Smashing the oligopoly: Takeaways from the ComCom's bank conference

Wednesday, 15 May 2024

The big banks are a stable oligopoly, the Commerce Commission says. It’s looking for ways to bring competition to retail banking.

ANALYSIS: The Commerce Commission held a three-day conference on banking this week looking for ways to bring more competition to the big four Australian banks and bring down the high cost of banking for households.

The conference was part of the commission’s market study into retail banking, ordered by the last government after public anger mounted that banks were making record profits even as households were suffering a cost of living crisis.

The chief executives of the big four banks attended the sessions in Auckland, but so did the founder members of the newly formed Banking Reform Coalition, who have presented a blueprint for smashing the oligopoly power of ANZ, Westpac, ASB and Bank of New Zealand.

Here are the big takeaways from the conference:

ANZ chief executive Antonia Watson (top left), Westpac chief executive Catherine McGrath (top right), ASB chief executive Vittoria Shortt (bottom left) and Bank of New Zealand chief executive Dan Huggins.

Banks are taking this very seriously: The big four bank chief executives attended the conference, ANZ’s Antonia Watson came to all three days. So did BNZ’s Dan Huggins and Westpac’s Catherine McGrath. ASB’s Vittoria Shortt came to the first day. The previous three market studies conducted by the commission (building materials, retail fuel and retail groceries) did not prompt the attendance from the very top end of the C-suite. Opinion at the conference was divided on whether that illustrated the level of threat the big four banks felt from the market study, or the hubris that they could talk the commission down from making radical recommendations for change to the Government.

The Banking Reform Coalition’s Kent Duston explains how banks should be broken up.

Anti-monopolists think the commission is not asking the right questions: The question the commission should be asking, according to Tex Edwards from Monopoly Watch and co-founder of the new Banking Reform Group, is what needs to change for well-capitalised challengers to emerge to take the fight to the big banks. Without that, he said, nothing would really change. Is it pouring billions to capitalise Kiwibank, or is it to simply say enough is enough and split up ANZ and ASB, possibly enabling iwi Māori to take an ownership stake in a bank?

There is hope in the banking sector that Commerce and Consumer Affairs Minister Andrew Bayly understands the need for Government action.

Open banking needs taking out of the big banks’ hands: Big banks should not be allowed to control the speed of development of open banking, the commission was told. Open banking is a term used for a form of digital disruption that allows fintech companies and so-called neobanks to bring competition to banking. Government and regulators needed to step in to end the “glacial” pace of its introduction.

Public has been let down by successive governments: Why haven’t we got safe open banking yet? Where are the digital identities that would make it easier for people to open bank accounts online? Where are consumer data right laws to grant us, the people, ownership of the data banks have on us, and to govern its use? Where are the fraud compensation laws? As a country our politicians have too long failed to get ahead of the digital curve, and we are playing catch-up in a big way. There is some optimism about Commerce and Consumer Affairs Minister Andrew Bayly, who is about to introduce a consumer data right law, but there is continued head-scratching over why a government would decide it was sensible to have a commerce minister who was not a member of cabinet.

Kent Duston is one of the new faces of the Banking Reform Coalition calling for a fairer banking deal for New Zealand, including the break-up of the big banks.

Open banking is not a magic fix: The commission and the Reserve Bank Te Pūtea Matua seem to be hanging their hopes on open banking smashing the power of the banking oligopoly. Shane Marsh, co-founder of open banking start-up Dosh, said that was naive. Echoing Edwards, Marsh told the commission that nothing would really change until there were challengers of scale to take on the big banks, and that would require the Government to put in place pro-competition policies designed to help them emerge.

The Reserve Bank is a competition problem: The central bank had prioritised the financial stability of too-big-to-fail banks (which policy mistakes of the past allowed to grow into monsters) over competition in the banking sector, the conference heard. As a result, regulation on challengers to the banks was just too onerous. That was one reason why New Zealand had not seen a real challenger emerge in the banking or finance company sector in more than a decade. The Reserve Bank was not at the conference to defend itself. Nobody who did, not the start-ups, not the big banks, was minded to defend it.

The resistance has emerged: Banks have massive lobbying power and access to powerful consultants. The conference saw the launch of the Banking Reform Coalition to be the voice for change. It paralleled the emergence of lobbying groups that emerged from the commission’s market studies into groceries and building materials.

Banks almost agree a bank account is a human right: One of the few areas where agreement broke out among everyone at the conference was that a bank account should be nearly a human right. There are concerns that banks closure of branches, especially in rural areas, combined with anti-money laundering laws successive governments have failed to reform, and banks preferences not to have unprofitable customers, has been locking marginalised people out of the banking system. The big four banks all agreed the commission should recommend all banks offer a basic account, which does not include an overdraft, to anyone who needs it, with limited exemptions for violent people, including as Huggins said, bank robbers.

Banks are letting charities down: Banks got a tongue-lashing from academic Jane Horan whose study last year revealed how hard it is for charities and other not-for-profits to do their banking. It could take 10 meetings with a bank to organise putting the name of a new trustee for a charity onto a bank account, she said. “Banks don’t know how to bank charities and not-for-profits, or vulnerable people.” Across all the banks, staff were poorly trained, she said. “This is in the territory of social licence to operate,” she said. Huggins acknowledged her criticism, and said BNZ was working to get better. “We haven’t done a good enough job for your organisations,” he said. “We need to do a better job for you.”

Banking Māori development is improving: All the banks now have heads of Māori business, and while there is a long, long way to go, there are signs the big banks, Kiwibank included, are learning to finance iwi, hapu and individual whānau to build their businesses, and build homes. Banks are no longer sitting on their hands waiting for Government or Māori to sort out the issues, the conference heard. Edwards told the conference that Māori owning a bank would really accelerate the change.