A strategic partnership with big dreams and no concrete plans will introduce the Kiwisaver’s members to a not-for-profit which looks a lot like a bank

The non-profit Kiwisaver provider Simplicity and member-owned finance co-op First Credit Union have announced a “strategic friendship agreement”, with the intention that the organisations collaborate on offering services to their combined 200,000 customers. In an interview with The Spinoff, First Credit Union chief executive Simon Scott and Simplicity founder and CEO Sam Stubbs were vague on the initial shape of the connection, but ambitious about its future scope.

Stubbs described the intention as to create nothing less than a “social enterprise alliance”, which would bring together not-for-profit organisations spanning a broad array of sectors into a grouping which could ultimately offer a viable alternative to services including insurance and banking. 

This is very much of a piece with Stubbs’ crusading quest to press on the margins of New Zealand’s finance sector. He says he has a stretch goal of building a new brand and digital interface to wrap around all their services and enable faster marketing and customer onboarding.

“We are taking this important first step in getting social enterprises and non-profits to work closer together, reach out to each other’s members, and highlight that there are real alternatives to the big banks,” said Stubbs in a statement announcing the move. “This is the start of a rebel alliance of finance, and we hope others will join in due course.”

Ironically, given his anti-profit stance, Stubbs remains the master rhetorician of New Zealand’s commercial sector, deploying seductive phrases that adroitly position Simplicity in opposition to the incumbents. The current state of this “rebel alliance of finance” is a letter of intent that Stubbs admits is essentially a “written handshake”. Perhaps even more audacious is the statement’s reference to a “strategic friendship agreement”. That language is more commonly deployed in geopolitics, such as a 2001 accord between Russia and China. High drama and cut-through for a relatively small first step.

Still, Stubbs is shooting for the moon. When asked for potential future allies, Stubbs mentions insurance providers AA and Southern Cross who have more than 1.5 million members between them. He also notes the move to open banking as an inflection point which could quickly accelerate the growth of the alliance. Open banking is an international trend towards making switching banks more seamless through account number portability. It makes the process more akin to changing a mobile data or Kiwisaver provider, with the intention to rapidly increase banking competition as a result.

A strange pair

In some ways the two institutions make an unlikely duo. First Credit Union’s leader Scott says that “part of the reason we exist is to bank the unbanked”, and describes many of their members as beneficiaries or other working class people. Scott concedes that they have some very wealthy members too, attracted by the lower fees and higher interest rates he says their not-for-profit model allows for. First Credit Union is almost 70 years old, born out of a Catholic parish credit union that allowed members to pool their funds to earn interest on deposits and make personal loans. That remains the core of its offering to this day. 

Simplicity, on the other hand, is a default Kiwisaver manager and digital-first startup. It has 143,000 members across its Kiwisaver and investment funds, and is beloved by a relatively young base attracted by Stubbs’ anti-establishment posture and low-fee model. Simplicity has expanded from Kiwisaver into mortgages and a major residential housing development programme, along with investments in private equity and venture capital. 

Still, for all that separates them, the two companies are united by ownership structures that ensure proceeds are funnelled back to their customers (both call them members) through reduced fees, more competitive interest rates, or other means. Scott and Stubbs imagine a typical combined customer who might use First Credit Union for their day-to-day banking while having their Kiwisaver with Simplicity. Were they to need a credit card, First Credit Union might suggest they take out a personal loan associated with a union-issued Mastercard debit. If they needed a mortgage, Simplicity would try to provide one.

The pitfalls and the opportunity

I asked Scott and Stubbs what the risks were here. Could Simplicity, having onboarded a number of First Credit Union’s customers into a Kiwsaver, ultimately start a bank that could siphon customers away? Scott says Stubbs has given him an assurance that it will never do personal lending, and Stubbs says he believes Simplicity has “no reason to get involved in anything where someone else is doing it better”. Still, given Stubbs’ antipathy towards banks and Simplicity’s extraordinary expansion across both scale and category, it does not seem unimaginable that it might one day open that door.

There is also the risk that open banking stalls at the regulatory level, meaning customers remain as stubbornly sticky as they currently are. Or that the likes of AA and Southern Cross decide their vast customer bases are not worth risking in an alliance some sectors (notably banking) will view as hostile to their interests. In that case this becomes a glorified marketing partnership, amounting to little more than some cross-linking in emails and on websites.

Yet while the basement is low and uninspiring, the ceiling Stubbs describes does have a utopian quality. The idea of a group of purpose-oriented, low-fee not-for-profits bound together under a single tech and brand umbrella is powerful. At its most fully realised, it could provide a large, diversified new player across a number of large sectors, helping New Zealand to rid itself of some of the pernicious excess profit-taking often attributed to the likes of groceries and lending. 

David Tripe, professor of banking at Massey University, says that while First Credit Union is “a relatively small organisation”, it has a strong technology backbone which will help make this kind of connection function. The relationship Scott and Stubbs are describing is “not unusual internationally”, says Tripe. He says that growing it rapidly would be difficult for the credit union, and that “if it were to include other credit unions and co-ops that would certainly make it more significant”. Stubbs is cagey about its potential to expand beyond First Credit Union. “Possibly, but Simplicity would be only one voice,” he wrote via text. “It doesn’t need everyone, but it does need enough players for sure.”

Still, for all its sub-scale beginnings, Tripe sees the tie-up as cautiously positive for New Zealand. “Let’s wait and see how it goes,” he says. “There’s no intrinsic reason why it can’t work.”