a ‘Fintech sandbox.’ There are six fintech firms who will be trialling new products, services and business models in the FMA’s regulatory sandbox. They are:

• ECDD Holdings Limited, which intends to launch a yield bearing NZD-backed stablecoin and to generate revenue from interest earned on money held on trust in interest-bearing accounts.
• Emerge Group Limited, a digital banking alternative offering products like debit cards, current accounts, and in-app expense tracking. Customer funds are currently held in trust with a partner bank but Emerge aims to transition to higher yielding options such as government bonds.  
• Homeshare, which offers investors the opportunity to own a fractional share of real estate, with each property divided into 1,000 equal shares. These shares are tokenised and can be bought and sold via an online platform. 
• IndigiShare, which aims to improve access to capital for Māori entrepreneurs and small businesses. It seeks to offer Te Whare Manaaki (a koha loan platform), as a way to lower barriers to entry for indigenous businesses and enable community entrepreneurship.   
• IIF (Invest in Farming), an Australian-based cooperative that connects investors to farming by digitising ownership of livestock, aquaculture, horticulture, and agriculture. It allows investors to own a share of agricultural assets, where investment returns are unlocked on the sale of the stock or crop.
• Tandym Limited, a group investment platform enabling people to form groups and build wealth together in a social and engaging way – while removing administrative burden. 

During the pilot, these firms will test their new products and services in a controlled environment, giving them an opportunity to make adjustments before a full commercial release. From the FMA’s perspective, the sandbox will provide insights into the benefits and risks of new technological solutions with a view to what regulatory implications there may be. So welcome to the world of fintech – this is just the start!