The record rise of New Zealand’s emerging financial tech sector, centred in Auckland, presents opportunities for investment.
There is intense investment activity around the way we borrow, lend, save, spend, store and transfer money, and New Zealand’s emerging global status as a financial technology (fintech) hub is fuelled by extraordinary recent growth. In this first instalment of a two-part series, we look at the critical success factors in Auckland’s status as the national fintech hub, and at avenues open to investors.
Steep growth
Fintech is now New Zealand’s fastest-growing tech export sector, having registered a 31 per cent compound annual growth rate from 2015 to 2020 on the TIN200, for the fifth consecutive year. This builds on a long history of Kiwi innovation in (and early adoption of) fintech – for example, we rapidly took to EFTPOS from its debut in 1985 – but the scale of growth today is little short of spectacular.
Xero paved the way, disrupting the accounting industry with its cloud-based software as a service (SaaS) model back in 2006. It now has more than 2.7 million subscribers worldwide and a market capitalisation (at the time of writing) of more than AUD$20 billion.
More recent investment milestones include Boston-based Advent International taking a major shareholding in Transaction Services (TSG) in 2019, the acquisition of retail tech company Vend by Canada’s Lightspeed for NZ$484 million in 2021, and Pushpay’s 16 per cent sale to San Francisco firm Sixth Street Partners for NZ$320 million, also in 2021. The size of these exits, and participation by offshore investors like KKR, indicate New Zealand’s fintech sector is catching the attention of international investors. It’s also returning significant wealth to founders and staff, and to local venture funds such as MOVAC and pension fund manager Milford Asset Management.
Factors for fintech success
What makes a successful fintech hub? In a recent report about Singapore, another key fintech hub, management consultants Oliver Wyman pointed to four key factors.
- a startup-focused investor ecosystem, and
- a progressive regulatory environment.
- cross-border access to customers and partners, and
- a skilled and innovative workforce.
In this first article, we look at the first two factors.
We asked people from the financial environment for their views on how New Zealand, and Auckland in particular, can shape its own fintech sector for global success.
Innovation welcomed
Jason Roberts, Executive Director of the New Zealand Financial Innovation and Technology Association (FinTechNZ), is clear that New Zealand is backing innovative startups. "Government and industry are coming together in joint projects and platforms, such as new research commissioned to get us the baseline marketplace data and insight we need to guide investment, and the open finance research project,” says Roberts.
FinTechNZ plays its part, bringing together more than 170 member businesses across the sector, from one-person startups to big banks, insurance companies and fund managers. Roberts emphasises how it’s the agile young companies that are pushing the envelope and innovating. “We have fintech companies popping up left, right and centre. Kiwis are returning armed with IP and deploying it here,” says Roberts.
One of the attractions of ‘here’ is that New Zealand is measurably a good place for startups. It ranks highest out of 190 countries on the World Bank’s Ease of Doing Business Index 2020, and is rated the least corrupt country by Transparency International. These rankings alone, says Binu Paul of the Financial Markets Authority (FMA), which regulates many aspects of the New Zealand financial environment, “provide a compelling reason for investors to consider New Zealand as a business destination.”
That view is shared by Jacques Richter of NZ Growth Capital Partners (NZGCP), whose Aspire and Elevate funds support early-stage investment in New Zealand.
"In our conversations with international investors,” explains Richter, “they keep asking: ‘Why should this solution come from an NZ startup?’ New Zealand has a comparative advantage in developing solutions for SMEs, a customer segment that doesn’t often receive the attention it warrants. Our economy provides fertile ground for fintech startups to develop and refine solutions for SMEs in a business-friendly, high-trust environment, before expanding globally,” says Richter.
Our ingenuity, adds Richter, has a lot to do with it. “Kiwi founders find ways to innovate, achieve key development milestones and market-fit with a fraction of the capital that some of their global counterparts draw on. This ability has been developed through necessity, partly due to the nascency of the early-stage investment ecosystem and partly due to the distance to major markets that has traditionally made global scaling expensive.”
Progressive regulation
The regulatory environment is also critical. Our policy and regulations framework, says Binu Paul, embraces “a principles-based approach, rather than a prescriptive one; it promotes flexibility and innovation, while balancing consumer protection with minimising the cost of compliance.” He explains that New Zealand maintains “an open regulatory approach across its financial system, with unique elements that include The Treasury’s Living Standards Framework, which sets the tone for all decision-making.”
The FMA also keeps an eye on global trends, conferring with overseas counterparts on emerging themes. “Global best practices are then assimilated into policy and regulatory decision-making, as appropriate for New Zealanders,” says Paul.
Paul also notes our access to widely available high-quality broadband, which connects more than 90 per cent of the population. These factors are now luring the world’s largest cloud service providers to set up physical facilities in New Zealand.
The government offers support via R&D funds and tax incentives, as well as capital from the likes of New Zealand Trade and Enterprise (NZTE), Callaghan Innovation and NZGCP. Jacques Richter says, “The local funding landscape for early-stage ventures is fast maturing, providing sufficient connected capital to aggressively scale.”
The New Zealand Council of Financial Regulators (CoFR), a cross-agency network, helps government regulators and policy-setting agencies collaborate on macro-level thematics. One such thematic is Digital and Innovation within financial services. CoFR’s Fintech Forum, led by the FMA, provides a one-stop shop for regulatory guidance available to financial innovators.
Binu Paul, who chairs the Fintech Forum, says “the service has been hugely popular, with close to 40 teams having already engaged in the last five months. The forum is very well received, especially for small tech companies who don’t have the bandwidth to search for these answers. This platform gives everyone access to crucial regulatory information.”
“The forum lets companies engage with regulators with speed,” notes FintechNZ’s Jason Roberts. “Accessible, quick access and response is key to validation and speeding up the runway.”
Tech-savvy, startup-friendly, and with a transparent and supportive regulatory environment, New Zealand – led by its Auckland hub – meets and exceeds the criteria to take our fintech to the world.
Find out more
Contact our investment specialists to learn more about fintech investing in Auckland, New Zealand.
DISCLAIMER: This article provides general information on potential investment opportunities in Auckland and is not intended to be used as a substitute for financial advice. The views and opinions expressed are those of the relevant author, and do not necessarily reflect the views of Tātaki Auckland Unlimited. Tātaki Auckland Unlimited disclaims all liability in connection with any action that may be taken in reliance of this article, and for any error, deficiency, flaw or omission contained in it.