Xceda CEO Daniel McGrath Promotes Small Bank Sector at Parliament Select Committee

This week Daniel McGrath, CEO of Xceda Finance, took a prominent step in advocating for the small bank sector in New Zealand by appearing before the Finance and Expenditure Committee in Parliament. Representing Xceda, Daniel shared valuable insights on the role that Reserve Bank (RBNZ) licensed Non-Bank Deposit Takers (NBDTs) play in fostering competition and financial stability across the country.

See the full video Here: Daniel McGrath - Finance and Expenditure Committee

Supporting Financial Diversity and Stability

Xceda, established in 1989, has long been a part of New Zealand’s NBDT sector, offering services such as personal loans and term deposits. Daniel’s appearance was a chance to highlight the vital role NBDTs play in providing services to customers who are often underserved by traditional banks.

Daniel highlighted that NBDTs are already under the supervision of the RBNZ, ensuring they are fully regulated and function within the same framework as banks. This regulatory oversight offers assurance to customers, especially with the forthcoming Depositor Compensation Scheme (DCS) in 2025.

The Importance of a Level Playing Field

A key point Daniel raised during his submission was the need for a level playing field for NBDTs when competing in the same market as banks. While NBDTs are regulated by the RBNZ and subject to stringent capital, liquidity and financial disclosure requirements, in certain areas they are subjected to more onerous requirements compared to the larger banks. For example, NBDTs are required to hold 50% more capital when lending to business customers (including SME’s) compared to the banks. Daniel emphasized that these discrepancies must be addressed to allow the sector to grow and thrive.

The sector’s potential for growth is particularly evident in international examples, such as Australia and the UK, where small “challenger” banks have made significant inroads in creating more competition within the banking sector. Daniel pointed to Australia’s success in fostering a competitive environment with lower entry capital for challenger banks and highlighted how New Zealand can learn from these global successes.

Addressing Public Recognition and Confidence

One other challenge Xceda and other NBDTs face is the lack of public recognition as to where the NBDT sector fits within the NZ “banking” landscape. The current inability to be called a bank is, according to Daniel, limiting the awareness from the NZ public as to how NBDT’s operate and how they are regulated. Daniel stressed that to build confidence and increase public awareness of the sector’s reliability and value, it’s crucial to reconsider the use of the term “bank” for NBDTs such as Xceda.

By making these changes, the RBNZ and the Government can help build a stronger small bank sector that is well-positioned to foster innovation, support competition, and contribute to a more diversified financial landscape in New Zealand.

Looking to the Future

With the Depositor Compensation Scheme set to be implemented in July 2025, Daniel is confident that NBDTs will play a more recognized role in the NZ banking sector. The DCS will protect up to $100,000 per depositor (customer) per deposit taker (financial institution) in the event of a failure. By advocating for proportionate regulatory frameworks and promoting a greater public understanding of the small bank sector, Xceda and other NBDTs are helping pave the way for a more competitive, stable, and inclusive financial future for all New Zealanders.