ComCom chair ‘really thrilled’ by Government response over banking

Wednesday, 21 August 2024

Dr John Small fronted the Commerce Commission’s big reveal on Tuesday of a series of recommendations to inject much-needed competition into the highly profitable banking sector.

It brought an immediate enthusiastic response from the Government, with Finance Minister Nicola Willis likening soft competition between the big bank oligopoly to a “cosy pillow fight”.

The Government would act on all 14 recommendations made by the commission, Willis said.

The retail banking market study is the fourth market study by the commission, following studies into the retail fuel industry (2018 and 2019), the building supplies industry (2021 and 2022), and the grocery sector (2020 to 2022).

Small thinks the commission’s banking recommendations stand a good chance of being implemented, and delivering a better deal to Kiwi households.

But this time, the commission doesn’t just want to deliver its recommendations and retire from the field. It wants the Government to ensure it can drive the commission’s big hopes for bringing competition to the big banks: breaking the big banks’ go-slow on open banking and accelerating the rise of fintechs and neobanks.

It’s asked Andrew Bayley, Commerce and Consumer Affairs Minister, to “designate” the bank-owned payments system, giving the commission power to “actively drive competition and innovation” by ensuring the pace of open banking adoption is no longer glacial.

The Post put questions to Small about the commission’s plan to ‘attack’ big bank profits.

Good day, yesterday?

A great project. Really pleased to get this over the line, and really thrilled by the Government response.

Do you lose sleep before unveiling a plan to reshape an entire industry? Do you practice your speech?

I slept very well [on Monday night]. I don’t lose sleep over these things. There is a degree of practice. I know what’s in the report, and I had a script.

So, we have recommendations to bring more competition to banking. What next?

It’s in the Government’s hands at this point. They seem to have digested it, and responded pretty positively.

You probably notice we have offered to stick with the project and drive the open banking part of that along. We’re very much up for that.

Will we get open banking by your 2026 deadline?

I’m quite optimistic about it. I’m pretty keen to get a designation because that will allow us to push it hard. The risk is that the sector just kind of absorbs a bit of pressure, goes slow, and/or problems crop up that they can’t solve for themselves.

[At the May banking competition conference] there was a bit of a mood there for having regulatory involvement in the next stage of the process just to take the risk out of it, and to accelerate it.

We want all of the big four, and Kiwibank, to be running good API systems and partnering with fintechs. That’s kind of in the supply side of the project. It’s super important that it happens.

That “mood” wasn’t from the banks, was it? It was the fintechs asking for it

Very much so. You probably heard the figure that 12 fintechs folded in the last 12 months.

The share prices of Australian banks didn’t move much when you unveiled the recommendations. Does that indicate they aren’t very worried by them?

Not really, no.

The banks I think probably had a fair idea where this was going to land. It’s not very different in substance to the draft report [released in March].

We haven’t accused them of doing anything wrong. They’re responding to the environment that they are in, and they probably know that environment is going to change.

We are going to try and make it change a bit faster.

Do market studies make much difference? One commentator said the market study on the grocery sector hadn’t made any difference to the price of a trolley of groceries at the supermarket

I think they are a great tool. They are a really great complement to the enforcement work we do because they really shine a light on these really big important sectors, and there is change as a result. I think they work. I’m a big fan of them.

Improvements in competition take a little bit of time. There are no quick fixes.

You stuck with the recommendation that the Reserve Bank pay a mind to competition when it goes about its business, particularly when working out policy, such as how to implement a deposit guarantee scheme. Did you get a call from Govenor Adrian Orr after the big reveal?

I haven’t had a call from Adrian Orr, no. I did bump into him in the street not that long ago.

I think he will be okay with what we are recommending. We know they have got a few things on. We are suggesting some ways of going about it. We’ve taken on board some of the stuff they said to us after the draft report, so I think it will be okay.

There was not a word about splitting up the big banks. Why was that? Fear of litigation?

We’re not scared of that sort of thing, and these are only recommendations, so we could do what we like really.

Breaking them up in a horizontal way would be, I think, really difficult. You have got a whole load of different branches, but they are all intimately connected to the mother ship. It seems a really tricky proposition to split some of those away. It would require another core banking system, bearing in mind none of them have invested in their core banking systems, and are only getting to them now.

That vertical split, which has been promoted by the Banking Reform Coalition, we just don’t understand how it works to be honest.

It’s a case of picking your battles.

There are some situations where it has made sense. The Chorus-Telecom split; there was a lot of logic and sense behind that. It’s horses for courses, and I don’t think this is one where it makes much sense.

Personally, I think we can do better by just attacking them [the big banks] with the fintechs.

Is there something else coming down the track that could have a bearing here? The Customer and Product Data Bill, if passed, would introduce a consumer data right, giving individuals a right to data held on them by companies, like their transaction account data

The Government signalled that banking will be first, but there are other sectors that will be really fast-followers including the electricity sector.

New Zealand has taken this broad approach with consumer data rights, multi-sectoral, a bit like the way the Australians have done it.

Our roadmap is a little bit different, and I hope some of the institutions will be different from Australia, because we’ve learned a lot from them.

In particular, we think it’s important to getting payments in there early. The Australians are only just getting there now, several years later.

We also think it’s important to retain a lot of industry expertise in there, so it is industry-led, but government-guided.