Interest.co.nz: CEO Shane Marsh says Dosh is eyeing the home loan market as it strives to become a bank for digital natives

This article was originally published on Interest.co.nz by Gareth Vaughan

Money app Dosh is looking at a range of options as it seeks the capital required to become a bank, co-founder and CEO Shane Marsh says.

Dosh is applying for banking registration from the Reserve Bank (RBNZ) in what Marsh expects to be a process taking more than a year.

The RBNZ requires banks to have an absolute minimum of $30 million of regulatory capital. However, the Deposit Takers Act (DTA), which is being phased in over several years, includes a proportionality principle which the RBNZ must take into account. This requires the RBNZ to look beyond a one-size-fits-all approach to prudential regulation, and take a proportionate approach balancing the costs and benefits of regulation in relation to different types of deposit takers so the public gets a diverse, innovative and inclusive deposit-taking sector, as well as a safe, sound and stable one.

Marsh sees some opportunity in this, albeit noting the DTA proportionality framework isn't due to take effect until 2027 and Dosh doesn't want to wait until then.

"Yes, we believe that we'll be able to meet the capital requirements," he says.

However, Marsh notes Dosh is a different entity to existing banks with a different risk profile, especially from a credit risk perspective.

"And I'm looking forward to talking to the Reserve Bank around proportionality of capital requirements across the board," Marsh says.

Asked whether he's hoping Dosh may not be required to have the full $30 million, Marsh says; "yeah, I think that's a discussion that we would like to have with the Reserve Bank."

"We think the opportunity for a new bank with a new model to deliver significant benefits to consumers is now. And so that's why we're moving forward now to having built our bank, to become that bank and deliver it to consumers."

For a newbie wanting to make an impact, Marsh says the efficient use of capital is a critical issue.

"The more capital we've got to invest in building products and growing our business, the more likely we are of having success," Marsh, who previously spent 13 years working for ANZ latterly as Head of its Financial Institutions Group in Singapore, says.

Asked where Dosh is going to get capital from, Marsh says he can't reveal the sources.

"However, we are open to talking to the broader investor community and looking at a range of options on where the totality of that can be sourced from. That's something that we'll be working on and talking to different parties about."

Marsh says Dosh already meets many of requirements required for it to become a bank, in areas such as risk management, compliance, systems and structure. However, he says it'll need to make governance changes to meet rules around board structure. Banks must also obtain and maintain a credit rating, which is generally expected to be of investment grade.

Home loans eyed

MCA Investments Ltd, Dosh's parent company, has Marsh and fellow co-founder James McEniery with a combined stake between them of almost 62%. Avanti Finance has an 8.47% stake and is the source of funding for Dosh's existing personal loans. Dosh is keen to push into the home loan market and Marsh says Avanti could also potentially fund these loans.

"We are looking at how best to structure the home loan product for us. What's most important is that we offer something that's different in the market than what we see as a relatively generic range of products today. The only real difference today is perhaps 10 or 20 basis points between competitors. But what we're beginning to see overseas, such as in Australia, is quite different products that offer different structures to different types of consumers."

Dosh offers a current account, a Visa debit card, savings account, money management and budgeting accounts, plus personal loans. It currently has about 30,000 customers.

"Next for us is Apple and Google Pay, which is due to be released next month...The home loan offering is a proposition that for us is the most strategic and that we see a great opportunity in that market to help, particularly first home buyers, get onto the property ladder," says Marsh.

"We're really focused on younger New Zealanders. Our customer base today is mostly 18 to 35 [year-olds]. And in that customer segment, we see consumers who are digital natives who value the designed and efficient and easy to use mobile services that we have created. We also see a consumer base that is perhaps in their first job or saving for a home deposit. And we see it's this aspect of the consumer customer base that's best placed for the services that we'll bring to the market."

Putting pressure on the big 4

Marsh describes open banking as a "tail wind" in terms of services and opportunities, and says Dosh would "love to" have a settlement account enabling it; "to connect directly to the RBNZ and be able to access all the services that the main banks do today." Currently Dosh funds are held with two of the main banks.

"From our perspective, if we're going to compete with the banks, then we need to become a bank ourselves. And that removes various intermediaries and other potential barriers to offering consumers in New Zealand the best solutions at the best prices," Marsh says.

"I think, realistically, to make an impact in New Zealand, you need to be putting pressure on the top four Australian owned banks [ANZ, ASB, BNZ and Westpac]. And that's a material market share required and a material scale required. And that's where our ambition lies."

Whilst other countries, such as Australia and the United Kingdom, have offered restricted banking registration to start-up banks, NZ doesn't.

"New Zealand has a full banking licence or no banking licence, which I think is one of the reasons why you're seeing so few domestic players entering the market," says Marsh.

Domestic entities that have become banks over the past 16 years have first been non-bank deposit takers (NBDTs) including SBS Bank, PSIS which became The Co-operative Bank, and the entities that became Heartland Bank, - MARAC, CBS Canterbury and Southern Cross Building Society.

In 2018 the RBNZ told interest.co.nz it had no plans to offer restricted banking registration, and any start-ups wanting banking registration should initially take the NBDT path, and aim to become a bank down the line.

"I think what has changed in the last year particularly is that there's a growing sense amongst the regulators, the government and consumers that there's greater competition required in the banking market," Marsh says.

"For Dosh though, it's not just about bringing competition, it's about bringing a new model to market. The traditional banking model of branches and high numbers of staff, we see as a past model and the future model is the digital bank model that we aim to roll out. That is value off the back of a lower cost base and also better solutions of the best tech."

"We're looking forward to working with the Reserve Bank to be successful in that registration in terms of their requirements as they sit today. We're keen to work with them on those, but we are confident that we could meet the requirements as they stand today," adds Marsh.

Asked about Dosh's bank registration application an RBNZ spokeswoman says the regulator is; "unable to comment on our supervisory/enforcement activity relating to individual entities."

In March RBNZ Governor Adrian Orr told RNZ the RBNZ "can not just let lots and lots of small companies that will be unsafe or likely to fail [obtain bank or non-bank deposit taker registration] in the hope that it creates competition."

Bigger role for Avanti?

Asked whether there's potential for Avanti to be more involved with Dosh if it achieves banking registration, Marsh says there is.

"Absolutely. Avanti Finance is a very experienced and credible player in the market, the largest non-bank consumer lender in New Zealand. And we've really appreciated that partnership in terms of being able to work together to access some of their knowledge and expertise from a lending perspective. But they're a much broader business than that as well. And there's complementary opportunity for us to work together, both from a technology perspective, but also a product perspective."

Former senior ANZ executive Fred Ohlsson is Avanti's CEO. Its biggest shareholder and founder Glenn Hawkins is Executive Chairman. Launched in 1989, Avanti offers home loans, car loans, personal loans, business loans, debt consolidation and insurance. It's New Zealand's second biggest non-bank financial institution after UDC Finance with total assets of more than $2.2 billion and 11.15% market share, according to KPMG's most recent Financial Institutions Performance Survey.

*The RBNZ's licensing criteria for banks is here, and for NBDTs it's here.

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