Is 2025 the year ‘basic’ bank accounts are created to end NZ’s rising unbanked figures?

Sunday, 19 January 2025

Banks have shifted from brick and mortar branch-delivered services to providing increasingly digital services. That’s not made things easy for some groups in society.

EXPLAINER: School software entrepreneur Jeff King kicked off a national debate in 2023 on whether changes to the banking system were leaving an increasing number of people unbanked.

He was especially concerned about teenagers starting out in life hampered by the inability to easily open bank accounts, stunting their money educations, and school-era job prospects having found there were a lot of them.

Even well-resourced people were finding it time-consuming to open accounts, and younger teens needed a lot of parental input to make it happen.

Then the debate widened as financial regulators weighed in, and researchers and others raised voices to identify other people ending up debanked, and unbanked including prisoners, ex-prisoners and bankrupts.

It even turned out there were people getting their benefits paid into other people’s accounts because they did not have bank accounts, risking having their benefits stolen.

Now, 2025 could be the year the country gets “basic” bank accounts designed to be available to the people banks are least keen on having as customers, and trust the least.

The Government says it is pushing ahead with moves to increase banking competition by boosting Kiwibank with a capital raise.

However, King believes the real key to reducing the number of unbanked teens was to give them “verified” digital credentials banks could trust so they could easily prove to banks they are who they say they are, and open accounts on their mobile phones.

This year would see King’s MyMahi conduct a pilot project with the Department of Internal Affairs to test giving verified RealMe credentials to teens using the MyMahi platform to manage their schoolwork.

Banks have complained anti-money laundering laws mean they need to see identity documents and proof of home address for people before they can open accounts for them.

That can be a huge challenge for teens from less affluent homes where parents lack skills, time and money.

What is a basic bank account?

Work this year will reveal the details.

Jef King, founder of the MyMahi education platform, meets National MP Andrew Bayly in 2023 to submit a petition asking MPs to make it easier for young people from less affluent households to open bank accounts.

It is likely to be a transaction account with no interest, no (or very limited) overdrafts, and very limited transaction services, including limiting transaction levels and online payments.

The idea behind it is that such accounts could give banks comfort that they can safely give accounts to the likes of ex-crooks, drug-dealers, gang members, bankrupts and others they are nervous about with limited risk of their accounts being used for nefarious purposes.

Basic accounts would be personal accounts.

As the legal battle following BNZ’s decision to debank the Gloriavale religious community shows, banks’ terms and conditions allow them to debank customers “for any reason”.

The BNZ court case involving Gloriavale indicated banks can decide not to bank people and organisations ‘for any reason’.

Basic bank accounts, it is thought, could provide banks an alternative to debanking people.

If someone was caught acting as a money mule for scammers banks would be able to switch that person onto a basic account, for example.

Over the course of 2025, a spokesperson for the Council of Financial Regulators said the organisation would be undertaking further consultation and engagement to explore pathways to make basic bank accounts widely available.

Regulators became especially concerned about financial inclusion under the last two governments during a period when the spotlight fell on the divide between the haves and have-nots.

How many unbanked people are there?

It appears that at any one time there are a large number of teenagers who do not have bank accounts. Tough bank requirements for people to prove who they are, and where they live, as well as the closure of many branches, can make that very hard for people from less wealthy, time-pressed, and well-functioning families.

Nobody really knows. The best estimate is around 50,000 in 2023, but that’s a World Bank estimate, and it only includes people aged 15 and over.

Most of these people are considered temporarily unbanked, like the teenagers, and in time they would be expected to find their way to getting a bank to give them an account.

But it is an estimate that has been rising in recent years. Banks consider this to be the fault of tough anti-money laundering rules, while others believe it is due to bank branches closing, and banks’ drive to digitisation, which has not favoured everybody equally.

There are some individual projects by banks that have helped, such as Westpac’s accounts for prisoners partnership with Corrections, and ANZ’s work on getting separate accounts for domestic violence victims.

The Council of Financial Regulators would like to see banks collecting data so the extent of the issue can be better understood.

How might basic accounts be brought in?

This is a live question. Passing new laws is not the favoured route of the banks, but if banks are right, and anti-money laundering laws are getting in the way, there may need to be some law changes.

Kiwibank has told the Commerce Commission that all banks should issue a fair share of ‘basic’ bank accounts.

Banks would prefer some kind of industry accord, though their discussions indicate they do not entirely trust each other, and some transparency and regulation may be needed.

Part of the reason they may favour an industry accord is that they seem leary of a government passing any laws that appear to make access to a bank account akin to being a human right.

They want to retain the right to refuse to bank some people, for example, those who have tried to rob them, or have been abusive, or violent to staff.

At a conference last year, several bankswanted mechanisms to ensure all banks took their share of the least desirable, least potentially-profitable, customers.

The Council of Financial Regulators’ spokesperson said no decisions had been taken regarding a regulatory or industry-led approach to set standards for the provision of basic bank accounts.

Can the identification nut be cracked?

The MyMahi project indicates that once people have been identified by a trusted institution like a school, it is possible to issue them with a verified digital identity.

Other organisations may be able to coat-tail the project, if it is successful.

But it is fair to say there is a growing desire in and out of government for trusted digital identities to enable a transformation of the economy and government services.