Lachlan Heussler explores how New Zealand’s fintech industry can grow, through investment in creating favourable conditions for immigration and investing in local talent.
New Zealand is a country that has exponential room to grow, given the right circumstances.
Known for its incredible innovation, it is interesting to note the apparent talent acquisition issues that local tech industries are currently facing. With some of the country’s best and brightest heading overseas to lucrative opportunities, it’s clear that somewhere in the pipeline, built-up knowledge and skills leak, and we lose promising individuals to the lure of bigger corporations.
But where exactly is this happening - and how do we fix it?
The problem an increasing number of businesses are facing is a critical shortage in both skills and knowledge required to propel these business into the next stage of innovative development. What has been discovered is that this shortage can often be attributed to blocks in technological literacy.
According to Statistics New Zealand, currently there are 515,000 enterprises in New Zealand, at a growth rate of 1.6% per annum. That equates to roughly 8200 new enterprises entering the market each year. From this, a funnel is being created that is leaving New Zealand businesses behind and held to a stop due to a lack of ability to keep up to date with technological advancements. This makes it difficult for businesses to progress and build upon technological efficiencies in order to remain competitive with similar, larger businesses on an international scale.
Given the current rate of technological advancement, it is difficult for small businesses - especially those with limited resources - to keep up with what is required to advance their product in a globalised market. When you also consider the constant education and development needed in technical roles, the picture becomes clearer as to why university graduates are able to find a job in the IT section with relative ease, but retention and ongoing development of this local talent remains an issue.
For years, most executives from tech-associated industries have made the lack of talent and skilled workers coming through New Zealand clear, asking similar questions to us - where do they all go? The truth is, they’re right here!
The issue is that companies’ growth becomes stunted to the point they can no longer grow. The resources required to expand become inaccessible due to the fact that local technical talent has already been scooped up by larger, international players. Businesses have been seeking to solve this problem with a short-term solution: importing talent into the NZ market, as seen by the recent marketing push by Wellington Regional Economic Development Agency (WREDA)’s project, 'LookSee'. Although a great initiative, the costs of running such a campaign multiple times would be cost-prohibitive, meaning any attempt at a mass-importation of tech talent can realistically only be a short-term solution. With larger forces at work, more needs needs to be put into play in order to reduce these scenarios that put SMEs in particular in a difficult situation.
From what I have seen personally, the problem is that often these skills are needed before big returns are made in order to spur that business growth. That point itself is interesting: the skills required to bring a lot of these businesses to turn more profits require significant investment in order to be valuable enough for the consumer to notice, purchase, and take the business to their next stage of development.
Feeling the strain
Leigh Flounders, a board member of both NZTech and local fintech Latipay, has experienced challenges with finding local talent. Latipay specialises in enabling Kiwi businesses to export to Chinese buyers, facilitating payments for New Zealand exporters to the region. The business requires some speciality in the sense of international trade, competence in IT and a thorough knowledge of finance. The skills are a unique combination and businesses like Latipay are feeling the strain.
“Hiring in New Zealand for IT professionals has been extremely difficult and one of our major challenges,” Leigh said.
“Latipay has specific requirements relating to payments experience, java coding and exposure to innovative payment mechanisms.These very specific requirements have made it extremely difficult to find the right talent in the New Zealand job market.”
Fortunately for smaller tech businesses, the New Zealand Government has decided to step in and address the issue. As the sector is so crucial to local innovation and its enabling of economic development, it needs support to facilitate market competition for specialised skills, promoting industry growth and eventually, positive flow-on effects to the economy.
Currently, the ability to undertake exercises that encourage grass-roots development of talent is lacking. In saying this, there are a number of incentives that have seen some traction in the past few years. The government is currently planting the seeds for a bigger and better fintech marketplace here.
Government intervention has, however, been slow to support the current tech landscape, only recently announcing regulation in support of New Zealand fintech, in particular. Slow investment has led to a delayed response to the fintech movement at a global level, making it difficult for enterprises to accelerate their company growth alongside bigger international counterparts.
Nevertheless, Steps are already being made with tech in general, with the New Zealand government shaking up school curriculums through introducing compulsory digital education and literacy classes, a move that will champion talent and give younger students increasingly vital tech literacy skills .
The solution is simple. Investment. We need to create favourable conditions for immigration and - importantly - investing in talent at home. By doing so, an environment will be created that will nurture, foster and ultimately grow localised talent and support our own innovation.
To do this, there are various incentives and changes that need to be made to create an environment that nurtures and fosters an industry like fintech, that has the ability to create waves in finance. We see the emergence of numerous forward-thinking local companies, such as Xero, Harmoney, Banqer and Fuelled - that are changing the way we look at financing and money. It is enterprises such as these that we see are disrupting banks and making them change their approach to further help their own clients. Competition encourages innovation, and innovation ultimately streamlines processes and creates efficiencies that can make us all more productive.
The government plays a pivotal role in enabling fintechs to grow. It is their role to create an environment that encourages tech industries like ours to flourish.
Latipay agrees, noting that the government has a place in this, primarily at a regulatory and innovative level. Latipay have additionally found that the regulators such as The Department of Internal Affairs, New Zealand Trade & Enterprise and the Minister of Innovation have been supportive of incubators and talent attraction initiatives - specifically youth - for the sector. Necessary for tech development, this support will help drive further investment, helping make New Zealand a hub for innovation.
A way that some tech companies have manoeuvered around the current talent shortage is to recruit final-year university students as interns as a practical solution, with the view that they become full-time employees in time. Many institutions are now becoming recruitment hubs for future employees - a solution which goes a way to resolving the issue, with the additional benefit of helping students acquire valuable work experience. Many fintechs have employed dozens of interns in the past 12 months, and ended up offering a number of those interns full-time employment. This can only go further to highlight the need for tech talent within New Zealand and the high demand for individuals with a particular skill set.
Fintech is still a relatively young industry in New Zealand, and up until now, has struggled in a challenging environment that is disruptors being pitted against the major banks.
However, we see a giant awakening, in that initiatives such as fintech accelerator programmes are fostering and growing awareness for the industry, making an effort to promote further evolution in the space.
Fintech businesses like Spotcap are encouraging regulators to evolve or risk hindering fintech growth. In fact, financial market regulators need to innovate or run the risk of slowing the growth of the global $24 billion technology-based financial services industry, warns a new report by Chartered Accountants Australia and New Zealand .
Collaboration will also be key to the continued success of New Zealand fintech. With the current offerings available to both consumer and business customers, it is difficult too for fintechs to prove themselves as viable alternatives to traditional banking products. That is to say, companies with offerings such as small business loans are partnering with broker pathways to increase traffic and legitimise their services. We also foresee further investment by banks via partnerships with fintechs, as we have been fortunate to secure with our NZX-listed partner, Heartland Bank.
More support needed
To see the fintech industry continue to grow and develop, it will need ongoing regulatory and collaborative support. At this point, future investment in both the products and the people needs to continue to flow from various sources. The tech sector in general is a major creator of jobs - increasingly so in the future, it promotes customer choice and experience, and fosters our great reputation as innovators.
No doubt there are future hurdles, however, as momentum gathers I think we will see a shift for the positive. The current investments being made are visions for the future and we hope to see these pay off, inspiring what is the next generation of leaders in tech.
Lachlan Heussler, is managing director of Spotcap New Zealand.