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The digital revolution, already reshaping the global banking landscape, is about to receive a turbocharge in the New Zealand context from legislative and regulatory reform, while it has also found its mojo across international institutional and retail markets.
The extent to which this tips the scales against the incumbents, or brings the tipping point closer, will depend on the strength and agility of the incumbent response.
Stablecoins and Institutional digital infrastructure
Global advances in stablecoins and digital infrastructure hold the potential to enhance cross-border payments, enabling real-time, cost-effective transactions. For traditional banks, investing in this infrastructure presents an opportunity to maintain relevance and their role as a trusted anchor in the transaction chain. However, the investment costs could be substantial and require coordination among stakeholders – each individual bank will need to weigh this against the risk of it being closed out of markets shifting to such newer standards.
Digital infrastructures are not new – blockchain has been around for over fifteen years (and has roots dating back further) – but they are experiencing a growth spurt as a result of the crypto advocacy of the Trump presidency.
Among the deterrents that may be holding potential investors back are:
- the lack of regulatory clarity around digital infrastructures, and
- the relative scarcity of proven entities in market.
Banks may be well positioned to leverage their relationships with overseas counterparts to facilitate these developments. An example is JP Morgan’s blockchain division, Kinexys. Given the time and resources required, regulators may need to provide a clear signal of support to help secure these links to global financial markets and ensure that New Zealand remains competitive.
Emerging digital services
Payment services like Apple Pay, Google Pay, Wise’s payments platform and the New Zealand-based Dosh digital wallet are increasingly encroaching on bank domain. Australia seems to be contemplating stricter oversight of these banking-adjacent service providers but they remain lightly or unregulated in New Zealand, despite the fact that they are able to charge fees and compete in spaces that have traditionally belonged to the heavily regulated banks.
It’s worth noting that BNZ has recently invested in two local payments start-ups: BlinkPay and Centrapay.
Bank account-like products. We expect more funds to enter the market offering features such as 24/7 access, debit cards, app-access with analytics and a digital first-experience. While fund managers are regulated and must be licensed, which comes at a cost, the regulatory burden and prudential oversight applying to the banks is higher.
Integration of Artificial Intelligence (AI). While the integration of AI to assist with scam and fraud prevention, automation, and customer service, could help deliver faster, more personalised responses to customers 24/7, as adoption grows, there are potential vulnerabilities to consider.
These include: systemic risks due to industry exposure to a few technology providers, increases in scams powered by AI, including deepfakes, and greater vulnerability to cyberattacks. They will ultimately affect all sector participants, but the newer digital-first businesses and neobanks might be better positioned to adopt and integrate new technologies as they will typically be less constrained by legacy systems.
Opening up the playground to fintechs
The fintech sector has continued to gain momentum at a political level this year, despite the Commerce and Consumer Affairs portfolio shifting from Minister Bayly to Minister Simpson in February. The FMA’s fintech ‘regulatory sandbox’ pilot, launched in late 2024, has continued through the year and the RBNZ has opened up the Exchange Settlement Account System (ESAS) to applications from non-bank deposit takers (NBDTs) and other market participants (as we discuss later in this report).
The latest announced changes – reducing minimum bank capital to $5m and signalling further upheaval via the Select Committee Report – reinforce forward-looking policy positions that fintechs should be part of New Zealand’s future banking sector (or, perhaps, a defensive acknowledgment that the future of our banking sector may depend on keeping up with international fintech developments).
The fintechs and other disruptors will also benefit from the application to the banking sector, beginning December 2025, of the Customer and Product Data Act 2025 (CPD Act) as they will be able to access a customer’s bank data, subject to that person’s consent, and can use the information to sculpt alternative products and services.
They may also derive opportunity from the incentive that the DCS, which came into effect on 1 July 2025, creates to hold accounts with multiple providers, each within the $100,000 safe harbour.
Regulatory challenges – some observations
Digital innovation poses difficulties from a legal perspective – technology can change much, much faster than legislation can be developed or amended to accommodate it. For example, although the CPD Act has passed and consultation has closed on initial regulations, we are yet to see clarity on key matters of fee charges and how closely the API Standards will be integrated. Much financial product legislation remains firmly rooted in the world of centralised registers, and does not easily accommodate decentralisation.
The role of regulators in a more technology-forward financial world is also yet to be settled, most obviously in relation to AI. Neither the FMA nor the RBNZ has yet issued extensive guidance on the deployment of AI in the financial services sector, but the matter is very much on their radar:
- the FMA has published research on AI use across the New Zealand financial services industry and invited firms to engage in discussions on how it can support the responsible adoption of AI. It has also indicated that it may issue further clarifications on its expectations, and
- the RBNZ commented in May 2025 on the potential impacts – positive and negative – on financial stability of AI use by financial institutions.
Given this, we consider there is a high probability that regulatory guidelines relating to the application of AI will be imposed within the medium term so banks would do well to incorporate this into their forward planning.
In its July 2025 Artificial Intelligence strategy and business guidance, the Government confirmed its “unwavering support” for private sector investment in AI and its own “light touch” approach to regulating AI, relying on existing principles-based and technology-neutral legal frameworks. The Government intends to update these frameworks as needed to address emerging risks, viewing this as an agile approach.
Regulators also need to consider digital engagement practices (DEPs) more broadly, particularly given changing financial habits as discussed earlier in this report. A study by the UK Financial Conduct Authority (FCA) on DEPs aimed at retail investors on digital platforms - features such as push notifications and prize draws - found that users of high-DEP apps, were more likely to be younger and male and to be in financial distress (although less so than the general population). Although an association was established between using high DEP apps and negative financial outcomes, the results did not establish a causal link, so the FCA has suggested further research to understand this interplay.
In New Zealand, cynical use of DEP stratagems could be captured by existing consumer protection laws and Conduct of Financial Institutions requirements. While digital financial decision-making isn’t new, it will draw greater scrutiny from financial regulators as it becomes more commonplace and may eventually attract specific regulatory attention.
This article is an excerpt from our report The banking industry: A look ahead. Download the full report at the link below, or read the other articles in the series.
