About fintechs and the DCS
A fintech is an entity that uses technology, like online platforms and mobile apps, to provide financial services to its customers. These may include:
- payment services providers which facilitate (electronic) payments for goods and services between customers and merchants, or
- e-wallet providers which provide a means for customers to store funds in online 'e-wallets'.
Some fintechs don’t hold their customers’ money themselves. Instead, they hold the money under a trust arrangement with deposit takers that are registered or licensed by the RBNZ, and which are therefore 'licensed deposit takers' for the purposes of the DCS.
Those fintechs may claim that the DCS protects their customers’ money because they hold their customers’ money with licensed deposit takers.
Is money held with fintechs protected by the DCS?
The extent to which your funds are DCS protected, upon the failure of a fintech or the underlying licensed deposit taker with which the funds are held, will depend on the specific trust arrangement your provider has set up for your funds. These arrangements may differ between providers. The RBNZ cannot advise you on how each provider's trust arrangements work and whether you would be entitled to compensation for your deposits under the DCS.
If your money is held with an entity that is not on our list of licensed deposit takers that offer DCS-protected deposits, we encourage you to get independent advice on whether your money would be protected under the DCS.
See the list of licensed deposit takers offering DCS-protected deposits
Does the DCS pay compensation if a fintech fails?
Customers will only be entitled to compensation for 'protected deposits' if the customer places the deposits with a 'licensed deposit taker'. If a fintech that is not on the list of licensed deposit takers were to fail, its customers would not receive DCS compensation for funds held with the fintech, even though the funds may be held by the fintech under a trust arrangement with a licensed deposit taker.
There may be other methods in which customers of the failed fintech could get their money back, such as through a liquidation process.
How your funds will be affected by the fintech's failure will depend on the structure of any trust arrangement under which your money is held. You may seek your own independent advice on this.
What happens if my fintech holds my funds with a licensed deposit taker that fails?
Fintechs may deposit your funds with a licensed deposit taker, to be held on bare trust for your benefit by that deposit taker.
Trust arrangements can be complex and how the DCS limit is calculated will depend on the arrangements the fintech has put in place and how they are subsequently carried out.
Even though you may have a unique individual account number associated with your fintech, the fintech may pool your funds with those of their other customers in a combined trust account with the licensed deposit taker.
Because the DCS pays compensation up to a limit of $100,000 per eligible depositor, per licensed deposit taker, the terms and performance of the specific trust arrangement would determine how much, if any, DCS compensation you may be ultimately entitled to from your fintech.
You may ask your fintech about the structure of their arrangements or speak with an independent adviser.
If the funds held by the fintech on your behalf are held on trust at a licensed deposit taker at which you also have your own deposits, there is a question as to whether:
- you are protected for up to $100,000 in total (for both funds held by the fintech on your behalf and for your own deposits) or
- you may be entitled to compensation of up to $100,000 for funds held by the fintech and separately for up to a further $100,000 for your own deposits with the same licensed deposit taker.
You may seek independent advice to make sure you understand how the DCS may apply to your situation.