Finance in New Zealand – time for a spring clean?
At its heart, finance is a force for good. With access to credit, people are able to fulfil their aspirations in a way they couldn’t do on their own, whether that’s owning a home, starting a business, travelling or pursuing a passion.
However, there’s no doubt it could be better. During our COVID-19 recovery, those who have easy access to finance will recover much faster than those who do not, taking advantage of record low interest rates to build equity, exacerbating the inequalities that already exist. We need to find new means of supporting aspirations and creating more equitable access to finance, as more New Zealanders seek to reinvest in training, move to find work or refinance their lives.
When most people think about finance, the feeling that comes with it is stress. In today’s world it’s hard to avoid needing a loan – or if you’re lucky, a mortgage – but the whole financial system doesn’t make it easy. Buying a car usually requires negotiating with the car dealership, then having to apply for finance from a separate company. Building a house means anxious times dealing with one or several banks, progress payments, long waits and a small forest of paperwork.
Then there are the ongoing costs associated with getting finance, from set-up fees to account fees, interest and so on. There’s a lot of money being spent on things that don’t add value or improve our lives – and even more time being wasted on admin. It’s also prohibitively expensive for most businesses to get into finance themselves, to make the customer experience easier. It’s time we changed that.
The future of finance is embedded finance
In an age when technology has completely transformed the way we live, work and do business, finance seems a little stuck. Tech stacks in the sector average around 30 to 40 years old, meaning existing lenders aren’t able to provide the kind of personalisation and flexibility we now expect, and change is almost impossible. So let’s reinvent the system – safely.
The future of finance is embedded finance. This follows the international trend for companies to offer lending and payments as part of their total offer, completing the customer experience and making finance more affordable (with less stress). A shared digital platform that cuts the costs for all businesses to provide finance, which also takes care of the admin and compliance requirements, is the solution.
Going back to the house building example, banks typically lend only based on the land value of the property, not the final value with a completed home. That means home buyers can often afford less than they actually want. By empowering the developer to offer finance based on what they know the property will be worth, this adds value to their business, provides a better experience for customers and helps more people get the house they really want at a lower rate. The whole experience is better for New Zealand too, as the people who are best able to manage the lending risk, the building company, are the ones who are managing it.
Creating a dividend for all New Zealanders
Financial products need to catch up to our modern requirements if they are going to delight people. They should help us manage our carbon footprint. They should help ensure that the median price for our preferred school zone doesn’t stretch beyond our reach. But new financial products can only be built on new financial platforms.
New Zealanders spend around $100 million a year on compliance and admin that could be avoided by rethinking how finance is offered and building compliance into the financial platforms themselves. That’s why the world is heading towards digital currencies that are easily traced and can be programmed not to “behave” in illegal ways.
Measures like these, combined with shared platforms that pool the risk and cost of providing finance, can make finance more affordable and accessible for New Zealanders, while supporting enterprises and fintechs to grow their own businesses. What we collectively save on inefficiency could become a dividend for all New Zealanders, to enable them to buy clothes, housing and other things that make their lives better.
We also have a responsibility to ensure all our communities are being well served and rethink the way financial systems are set up to recognise identity. Rather than recognising only individuals, collectives such as iwi or hapu must be equally valid identities, something that would dramatically simplify Māori land lending. For those who want finance to reflect their values, whether they be cultural, religious or even environmental, there also needs to be a way for courageous community leaders to provide a service that meets their needs.
Finance is a great social enabler, but it could be so much better. Let’s make it easy for businesses to help their customers responsibly and find new revenue streams, and for New Zealanders to improve their lives at a lower cost. This is our opportunity to really put people first.
New Zealand summer re-reading list suggestion: Robert J Shiller’s, Finance and the Good Society (2012)
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