When industry leads innovation, not the regulator: that and more from New Zealand
This year’s Future of Financial Services, New Zealand event in Auckland highlighted some interesting differences in New Zealand’s approach to financial services innovation. Sandstone Technology Chief Customer Officer Jennifer Harris and Chief Product Officer Michelle Yu report back with some key observations.
The over-arching theme of this year’s conference was “Repositioning New Zealand as a Hub of Innovation”. In keynotes, workshops and conversations with our customers and industry cohort, we explored some familiar issues, all of them hot topics in New Zealand, but also hugely relevant globally in 2024.
They included strategies for enhancing productivity, reducing cost to serve and achieving good return on investments. There were discussions on the financial impact of fraud; on the imperative for cloud delivery in digital banking solutions; on maintaining a customer focus in banking operations through digital transformation programs. And, as we saw confirmed over and again in Auckland – it’s a given in 2024 that banks must have a mobile app to compete; and the functionality within that app can be a great differentiator.
Another global focus: AI
Gen AI in cloud native services was another conversation starter, with its potential to help with operational risk and compliance. On the ever-present Artificial Intelligence (AI) subject generally, we see the larger FIs building out their LLMs; meanwhile the smaller FIs are still watching their larger competitors to see how they’re using AI successfully.
On balance, it seems that where you have AI not just giving information or doing customer support, but making decisions for the business or for customers that involves some complexity, there will continue to be human oversight. There will be checks in place for the foreseeable future, because the AI is only as good as the data it’s fed, and it’s still very possible for hallucinations to occur. The more integrity we get around that data, the less risky it will be.
Interestingly, while many of conference themes and practices were global, New Zealand has some approaches that differ from other regions. And there are lessons to be learned from that.
NZ industry leading the charge, not the regulator
While open banking in New Zealand is following a similar path to the UK, it is quite unique in that it’s being led by the financial services industry, rather than the government. They’re developing the framework collaboratively, because they understand it won’t come to fruition otherwise. Their initial use case is payments, and they’re seeing it as a major data-sharing opportunity. They don’t have a real-time payment system between their FIs, so they’ve determined that’s the banking technology innovation that will reap the most value now for the organisations and their customers.
In fact, many standards in the New Zealand financial services are industry led – including scam policies for instance, where they’re also focused on good customer outcomes.
The benefit of having the industry lead these initiatives is everyone gets a voice at the table – from the biggest to the smallest providers. As a result, you get a lot more buy-in and the end product is much more customer or member focused.
You can move at the speed you need to, you can lay a pathway and guidelines and set your own agenda. The general feedback is that it’s working in Zealand; it’s progressing at a good rate, even if they haven’t yet gone live in market.
Compare that to Australia and the UK, where new rules come down from the government, and apply to everyone, from the top-tier financial institutions (FIs) down to the very small, member-led organisations. Regulators don’t necessarily understand the true impact of new rules, especially on the lower-tier FIs; and they may also not fully comprehend the impact of the timeframes they lay down, which are often punishable by fines. How the UK handles financial fraud is a perfect example of that “stick”-driven approach prevalent in Australia as well.
Which could be why open banking in Australia and the UK hasn’t had the uptake everybody expected: there just hasn’t been the same buy-in.
Where NZ is really making strides: ESG
Another trend that’s getting traction is FIs using ESG as a way to position themselves against their competitors. New Zealand FIs are a great example, viewing their social responsibility, their sense of community and environmental stance as real differentiators. Talking to one of our customers at the conference, we learned that his employer, a bank, had stopped any non-essential flying for staff to save on their carbon footprint. In Australia, some FIs are creating their point of difference through green loans.
So instead of seeing ESG as something you must do, these forward-thinking organisations are now fully embedding it in their corporate culture, and in the way they do business. And the smaller FIs have the advantage there, because they’re able to move at speed, with fewer internal hurdles to overcome.
Automation yet to take hold in NZ
One of the most fraught topics on the banking agenda for years now has been core transformation programs, and the risks of delaying programs, while sitting on legacy technology. In New Zealand, the impacts are clear. There are still a lot of manual processes compared to Australia and the UK, both in retail and commercial banking. There’s a massive opportunity for the New Zealand market to take advantage of digital banking and lending origination technology to help drive growth.
The hesitation often comes down to the challenge of innovation, with the perennial question: what does my bank’s digital transformation look like? Banks are concerned about how it will impact all areas of their operations, from security and customer experience to product development and more. How will they service the needs of customers today, while looking at what that means for the future? New Zealand FIs can’t afford to implement new technology that will be outdated in two years, and neither can any FI, anywhere.
Partnering for real gains
What was evident at the conference, and what we’re seeing in our day-to-day dealings with FIs from New Zealand, Australia and the UK, is that partnering is being recognised as the logical answer to some big questions. Including, how do we get return on investment and return to value as quickly as possible?
There’s a growing acceptance that no bank can be everything to everyone, that they don’t need to build all their origination solutions in-house, especially if they don’t have that capability and capacity internally. Being able to build out functionalities, and supporting and maintaining them for the future is often better handled by new technology companies where that expertise actually sits. The question now is: what we do want to do in-house and what are we better off externalising?
When you consider that the average tenure of an employee is probably three to five years, that attrition can lose you momentum. If you’re developing a serious innovation strategy, and committed to getting value back on that strategy, it can take 10 years. Partnering can help keep that momentum going.
