"Time is of the essence. Open banking is lagging in New Zealand". This is the message behind the Commerce Commission's flurry of recent activity relating to Aotearoa's payments industry.
The media release dominating headlines at the moment is the publication of the Commission's long-awaited final report on its market study into personal banking services. Buried beneath that headline were two other announcements that also will have critical implications for open banking in New Zealand: the Commission's decision to grant Payments NZ authorisation to further develop its open banking framework and its recommendation to the Minister of Commerce and Consumer Affairs (Minister) to designate the interbank payment network under the Retail Payment System Act 2022.
Market study into personal banking services
The Commission released its final report of its market study into personal banking services yesterday. The market study was announced on 20 June 2023 by the Minister at the time, the Hon. Dr Duncan Webb, who cited "long standing concerns that the market is not working well for New Zealanders". The Commission concluded New Zealand's four largest banks do not face strong competition from other providers of personal banking services, resulting in limited investment in innovation and higher than average profits.
It issued a suite of recommendations to support new entry and expansion, including increasing the Government's capitalisation of Kiwibank, accelerating progress on open banking, ensuring the regulatory environment better supports competition, and removing barriers to switching services and home loan products. In response, the Government has confirmed it will act on all 14 recommendations, with the Minister of Finance comparing the state of competition in retail banking to "a cosy pillow fight" between the big four banks.
Payments NZ authorisation
The Commission also yesterday granted authorisation to Payments NZ for API providers (banks) and third parties (such as fintechs) to jointly develop and implement a new partnering framework to facilitate the provision of APIs (which are a set of routines, protocols, and tools for building software applications and specifying how software components should interact) from banks to third parties. Standardised APIs are necessary to facilitate competition in the provision of open banking services by lowering the costs of entry by fintechs and other market participants.
The authorised partnering framework clears the way for the development of a standardised accreditation scheme (including accreditation criteria) for third parties, as well as default standard terms and conditions on which banks and accredited third parties will contract for the use of APIs. Payments NZ is confident that this type of partnering framework will make it easier for third parties to work with banks, which will accelerate the delivery of open banking in Aotearoa.
Recommendation to designate the interbank payment network
Simultaneously, the Commission released its recommendation that the Minister designate the interbank payment network under the Retail Payment System Act, following completion of the consultation process required under the Act. The interbank payment network is the largest retail payment network in New Zealand and involves all bank transfers in the Bulk Electronic Clearing System (including direct debits and automatic payments). In its reasons for making the recommendation, the Commission indicated slow progress with the delivery and adoption of open banking payment solutions required designation to enable the Commission to take action to remove barriers to delivering "better and faster open banking payments in ways that complement and enhance the Consumer Data Right". For more information on designation of networks under the Retail Payment System Act, see our previous Retail Payment System Act 2022 article.
We will be publishing a further update on the Commission's final report on its market study into personal banking services in the coming weeks. In the meantime, please contact a member of our financial services regulation team if you have any questions about the Commission's focus on the banking sector.
This article was co-authored by Emily Tyler (senior solicitor), Hugo Schwarz (solicitor) and Susie Kilty (partner).
