By Gareth Vaughan
The operating model pursued by the country's major banks isn't working for New Zealand at the moment, at least not for our small and medium sized businesses, Andy Hamilton says.
Hamilton, co-founder at small business support forum Manaaki and former CEO of The Icehouse, says the COVID-19 crisis has exposed a series of issues with the banking system for SMEs.
"I don't think the banks are bad. I just think the operating model is not optimal for New Zealand right now," Hamilton says.
Banks have been "amazing" towards SMEs, or small and medium sized enterprises, that had existing bank facilities going into the crisis. The problem has been for SMEs that didn't have an existing banking facility when the COVID-19 pandemic hit, Hamilton says.
"if you're part of that SME world that doesn't have an existing facility coming into COVID, they [bank] are just really not set up to take on that sort of risk. So that has been a really big challenge. I think the other big challenge is the banks weren't equipped for the mass volume demand that came from customers. And that's because they lack digital origination, scoring and fulfilment. So there is a big need, I think, to have better digital processes in our banks."
Hamilton says the danger for some businesses is if they don't get access to funding they will die. And he says he understands the counter argument that maybe they should go out of business.
"I don't have the answer to this question around risk because I understand why the banks are not lending to so many SMEs, because of the inherent risk that sits there," says Hamilton.
"I think that's just a very hard situation. Would I like to see a more aligned partnership with the banks and government? yes."
"You've just got to look at the IRD cashflow loans scheme, what is it? Half a billion [dollars] has gone out the door already to 38,000 businesses. That could've been done by the banks if we had a better relationship between the government and the banks," says Hamilton.
(By 4pm Tuesday IRD says loans approved and disbursed under the Small Business Cashflow (Loan) Scheme totalled just under $698 million to 40,280 applicants, with the average dollar value of loans approved $17,326).
"I [also] think we need to see more digital competence in the banks, I think we need to see more competition, and more opportunity for alternative funding vehicles to come into the market. I'd love to see a small business funding marketplace...I think we should be legislating for open banking, I think the banks want more certainly around open banking," Hamilton says.
Asked whether he thought the government should regulate retail payments, a significant cost for SMEs and an issue interest.co.nz recently probed at length, Hamilton says he believes New Zealand has a pricing and margin issue.
"It's just the structure of a long thin country that has a lack of competitive elements. And I think we do need to be harder on pricing and harder on margins that certain businesses are allowed. The energy companies is another one. I don't know whether the pricing is fair in banking or in energy. I would like to know that someone would look at that and go 'actually that's not a fair price'," Hamilton says.
"I think there should be stronger pricing regulation in New Zealand, same with the building industry."
On Tuesday Grant Robertson, Stuart Nash and Kris Faafoi, the Ministers of Finance, Small Business, Commerce and Consumer Affairs, announced they've written to more than 40 significant enterprises and banking industry representatives to request they join efforts to support SMEs.
“We want 95% of invoices paid within 10 working days. Once the impact of COVID-19 arrived on our shores we directed all government agencies to bring forward the prompt payment target with immediate effect. Improving payment terms is a priority. Paying suppliers faster is an important way to unlock cash-flow and productivity benefits, which supports ongoing business sustainability and growth," Robertson says.
Hamilton welcomes this. He argues that with data and digital technology these days big companies can pay smaller suppliers promptly and hopes they don't revert to paying on the 30th of the following month once the crisis recedes.
"Just to get this economy going large can look after small and that's all about social licence. So I hope the government doesn't have to legislate, but I think if they don't see evidence that this is happening then they will legislate," says Hamilton.
"An interesting challenge would be would government legislate for a greater proportion of their contracts to be local producers? That's a very challenging area that I'd love to see some progress on as well."
Hamilton says more than 50,000 people have visited the Manaaki website in about a month, asking about 500 questions. Of these about 100 have been about online, digital and social media issues.
"Sometimes it's quite opaque to find out how you as a business owner can learn about Facebook, or learn about Instagram. So I think how we make those tools more accessible is a really important thing," Hamilton says.
"Putting a website up is not a hard thing these days. Building a community around your website, understanding the Facebook algorithms, the Google SEO, that is actually quite challenging."
He would like to see work by the private sector and government to "help small businesses digitise in a way that is way more effective."
*This is the tenth interview in a series looking at reactions to and potential policy responses to the coronavirus pandemic and evolving economic downturn.
The first interview, with staunch critic of the economic mainstream Steve Keen, is here.
The second interview, with director at economic advisory firm Landfall Strategy Group David Skilling, is here.
The third interview, with Motu and Victoria University's Arthur Grimes, is here.
The fourth interview, with Patrick Watson, senor economic analyst at Mauldin Economics, is here.
The fifth interview, with Climate Change Commission Chairman Rod Carr, is here.
The sixth interview, with Director of the Centre for Sustainability at the University of Otago Janet Stephenson, is here.
The seventh interview, with Frank Jasper, chief investment officer at Fisher Funds, is here.
The eighth interview, with strategy and risk consultant Raf Manji, is here.
The ninth interview, with Professor of Mechanical Engineering at the University of Canterbury Susan Krumdieck, is here.
*This article was first published in our email for paying subscribers. See here for more details and how to subscribe.