Banking and payments sector revamp – a progress report

As we have previously discussed, the RBNZ is transitioning to a single regulatory regime for banks and non-bank deposit takers under the Deposit Takers Act.  It is re-defining its role in the process.  Current initiatives include:

• The decision through the branch policy review to restrict the New Zealand branches of overseas banks to the wholesale market, potentially limiting the scope of innovation from international bank players;
• The consultations on opening up direct access to its Exchange Settlement Account System; and
• The continuing Future of Money programme, with a central bank digital currency consultation in 2024.

Meanwhile, the FMA and RBNZ are both settling into their new supervisory, enforcement and standard-setting powers under the Financial Markets Infrastructure Act, created in response to New Zealand’s most recent International Monetary Fund (IMF) review.

The FMA’s focus on fair outcomes will ensure conduct and consumer protection overlays on all financial services, regardless of what happens to the Conduct of Financial Institutions Act.

Regulatory barriers and focal points are not being removed, but they are being significantly re-shuffled.

API Centre

Within 18 months, New Zealand’s ‘big four’ banks (ANZ, BNZ, Westpac, and ASB) will have completed the industry-led Minimum Open Banking Implementation Plan, developed by Payments NZ through the API Centre.

They will have standardised APIs available from 30 May 2024 to API Centre third parties, with open access to account information by November 2024. Kiwibank has a two-year extension to hit these targets by May and November 2026.

As we’ve mentioned above, the API Centre’s ambitions extend well beyond this initial implementation plan.

Consumer Data Right

Banking will be the first industry to be covered by New Zealand’s Consumer Data Right (CDR) legislation, an exposure draft of which was put out for consultation by MBIE in June 2023.

The CDR will build on the work of the API Centre to standardise the use and processing of data with the objective of stimulating innovation and competition in services for the benefit of consumers. Direct, customer-authorised access to machine readable data could provide an entry platform for fintech players who meet the applicable security and organisational requirements.

Implementation of a CDR will take significant time and investment, largely by banks, but will reduce reliance on less secure technologies still common in New Zealand (e.g., screen scraping) and will better protect customer accounts against online scams.

Australia and the United Kingdom have had open banking since 2019 and 2018 respectively. The UK regime is relatively narrow and is payments focused.

The Australian CDR, like the proposed New Zealand one, is broad-based and will ultimately extend beyond banking to other industries, such as energy.  But, while ours is proposed to provide both “read access” and “write access” from the outset, theirs began with “read access” only and is now being extended to include “write access”, for example to initiate payments.

Competition reviews

The ongoing market study into personal banking services, which is expected to conclude in August 2024, is proving to be the tip of the iceberg for competition reviews in the sector.

• The Commerce Commission has also consulted on a proposal to regulate the inter-bank payment network to “promote competition and efficiency in the retail payment system for the long-term benefit of merchants and consumers”.

It acknowledges that this traverses some of the same territory as the CDR and the API Centre’s open banking initiative but suggests that it can reduce the risk of delays in implementing the CDR by requiring the banks to provide access to the necessary systems ahead of the CDR regime going live. 

• More recently, the incoming Government has agreed (at the behest of New Zealand First) to establish a select committee inquiry into banking competition “with broad and deep criteria to focus on competitiveness, customer services and profitability”.

There is no indication into the timing, and there are no commitments at this stage to legislative change arising from the inquiry’s findings.  But there is a risk it could significantly overlap the existing market study while straining the resources of both regulators and banks – particularly if the scope is not well-defined and coordinated at the outset.