RBNZ squashes fintech Dosh’s bid to become a bank

Online mortgage fintech Dosh co-founder Shane Marsh, told MPs at a Parliamentary banking inquiry follow-up yesterday the central bank had decided it did not meet the legal definition of a bank.

Marsh says the Reserve Bank decided that to be considered a bank, an organisation must make loans as well as offering other banking services.

“We see that that is a relatively narrow and restrictive interpretation of the legislation,” Marsh told MPs, who appeared to be surprised at the decision.

Dosh offers Westpac online home loans with a new addition of One NZ $1,700 reward dollars on settlement. One phone dollar equals one real dollar off the price of a new interest-free phone.

The fintech does not offer mortgage advice and has passed on some of the bank commission it earns to clients who settle loans. 

Some advisers have been vocal about this, claiming it can lead to financial decisions that are not good for clients in the long-term. And if there is a proliferation of home loan fintechs offering forms that can be filled in within 15 minutes, with a decision provided within another few minutes, it will eventually decimate their businesses. 

Because the home loans Dosh sells are Westpac loans and although it provides savings and transaction accounts, the Reserve Bank did not accept that qualified the fintech as a bank.

Marsh says the Reserve Bank’s definition of a bank is out of step with other countries where there is a recognition that digital banks developed in stages, often starting with deposit and transaction services and later moving into lending.

“Our approach has always been to look at what's working offshore, and how do we bring that to New Zealand to offer better value in a market that, to be honest, has fallen behind, what we're seeing being offered around the world,” he says.

Not in New Zealand’s best interests

Kent Duston managing director and principal consultant of wellbeing and social investment consultancy Habilis says it is disappointing the Reserve Bank is continuing to block innovation in the banking sector and preserve the excessively high margins of the Australian-owned banks.

“The Reserve Bank has used the narrowest possible definition of the legislation to decide that Dosh isn't a bank at all. “It appears that unless one of those innovative fintechs looks exactly like an old-timey bank offering old-timey products, then they're going to get a firm no from the Reserve Bank,” he says on LinkedIn.

Duston says this is a disappointingly rigid bureaucratic approach. It goes against the undertakings the Reserve Bank made on the back of the select committee enquiry into banking last year – that its decisions will be informed by the need to foster competition in a banking sector that's dominated by the Australian-owned oligopoly of ANZ, ASB, BNZ and Westpac.

As far as anyone can tell, the Reserve Bank has done nothing to give effect to the undertakings it made to the Select Committee, he says.

“We still have the same number of banks offering the same products, just with higher margins and profits. Whatever the RBNZ has done – or not done – the fact is that the lives of New Zealanders haven't been improved one iota by its actions.

“This really isn't good enough. It's now at the point where the damage being done to the New Zealand economy is unsustainable for families and businesses alike; the net after-tax profits of the big four Australian-owned banks may well pass $10 billion this year.”

Duston says In the case of ANZ, New Zealand’s five million people pay margins that are 53% higher than for the same products across the Tasman, and as a result the country makes up a massive 43% of the total profits for the entire ANZ Group.

“The Reserve Bank knows all of this, because it has engineered most of the restrictive regulatory practices that have created and entrenched the Australian banking oligopoly. Yet it's somehow managed to fall at the first hurdle and made a decision when it comes to Dosh that is absolutely not in our national interest.