Fintechs want banks stripped of power over future of open banking

Tuesday, 27 February 2024

The Commerce Commission intends to make a decision by July 10.

Fintech companies Squirrel and Dosh want the Commerce Commission to end banks’ control over the development of open banking.

Bank-owned Payments NZ applied to the commission for authorisation to ”further develop“ its API Centre, which is developing open banking standards intended to one day allow third parties to connect with banks to offer improved payment and account management services.

But Payments NZ is a private company owned by ANZ, Westpac, Bank of New Zealand, ASB, Kiwibank, TSB, HSBC and Citibank, which has applied to the Commerce Commission about its plans for the API Centre because of the “risk of it involving cartel conduct”

Fintech companies Dosh and Squirrel have written to the commission to ask that a government-owned organisation be appointed to develop open banking, which has the potential to increase competition and innovation in banking.

Payments NZ says the API Centre is an efficient way to develop open banking standards, and avoids banks having to enter bilateral arrangements with individual fintech companies.

The big banks all have ownership stakes in PaymentsNZ.

Banks have already been accused of dragging their heels on open banking, which is more advanced in Europe and the UK, and fintech companies have now told the commission that leaving banks with the whip hand potentially allows them to slow, or restrict the development of open banking.

Local payments fintech Dosh has told the commission that there is a massive power imbalance between banks and fintech companies, and that PaymentsNZ was “conflicted“.

“Dosh believes an independent organisation should be appointed to oversee the roll out and governance of Open Banking in New Zealand,” Dosh said in a letter to the commission, which has invited public submissions on Payments NZ’s application.

Dosh said the organisation in control of open banking standards “must be independent and seen to be independent” from both the banks and fintech companies to ensure the competing interests of both parties are fairly met.

It suggested the Financial Markets Authority Te Mana Tātai Hokohoko, which is the regulator of financial markets, should be the appointed body.

Squirrel chief operating officer Dave Tyrer pointed to sustained high bank profits as an indicator competition may be lacking.

“This approach aligns with other overseas jurisdictions that are more progressed with Open Banking than New Zealand,” Dosh told the commission.

Dosh co-founder Shane Marsh said if the API Centre was allowed to continue, it should be “decoupled” from Payments NZ, and report directly to the FMA.

Squirrel, which is a major mortgage broking and lending brand, said Payments NZ had been working on APIs since 2015.

“What cost has this delay had in terms of the pursuit of innovation and competition? Is it acceptable that a bank-owned entity has been unable to reach consensus on a mandate until recently to implement new services from work commenced in 2015?” Squirrel chief operating officer, Dave Tyrer, said in the company’s submission to the commission.

He said had regulators intervened, consumers would by now have seen more innovation, and enhanced competition.

“Over those nine years, New Zealand’s five main banks have arguably sustained or increased their dominance, while the fledgling fintech sector has been starved of opportunity,” he said, pointing to high bank profitability suggesting a lack of competition.

“The Commerce Commission, in conjunction with the Council of Financial Regulators, should determine the best owner within government to manage ‘Open Standards’ and reject Payments NZ’s application to control open banking,” Tyrer said.

The commission intends to make a decision by July 10.