Govt unveils intervention plan as country lags on open banking

Monday, 2 September 2024

Commerce and Consumer Affairs Minister Andrew Bayly is intent on bringing more competition into retail and business banking.

The Government has opened a consultation into measures to force big banks to quickly implement open banking, saying New Zealand had fallen behind not only developed countries, but also countries in the developing world.

The consultation, announced by Commerce and Consumer Affairs Minister Andrew Bayly, asks for public feedback on “designating” the banking and electricity sectors under laws that have yet to be passed by Parliament.

Those laws are contained in the Customer and Product Data Bill, which seeks to give individuals greater power to require companies such as banks, insurers and power companies to share the data they hold on them.

The Government hopes that will spark a new era of competition in industries characterised by high levels of profitability.

“At the moment, banks and electricity companies are operating inside a walled garden. Both sectors are dominated by a handful of large, profitable companies that face little competition,” Bayly said.

“Applying the Customer and Product Data Bill to the banking sector would give customers the right to share their banking information with third parties and make payments through new payment services,” he said.

The Commerce Commission’s report slams NZ's banking sector for poor competition. It calls for more capital for Kiwibank, faster open banking, and better consumer choice. Finance Minister Nicola Willis promises action to address these issues.

The Government hoped that would accelerate the rise of neobanks, and non-bank fintech companies, facilitating easier, cheaper and better banking services.

Already several fintech companies - Dosh and Debut - have said they are seeking to become banks, but the Commerce Commission has been told that banks have a large measure of control about the pace at which open banking is developing, and that the glacial pace of the development of open banking had seen several fintech start-ups go bust.

The consultation document continued a narrative of accusation against big banks.

“We understand that third parties have already run into difficulties with only being able to negotiate commercially viable deals with some banks and not others, undermining the overall viability of their products,” the consultation paper from the Ministry of Business, Innovation and Employment (MBIE) Hīkina Whakatutiki says.

“All of these barriers are impacted by weak incentives for banks to open up access to customer data and payments on terms that could compete with existing arrangements and payment networks,” the paper says.

The proposed designation would allow the Government to regulate not only open banking standards, but also the fees, terms and conditions banks could impose on the likes of Dosh and Debut for data access.

The political rhetoric about banks has heated up. Finance Minister Nicola Willis and Commerce Minister Andrew Bayly have taken an increasingly aggressive line on increasing competition in banking.

If the Government does not designate the banking sector under the proposed law, MBIE fears banks might exploit their power.

“We consider there is a high risk that lack of incentives and barriers to adoption of open banking will continue to inhibit its efficient and widespread use,” MBIE says.

“While progress has been made recently, there is a risk that, over time, banks lose interest in further developing and expanding access to open banking, focussing on other activities.

“Compared to a number of other countries, the implementation of open banking in New Zealand has been slow.”

The European Union and UK are a long way ahead, after governments stepped in to direct bank behaviour, and Australia has taken a leap ahead of New Zealand as well, MBIE’s consultation document shows.

It is not only the countries that New Zealand likes to compare itself with that are ahead of New Zealand on open banking.

“In the developing world, mobile payments powered by APIs dominate the payment systems of some countries,” MBIE says.

APIs, or Application Programming Interfaces, are sets of rules and protocols that enable software applications to safely and securely communicate with each other, for example, allowing for the development of services like open banking.

The consultation comes as Parliament’s finance and expenditure select committee readies itself to hold an inquiry into banking, and just two weeks after the Commerce Commission published its market study report outlining its recipe for injecting more competition into retail banking, which relied heavily on speeding up the rise of open banking.