‘Glacial’ pace towards open banking criticised

Tuesday, 14 May 2024

The Reserve Bank and the Commerce Commission see open banking as key to bringing more competition into New Zealand’s banking sector.

New Zealand lacked a convincing “roadmap” to implementing open banking to boost competition in retail banking, the Commerce Commission has been told.

On the second day of the commission’s Auckland conference on banking competition, commission chair Dr John Small said the commission wanted to see open banking be fully operational by June 2026, and was focused on identifying “blockages” holding open banking back.

But speakers at the conference told him without a detailed national “roadmap”, they doubted whether the commission’s open banking 2026 target would be met.

Tex Edwards from Monopoly Watch urged the commission to take a hard line with banks, who he said have been moving at a “glacial pace”.

Without change, Edwards said: “This is a roadmap to Botswana. This is not a roadmap to Wellington.”

Open banking is a term generally used for banking services being provided by technology companies in competition to banks, potentially providing cheaper banking for households and businesses.

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One example of open banking the conference heard was for fintech companies to provide an app-based cheaper-than-paywave way to pay in stores by making direct payments from their bank accounts into the account of the store owner.

Both the Reserve Bank and the Commerce Commission see it as key to bringing more competition to counter the power the big four Australian banks.

ANZ’s head of open banking Jody Bullen said: “The industry has committed to delivering open banking”, but acknowledged: “It may not have been as fast as people expected.”

However, without criticising successive governments’ inaction, Bullen said New Zealand needed consumer data right laws to protect customer data, rules on fraud compensation, and digital identities to be developed in order for open banking to be developed safely and securely, and to be trusted by the public.

Commerce and Consumer Affairs Minister Andrew Bayly said last week he was “very, very close” to introducing consumer data right legislation to Parliament, though the conference heard there was little confidence in a trusted and usable digital identity system emerging soon.

Commerce Commission chair Dr John Small says the commission is focused on identifying ‘blockages’ holding back open banking.

The conference also heard that big banks needed to update their banking systems to cope with the demands of open banking.

Safe and trusted open banking system required banks to have APIs in place, which are secure technology interfaces between them and third-party fintech companies through which customer data can be securely transferred in real time.

There also need to be systems to ensure only trustworthy companies are able to get access to those APIs to reduce the chance of consumers’ data and money being stolen or lost.

Bank APIs are being developed under the auspices of the API Centre at Payments NZ, the self-styled “governance organisation at the heart of the payments system”, but which is a company co-owned by ANZ, ASB, BNZ, Citi, HSBC, Kiwibank, TSB and Westpac.

Worldline head of public affairs Julia Nicol says banks are rational, and not keen to do things that reduce their profits.

The banks that own Payments NZ have been accused of going slow on developing APIs, and the Banking Reform Coalition is campaigning for the government to step in to force the banks to sell out of PaymentsNZ so it can be independent.

Julia Nicol, head of public affairs at open banking company Worldline, said banks controlled the “appetite” of the API Centre to enable services that threatened profitable lines of bank business.

“Banks are perfectly rational,” Nicol said. “They have great payment products that bring in a great return.”

Tex Edwards, founder of 2degrees and committed anti-monopolist, says banks are moving at a glacial pace on open banking.

Doing something to threaten that would not be a decision banks usually made, she said.

Edwards urged the commission to fix banks’ “AI” problem: “Attitude and incentives”.

“There is no incentive for open banking,” he said.

The UK has moved on open banking much faster than New Zealand.

“If I’m at ANZ, I don’t want the consequences coming down at me, and a transfer of monopoly rent and huge transfers of wealth from my bank to my customers,” Edwards said.

He likened the reasons given by banks for going slow on open banking to be similar to those given by telecommunications companies in 2006, and building supply companies in the recent commission market study on why building materials were so expensive.

“This is the same movie as the previous market study into building materials, and mobile portability in 2006. We have heard it’s too complicated. We have heard New Zealand is different. We have heard of glacial pace.”

The conference heard New Zealand lagged the UK and Europe in the development of open banking, and did not yet even have the capability to deliver instant payments, which are becoming common overseas.

Adam Gagen, global head of government affairs at digital banking provider Revolut, urged New Zealand regulators to ensure it had clear, transparent data so failures to deliver on open banking were quickly identified and fixed.

Consumers and businesses needed to have a powerful voice, and a seat to the table when it came to identifying where open banking was not working well, he said.

There were some fears expressed that banks would charge high fees for using their APIs, stifling its uptake. Gagen urged that there been no fees on payments, leaving banks to absorb the costs.

Revolut operates in New Zealand, one of 41 countries it operates in, but New Zealand has other open banking companies including Dosh, Blinkpay, Akahu, and Worldline.

Because of the lack of APIs in New Zealand what open banking that exists was referred to as “unregulated” at the conference, with fintechs using their customers’ bank login details to access bank systems to make payments and deliver other services in breach of bank terms and conditions.

Ahakhu’s Josh Daniells estimated a million New Zealanders were using unregulated open banking systems.