New Zealand fintech Debut eyes first local AI-based open bank

New Zealand's banking sector is poised for a new era of competition as local fintech Debut takes steps to become the first locally-owned bank designed for an open banking environment and artificial intelligence (AI). The company has initiated discussions with the Reserve Bank of New Zealand and is preparing an application to achieve registered bank status.

Debut aims to address barriers to accessing financial services that are experienced by groups such as Maori and those living in rural areas. New Zealand currently has 27 registered banks, only five of which are locally owned, with the last one being registered more than a decade ago. A recent report by the Commerce Commission into New Zealand's banking industry highlighted significant concerns about the lack of competition. The report noted that the market is dominated by four major Australian-owned banks, which are highly profitable but do not compete aggressively for customers, leading to higher costs, fewer choices, and poorer service for consumers compared to other countries with open banking frameworks.

Open banking allows third-party providers, such as fintechs, to access customers' financial data with their approval. This model aims to give consumers greater control over their financial information, providing more personalised products and services. The Government has accepted the Commission's recommendation to introduce open banking, thereby offering consumers greater access to next-generation banking services and fostering more competition in the sector.

Although Debut is not yet a registered bank, the company has launched a range of new financial services through a mobile application. The Commerce Commission's report identified that some consumers, such as Maori, are particularly vulnerable to financial exclusion under the current banking system. Debut representatives state that their technology is designed to mitigate geographic and other barriers to access, enabling customers to set up accounts online for essential services like digital Mastercard debit cards, Apple Pay, and Google Pay within minutes.

Additionally, the services include the capability for customers to create multiple virtual debit cards on-demand that control the type of transactions allowed. These virtual cards can be deleted at any time, preventing recurring charges from hard-to-cancel subscriptions and offering more protection when shopping on unfamiliar websites.

Experts believe that open banking will enable service providers with leaner operating models to enter the market, thereby reducing fees and improving returns for consumers. In an industry-first, Debut currently applies a 5.10% per annum universal interest rate to both transaction and savings accounts. There are no penalties, lock-ups, or minimum deposit requirements, ensuring that all customers can benefit equally from this rate. Additionally, no foreign exchange fees are charged for purchases made while travelling offshore or via international e-commerce sites.

AI and automation are set to play a crucial role in fraud detection and assisting consumers in managing their finances. Debut's new AI-driven budgeting tools automatically categorise transactions with 91% accuracy, offering further convenience to users.

Debut co-founder Sulabh Sharma highlighted the transformative potential of open banking for the industry and how New Zealanders manage their finances. He noted that while New Zealand has been slower in adopting open banking compared to other countries, the introduction of the Consumer and Product Data Bill marks a significant step towards broader data sharing. The Bill will extend beyond the banking sector to include industries such as energy, telecommunications, and insurance, creating a more integrated and comprehensive data-sharing ecosystem.

"The primary goal of open banking should be about empowering customers with control over their data, driving innovation, and fostering competition. The focus should be on delivering genuine value to customers, not just meeting regulatory obligations," Sharma said. "We have modelled Debut's offering on highly successful neobanking services that emerged in markets like the UK, Brazil, and Australia following changes to their regulatory environment. By building this technology from the ground up with this framework in mind, we can integrate a new suite of financial services and work towards our goal of putting NZD $1 billion back in Kiwi pockets."

Sharma stated that consumer interest in alternative banking services is strong, with over 7,000 New Zealanders on the waiting list for early access to Debut's app. "Having now launched, our customer numbers are doubling each month," he said. The company has also established partnerships with local banking partners and investment firms to ensure that all customer funds are held in trust for their protection. Low-risk investment add-ons are available, aiming to mirror the Official Cash Rate for customers who may not be confident in traditional investment products. Additionally, the company is developing lending products tailored to individual needs, regardless of financial ambition or stage in life.