Snowballing of young people without bank accounts

Saturday, 16 March 2024

Banks have closed many bank branches, which may be contributing to a growing number of young people without accounts.

As many as 35,000 youngsters did not have a bank account in 2021, according to figures provided to MPs by the Reserve Bank of New Zealand Te Pūtea Matua.

Quoting World Bank data, the Reserve Bank told MPs it supported education software entrepreneur Jeff King’s call for action to make it easier for young people to open bank accounts.

King’s call for politicians to act was also supported by KiwiSaver fund manager Rupert Carlyon, from Kōura, who took to social media after finding out how hard it was to open accounts for his children.

The World Bank figures provided to MPs by the Reserve Bank are estimates for people aged 15 to 24 who do not have bank accounts derived after phone surveys.

If the data is correct, the number of unbanked has climbed from between 5000 and 10,000 in 2011. However, the Reserve Bank said it was difficult to estimate the scale of the problem with a high level of accuracy.

Jeff King, founder of the MyMahi education platform, met National MP Andrew Bayly in June last year to submit a petition to Parliament asing MPs to take action to make it easier for young people from less affluent households to open bank accounts.

But the Reserve Bank said its own research suggested access to bank accounts for young people had become “constrained”, but did not explain why, though King has pointed out banks have withdrawn school banking services, and many branches have closed.

King petitioned Parliament for action after he surveyed 47,000 teen school children who used the MyMahi education platform, asking whether they had bank accounts, and within 24 hours just over 1000 had responded, with a third saying they did not.

The petition was carried into Parliament by National’s Andrew Bayly, who was in opposition at the time, but is now the Commerce and Consumer Affairs Minister.

As many as 35,000 youngsters did not have a bank account in 2021, according to figures provided to MPs by the Reserve Bank.

Bayly showed he was not shy of putting pressure on banks when he delivered them an ultimatum on providing better fraud protection for customers at the start of the month.

King said it was too hard for young people to open an account and it was time politicians stepped in to fix the problem.

King said as a result of anti-money laundering laws and regulations, banks usually required a passport or birth certificate to open a bank account, and young people also needed to make an appointment with their parents in person at the bank.

Some families could not manage this, sometimes because of time pressures, sometimes because they could not afford the identity documents banks demanded, or proof of address, King said. Sometimes difficult family circumstances made things even harder.

MyMahi has created a digital identification card for school pupils, and hopes banks will accept it as a form of identification to open bank accounts.

“We believe requirements for physical IDs and in-person appointments are costly and outdated barriers. Young people, educators and parents tell MyMahi that many rangatahi struggle to open accounts,” King said.

Not having a bank account was a barrier to engaging with the modern world, he said.

MyMahi has devised a system of digital identification documents for pupils, with their teachers verifying the identity of pupils.

Kinghoped banks would adopt the system as a form of identification for opening accounts, one day enabling fully digital sign-up processes for bank accounts.

In its submission on King’s petition, the Banking Association said: “Identification and address verification requirements for youth – and particularly youth who may not be able to afford or obtain access to accepted forms of identification – is an area that we are aware of that presents problems for would-be customers.”

A working group of banks, regulators, policy makers and community representatives should be created to better understand the challenges, and workshop potential solutions, the association said.

The Reserve Bank of New Zealand Te Pūtea Matua is concerned about young people without bank accounts.

King believed the unbanked young were a canary in the coal mine indicating how far New Zealand had to go on developing the digital identity documents needed to create an efficient, modern economy.

Countries including India and Estonia have developed digital identification systems to enable the modernisation of their governments and economy.

But such centralised digital identity systems had been rejected in New Zealand due to concerns about government power, said Matthew Cleland, from digital identity solutions company Middleware.

KiwiSaver manager Rupert Carlyon from Kōura.

And the government’s RealMe digital identity system created in 2013 had failed to provide the solution, Cleland said.

Instead, the country had passed the Digital Identity Services Trust Framework Act to enable private providers to create digital verification services, but so far Cleland said there was no sign of solutions being created.

Even if New Zealand did see the development of digital identities, the young people struggling to get bank accounts would still face hurdles to getting into the system, King said.

That meant systems like MyMahi’s digital identity documents would still be needed, he said.

King’s call for “a political push” has the support of KiwiSaver fund manager Rupert Carlyon, from Kōura.

Carlyon took to LinkedIn last weekend to bemoan how hard it was to open accounts for his children, aged 3, 6 and 9.

“The first bank (that I and my wife have both banked with since we were kids) has said that we need to make an appointment with the kids to set up the accounts. It will take 30 minutes for each kid,” he posted.

“Unfortunately though, the branch closes at 4pm, so the latest appointment they will give us to do this is 2.30pm. And the kids have to be there. Am I mean to pull them out of school to do this?

“The second bank also makes us set up appointments. Though at least the kids don’t need to be there. The only issue is that we need to do this in two separate appointments, as they can only on-board three customers at once. So will need two appointments to onboard all five of us.

“And the first appointment we can get is in three weeks’ time! Will probably give up and just use a money tin for the kids.

“People going unbanked is a real problem, and I suspect is only getting worse based on this experience,” Carlyon said.

He warned banks that unless the problem was solved, many young people would give up and sign up for one of the new generation of digital money management services like Dosh or SquareOne, which at least do not require in-person appointments, even if they did still require identification documents.

A flood of comments followed Carlyon’s post, most agreeing, including from one ASB private banker, who said: “I agree that it's not an easy process, but it's a one-off drill and they'll be sorted for the next 10 to 15-plus years or until legislation changes again.”