The Commerce Commission has recommended accelerating progress on Open Banking to stimulate competition and innovation in New Zealand’s personal banking sector, after a market study found evidence of a “two-tier oligopoly”.
The Commission’s final report into competition in the country’s retail banking sector identified several regulatory and structural changes it believes are needed to provide Kiwi consumers with more choice.
Among its recommendations are that both industry and the government should commit to ensuring Open Banking is fully operational by June 2026.
The final report also recommends that New Zealand’s government should support Open Banking by being an “early adopter” and taking an “all-of-government approach” to adopting payments enabled by Open Banking functionality.
In June 2023, Dr Duncan Webb, the then Minister of Commerce and Consumer Affairs, commissioned the Commerce Commission to undertake a study into any factors that may affect competition for personal banking services.
The Commerce Commission’s 14-month market study into New Zealand’s personal banking sector found “a stable, highly profitable, two-tier oligopoly with no disruptive maverick and a lack of obvious or aggressive price competition”.
The first tier of providers consists of the four major banks, which currently hold 85% to 90% of the total assets of registered banks in New Zealand.
According to the final report, ANZ is “significantly larger” than the other major banks, given that it holds around 30% of total assets, although the report pointed out that this has decreased over time.
ASB, BNZ and Westpac each hold around 18% to 20%, and those shares have “remained fairly constant”, while no smaller bank has increased its share much past 5%, the report stated.
The second tier of providers “does not exert significant competitive pressure on the larger banks due to lack of scale, higher cost of funding, weaker brand awareness and smaller shares of main bank customers”, while Kiwibank is considered by the report to sit between the two tiers of providers.
Commerce Commission chair John Small said: “In a well-functioning market with strong competition, we’d expect to see more aggressive strategies to win customers from other banks.
“What we see in New Zealand is that the major banks have little strategic differentiation, and their growth targets focus on maintaining market share and protecting margins and profitability.”
The Commission’s report suggested that while it might expect Open Banking to boost innovation and competition for personal banking services in New Zealand, progress has been “too slow” because, without a regulatory backstop, “the major banks have been left to set the nature and the pace of change”.
It warned that New Zealand is now falling behind the rest of the world.
Next steps
“We believe that the best prospect for driving change in the sector will come over time from accelerating Open Banking and ensuring that the regulatory environment better supports competition,” said Small.
He called for “a unified approach” from industry and government, and a clear timeline if the benefits are to be realised.
“And the government needs to be an early adopter of Open Banking to build confidence and assist in developing a market,” Small said.
He added: “In the shorter-term, we see the capitalisation of Kiwibank providing the sector with the disruptive maverick that’s currently missing. Longer-term, it is through Open Banking.”
If the government supports the Commission’s recommendations, it will convene a steering group to accelerate progress towards Open Banking, with broad representation across banks, fintechs, government and consumer groups.
The Commission confirmed it has also approved Payments NZ’s application for authorisation to jointly negotiate an accreditation framework and standard terms and conditions for the partnering between banks and fintechs needed to implement Open Banking.
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