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The Government yesterday announced formal plans to introduce open banking in New Zealand. This is the first cab off the rank following the 2021 announcement to establish a consumer data right framework (CDR), under which consumers can require data holders to share their information with third parties.
While these developments have been anticipated – and foreshadowed by the Government – for a number of years, focus has increased recently with the current cost-of-living crisis, inflation and increasing interest rates.
Through open banking, the intention is that consumers will be able to access financial products and services better tailored to their individual needs. This includes access to value-added services (such as payment services or financial analysis) as well as the ability to compare financial products across multiple banks and lenders.
The CDR is planned be implemented on a sector-by-sector basis, starting with banking. Other sectors that may be CDR designated in future include financial services, telecommunications, insurance, energy and healthcare. New Zealand is seen as relatively slow off the blocks, with the United Kingdom and Australia further down the track in terms of development and implementation.
The Government has noted a likely two year timeline for open banking, including engagement and consultation on draft legislation.
Open banking represents a potential step change for the financial sector in New Zealand, striking at the data advantages of larger providers and creating opportunities to diversify the market and potentially drive innovation.
Banks and other market participants will need to designate more resources to ensure compliance with the incoming legislation, manage privacy and data protection risk and implement appropriate operational infrastructure to adapt to the new system.
While the industry has made significant early progress (including through the API Centre of Payments NZ), there will almost certainly be difficult prioritisation decisions for banks between this and other industry-changing factors including the planned depositor compensation scheme and Deposit Takers Bill, liquidity and outsourcing regulation, modernisation of payments infrastructure and ongoing digital disruption.
There is also the question about the potential scope of the new legislation and whether it will extend to wealth management subsidiaries of the banks. If this is the case, it will have the potential to cover information about KiwiSaver and other investment balances and transactions where customers hold those through a scheme managed by a bank subsidiary.
If you have any questions regarding what proactive steps your organisation can be taking to prepare for open banking, please get in contact with one of our experts.