Commerce Commission calls for beefed up Kiwibank and open banking in final report

Tuesday, 20 August 2024

Nicola Willis responds to Commerce Commission banking market study

Kiwibank needs to strengthened and open banking must be brought in to bring more competition to the bank sector, the Commerce Commission says.

Its final report on personal banking repeated there was little competition in the sector, with the dominant big four Australian owned banks making high profits, while Reserve Bank’s rules make it difficult for smaller banks and new entrants to challenge.

Commission chair John Small said a properly functioning market would have stronger competition and more aggressive efforts to compete for customers.

“What we see in New Zealand is that the major banks have little strategic differentiation, and their growth targets focus on maintaining market share and protecting margins and profitability.”

Kiwibank needs to strengthened to bring more competition to the sector, the Commerce Commission says. (File photo)

Small said changes were needed to “bake in” disruption particularly to encourage the development of open banking to allow consumers easier bank switching or being offered competing services and products from third party finance concerns.

“We believe that the best prospect for driving change in the sector will come over time from accelerating open banking and ensuring that the regulatory environment better supports competition.”

He said banks had been too slow in developing open banking and it would need the Government and industry to work together to bring it in.

The report said disruption was needed to shake up the sector ranging from easing the financial requirements needed for small banks to compete or new companies to enter the market.

Finance Minister Nicola Willis and Commerce Minister Andrew Bayly address the Commerce Commission’s banking study.

“We also see a need for progressive regulation, where competition is given a higher weighting to ensure an appropriate balance between financial stability and competition.”

Finance Minister Nicola Willis said the Government welcomed the Commerce Commission’s report. The Government “will act” on all 14 recommendations, she said, and expects to take a plan to the Cabinet by the end of the year.

“Today’s report calls-out the market behaviour of New Zealand’s big four banks: they are highly profitable compared with international peers, they lack innovation and do not aggressively compete for customers,” Willis said.

“Instead, ‘competition’ between them resembles a cosy pillow fight, with profit margins coming first and everyday Kiwis coming second.”

Beefing up Kiwibank

Lloyd Burr explains why there's always a difference between the Official Cash Rate (OCR) and the mortgage rates banks charge us.

The commission said the Government should find ways to increase the capital funding of Kiwibank, which has about 7% market share, so it could be a more effective competitor.

It also called for rule changes to reduce the financial burden on smaller banks and other finance concerns wanting to enter the sector.

“We also see a need for progressive regulation, where competition is given a higher weighting to ensure an appropriate balance between financial stability and competition.”

Small said changes were also needed to put more power in the hands of consumers, including improving the bank switching process, changes to the way mortgage offers were presented, and mortgage advisers and banks to promote price competition and choice.

The recommendations are little changed from the draft report in March and steer clear of suggesting the big four Australian banks should be broken up.