There's been a lot of chatter about open banking following the Commerce Commission's report into personal banking this week. But what does it even mean? Let’s break it down.
Open banking is a system where customers can make payments and share their financial data with third-party providers, like fintech companies, through secure connections. It’s a move towards giving consumers more control over their finances, allowing them to access new services that go beyond traditional banking.Fintechs—short for financial technology companies—are key players in this. They use technology to offer innovative financial services, from payment options to budgeting tools. Open banking enables these companies to integrate with your bank, allowing them to deliver a more tailored experience.
At its core, open banking aims to simplify payments and how you manage your money. For instance, rather than relying on your bank’s app for transactions, you might use a fintech app to pay bills or split costs with friends seamlessly. Claire Matthews, a banking expert, explains that one of the main benefits is the ability to make payments without the friction of traditional banking processes.Imagine going out for dinner with friends—one person can pay the bill and send a payment link to everyone else. No more fumbling with account numbers or setting up new payees; you simply click the link and transfer the money.
The Commerce Commission sees open banking as a potential game-changer. By expanding this system, New Zealand could unlock greater competition in the banking sector. Currently, banking options are somewhat limited, with most people sticking to one or two main banks. But open banking could change that.With access to your financial data, fintech companies could create services that gather all your bank accounts into one place. That means you could manage your home loan from one bank, your savings account from another, and get the best deals across the board. Essentially, it gives you more freedom to pick and choose the services that work best for you.This also shifts some power from traditional banks to consumers, offering more flexibility and potentially better deals.
Sharing your financial data might sound risky, but the API (application programming interface) process addresses many security and privacy concerns. Fintechs using these APIs have strict protocols to ensure that only authorized parties can access your data, keeping it safe from breaches.
The Government and the Commerce Commission are already moving forward with plans to expand open banking in New Zealand. The Commission recently granted Payments NZ an 18-month period to further develop this framework, making it easier for third parties to participate and accelerate the rollout.Commerce and Consumer Affairs Minister Andrew Bayly has backed the move, targeting June 2026 for full implementation. He believes open banking could foster more innovation and competition, giving Kiwis better access to tailored financial services.
In the draft report earlier this year, the Commission's primary recommendation was for the Reserve Bank to review and potentially level the regulatory capital requirements between the big four banks (ANZ, ASB, BNZ, Westpac) and smaller banks. This was seen as critical to enabling smaller players to better compete. However, the Reserve Bank resisted this idea, and the final report has softened its stance on this issue. Instead, the report suggests implementing more granular standardised risk weightings for home loans, encouraging new market entrants, and expanding the definition of what entities can be recognized as "banks."
Despite stepping back from the capital requirement shake-up, the Commission has highlighted two key avenues for enhancing competition: strengthening Kiwibank and accelerating the implementation of open banking.
1. Strengthening Kiwibank as a Disruptor: The report identifies Kiwibank as the most likely candidate to disrupt the current dominance of the big four banks. With the government as its owner, Kiwibank’s capitalization could be increased, giving it the power to shake up the market, offer more competitive pricing, and challenge the entrenched oligopoly.
2. Open Banking as a Game-Changer: The report labels open banking as the long-term solution to unlocking competition. The Commission is urging the government and industry to ensure open banking is fully operational by June 2026. Open banking would allow consumers to more easily share financial data across institutions, leading to increased competition, better services, and lower costs for consumers.
Another central theme in the report is empowering consumers to make better choices and switch providers more easily. The Commission recommends enhancing transparency in home loan offers, improving the mortgage switching process, and reducing unnecessary costs for consumers. For instance, pro-rating clawbacks on mortgage broker commissions and standardizing comparisons between home loan offers could make it easier for consumers to find the best deals.Additionally, the report calls for targeted reforms that address underserved demographics, such as Māori communities seeking housing finance on Māori freehold land and the broader issue of access to basic bank accounts.The Road Ahead: Government and Industry Action
The final recommendations set the stage for a collaborative approach between the government, industry players, and consumer groups. If the recommendations are adopted, a steering group will be convened to fast-track progress, particularly on open banking and payment innovations. The report also signals the need for government involvement as an early adopter of open banking systems to build confidence in new services and solutions.
What Does This Mean for Kiwi Consumers?
In the short term, these changes could lead to more competition in the mortgage market, better pricing, and a more dynamic banking environment. Kiwibank’s potential expansion and the eventual rollout of open banking could bring more options to the table, challenging the dominance of the big four banks. For consumers, this means more power to choose financial services that best meet their needs, easier switching between providers, and ultimately better deals.As New Zealand’s banking landscape evolves, the Commerce Commission’s final report is a critical step toward fostering a more competitive, transparent, and consumer-friendly financial environment. Whether through a stronger Kiwibank or the digital transformation that open banking promises, the goal is clear: to shake up the stable oligopoly and put the interests of Kiwi consumers front and center.