Dosh to launch a competitive digital home loan

“Today, we have the best innovative payments solutions in New Zealand, the leading on-call savings rates vs the traditional banks and we will soon launch our home loan offering,” Marsh told the committee, which is conducting a government-directed inquiry into banking services.

“I suspect that the home loan offering launch will be one of the most disruptive events in 2025. We think that will bring a lot of competition and new value to the market for home loans which is critical in terms of improving the overall financial wellbeing,” he said.

Marsh said he couldn't reveal too much detail about the home loan offering but that it will be competitive and “will offer price differentiation.”

Currently, Heartland Bank is offering online only digital home loans which do tend to offer lower interest rates than the banks.

Dosh is in the process of applying for a banking licence but Marsh said he's like the minimum capital level required to be brought down from $30 million currently as a way of lowering barriers to entry.

In his appearance before the committee, chief executive Daniel McGrath of Xceda Finance, which is one of thirteen licenced non-bank deposit takers (NBDTs) in NZ, told the committee that new entrants to having a banking licence in Australia need A$15 million for the first two years and then can revert to a minimum of A$10 million.

Marsh said the $30 million requirement will put a strain on his business.

He Dosh has two value advantages over the existing banks in that it has a lower cost base, not having to manage a branch network or other legacy infrastructure, and it has a technology advantage in being able to adopt new technology such as AI as it comes to the market.

Dosh is digital, easy to adopt and is able to be rolled out nationally to the next generation of Kiwis, he said.

Dosh also wants access to ESAS, the exchange settlement account system that the Reserve Bank operates, but sees that as part of the process of Dosh becoming a bank.

Access to ESAS

Earlier, Lyn McMorran, executive director of the Financial Services Federation (FSF), which represents non banks, told the committee that her organisation has been asking for access to ESAS for years on behalf of its nearly 100 members.

Currently, FSF members are forced to lodge their liquidity buffers with one of thebanks, which deposits the money in ESAS and receives the level of the official cash rate (OCR) but then takes a margin before paying a lower interest rate to FSF members.

McMorran said FSF members have about $20 billion in outstanding loans to 1.7 million New Zealanders and are often closer to their customers than the banks are.

But that comes at a price and is the reason why non-bank financial products tend to be priced at a premium, McMorran said.

Xceda's McGrath argued that NBDTs need a fair playing field, including access to ESAS.

His view is that new fintechs will prosper if they can partner with banks and that those banks are likely to be the smaller banks, if NZ follows global trends.

NBDTs are at a major disadvantage in NZ because their risk-weighting requires 50% more capital to lend to a small business than the major banks have to have.

Caroline Dunlop, head of funding at Avanti Finance, said that a major bank can make a residential loan to a customer with an 80% loan-to-valuation ratio of 80% and its risk-weighting on that loan for capital purposes is 35%.

But non-banks such as Avanti, that use securitisation as a funding mechanism, have to apply a 100% risk-weighting to a loan with exactly the same characteristics.

That's despite securitised vehicles actually presenting less risk than direct loans, Dunlop said.

“That makes our lending more expensive than the banks and so non-competitive with the banks.”

Dunlop said currently there is no risk-weight setting for securitised loans “so it defaults to a more conservative setting.”

But this situation is one of the reasons why two Australia-based non-bank lenders have exited NZ this year, She said. Those lenders are Resimac and Bluestone.