The single greatest structural barrier to competition in the banking sector is that New Zealand has no specialist licensing framework for banking, the managing partner of a venture capital and private equity firm says.
“Adopt fit-for-purpose licensing before it’s too late,” McGregor Fea told Parliament’s Finance and Expenditure Select Committee last week.
“Until we solve this, banking challengers rely on the support of the very banks they’re looking to disrupt when investing in innovation. A slow yes is far worse than a fast no in banking."
“The incumbents know that and it underpins their anti-competitive strategy," Fea said.
In August, the Committee released its final report on the 14-month inquiry into banking competition. At the time, the Committee said New Zealand’s banking sector lacks strong rivalry, and that the Reserve Bank’s (RBNZ) regulatory capital rules have hurt rural borrowers and smaller lenders.
To address the concerns, the Committee recommended halting further capital increases, creating a RBNZ Prudential Policy Committee, and giving more weight to regulatory efficiency, among other measures. Since then, the Committee has invited submissions.
'What are we waiting for?'
Fea, the managing partner of Altered Capital which is a shareholder in fintech Emerge, made these comments as part of his submission.
He said when digital challenger bank Starling Bank launched in the UK, it was granted a specialist banking life license with a minimum capital requirement of £1 million and a fast-tracked approval process. (Altered Capital began as a spin-out from a London-based fund that was the seed investor for Starling Bank).
He said the plan to reduce capital requirements was far too slow.
“What are we waiting for? The current approach means that most investors can’t get off the starting line to back New Zealand-built competition.”
A spokesperson for the RBNZ said in 2025, it had consulted on the regulatory perimeter under the Deposit Takers Act. This included discussion on whether “additional types of firms should be required to be prudentially licensed and supervised”.
“We are currently reviewing responses to this consultation before making recommendations for regulations … This is one area we will continue to monitor."
Many of the changes announced as part of the 2025 capital review will be implemented this year and it was only increasing capital requirements by 0.5% between now and 2028, the RBNZ spokesperson said.
“Other aspects of the changes announced as part of the 2025 capital review will take longer to implement - including introducing new Loss Absorbing Capacity (LAC) requirements [for the big four banks]. This is because we intend to consult with industry on more detailed aspects of LAC requirements ahead of implementation.”
The RBNZ has also decided to reduce the minimum amount of regulatory capital deposit takers must have from the $30 million currently required for a registered bank to $5 million from 2028.
‘Fix Payments NZ governance immediately’
Fea called for four things to be done as part of his submission.
“One, fix Payments NZ governance immediately. We don’t need to give the incumbents another chance to self-regulate our national payments infrastructure.”
“It is embarrassing that New Zealand’s payment system is currently governed by the Companies Act.”
Payments NZ was formed in 2010 by the banking industry with support from the RBNZ to govern core payment systems. It also works with the industry on open banking and the future direction of payments in Aotearoa.
Its shareholders are ANZ, Westpac, BNZ, ASB, Kiwibank, TSB, HSBC and Citibank, meaning a company owned by banks leads the development of payments in NZ.
Fea compared Payments NZ to the UK.
“Ours is a rules moderator with high walls and no material resources of its own.”
“Theirs is an independent funded, centralised infrastructure provider with a board expressly mandated to represent consumers and champion innovation. The UK started solving this from 1999 and the result has been transformational competition.”
'Follow the UK'
Speaking to interest.co.nz, Fea said the aspiration would be to follow the UK’s system.
“It’s run as a not for profit and essentially the participants are interested members of that not for profit, but the board is independent. The company itself holds enough capital for prudence sake but essentially it runs and washes its face by charging participants enough to have the system running effectively.”
The Financial Conduct Authority (FCA), the Bank of England and Pay.UK - the independent payments institution, are involved. So if it was done in New Zealand, this would mean the Financial Markets Authority (FMA) and the RBNZ would play a role.
Fea said the Bank of England and in New Zealand’s case, the RBNZ, would “own the capital on the balance sheet but we’re talking about a modest amount of capital that is enough for prudence sake to ensure the stability of the system”.
He said because of that independent structure, the UK has been able to implement “world leading payment systems that otherwise wouldn’t exist”.
Examples of this was the Faster Payments Service that allows real-time payments and a current account switching service.
“These are the types of things that you get when you have an independently funded payments infrastructure.”
'Robust governance'
When asked about this by interest.co.nz, Payments NZ chief executive Steve Wiggins said: “We have a robust governance model that supports collective decision-making and industry leadership to benefit all payments users in Aotearoa New Zealand."
Wiggins said its board has an independent chair, and two independent directors in addition to directors from each founding shareholder.
“All of our directors are required to act in the best interests of Payments NZ.”
Payments NZ also has management committees for each clearing system. This includes an API (Application Programming Interfaces) Council and an independent committee of the API council.
“A number of important matters have been delegated to these governance groups, ensuring they have a say in matters that affect them.
Through these management committees, Wiggins said, “decisions about our clearing systems are made by and on behalf of all the organisations who use them”.
“Payments NZ is subject to ongoing oversight from the RBNZ who supported our establishment in 2010. We also work closely with MBIE (Ministry of Business, Innovation and Employment) and the Commerce Commission, ensuring transparency and alignment with broader public policy objectives.”
While its shareholders provided initial financial capital, Wiggins said; “it is our participants (and API standards users) who fund the work we do to develop and maintain world-class payment systems - commonly seen in payments associations globally”.
“We operate in the best interests of the entire payments system, to promote safe, open, innovative, efficient and interoperable payment systems.”
“Unlike the UK, the scale of our systems in Aotearoa means there is little scope for parallel delivery or duplication. This makes our role in leading and coordinating industry delivery much more crucial," Wiggins said.
While ACT MP Todd Stephenson told Fea he had been following up on Payments NZ as he had the same governance concerns, Commerce and Consumer Affairs Minister Scott Simpson told interest.co.nz the Government currently is not considering changes to the structure of Payments NZ.
Interbank payment network; 'sent into a sword fight with a pool noodle'
At the meeting, the second thing Fea brought up was the interbank payment network.
The Commerce Commission has described interbank payments as; "All bank payment instruments between registered banks or within a registered bank for the payment of goods or services initiated by either a consumer or a merchant as payee and where payment instructions are sent directly to the payer's bank."
The Commission, in 2024, said it had “good reasons” to recommend designation of the interbank payment network to then-Commerce and Consumer Affairs Minister Andrew Bayly.
When a network is designated the Commission has powers to decide how prices can be set or expressed. A designated payment system could be one deemed to pose systemic risk, or that's designated to protect the interest of the public or the interest of the integrity of the payment system.
Designation would occur under the Retail Payments System Act, which provides for the regulation of participants in retail payment networks including via initial designations and an initial pricing standard. The Mastercard credit, Visa credit, Mastercard debit and Visa debit retail payment networks are already designated under the Act, with interchange fees regulated.
Fea said if the Interbank Payment Network was designated under the Retail Payments System Act, that would empower the Commission to set standards, implement rules and enforce compliance under the current conditions.
“You have sent them into a sword fight with a pool noodle. Designation requires no new legislation, just acknowledgement that corporates act in their own self-interest, not [in] the interests of New Zealanders.”
'A payment perspective'
Commerce Commission head of payments Matthew Lewer said when the Commission made the designation recommendation, there was no open banking regulation imminent or in place.
"A designation of the interbank payment network would have allowed the Commerce Commission to put in place requirements to enable faster deployment of open banking," Lewer said.
"Since then, the Ministry of Business, Innovation, and Employment has become the open banking regulator through the introduction of the Consumer Data Right (CDR) banking designation, which sets requirements for the sharing of consumer data between banks and open banking providers.
"MBIE's regulation of open banking prioritises data, while a designation would support the Commission to focus on open banking from a payment perspective."
Lewer said "irrespective of whether the network is designated, we continue to have an interest and role in open banking to help bring greater competition and improved efficiency in the payment system".
Commerce Minister Scott Simpson said the Government had progressed designation of the banking sector under the Customer and Product Data Act because "it provides a broader and more direct pathway to implementing open banking".
"While we still have the option to designate the interbank payment network under the Retail Payment System Act, creating two overlapping regimes with different regulators would risk unnecessary duplication."
Payments NZ's Wiggins said when designation of the interbank network was proposed by the Commerce Commission in 2024, Payments NZ responded noting that “full designation was not required to achieve its goals”.
“Payments systems are complex and we think designation decisions should be carefully designed to achieve the required objectives without adding uncertainty or cost to the ecosystem.”
Wiggins said Payments NZ has a constructive relationship with its regulators and acknowledges the critical role they play in “an efficient and safe payments ecosystem”.
‘What is missing is parliamentary urgency’
Fea also called for more action when it came to tackling fraud and repurposing fines.
“The problems with competition in New Zealand banking and payments are well documented.”
“The solutions are well understood. What is missing is parliamentary urgency,” he said.
Fea said it is time for the battleground for innovation and “delay has been the weapon of choice and your hands are currently on the murder weapon”.
“Parliament cannot continue to defer, delay and deflect while the incumbents enjoy the regulatory capture they have maintained for 27 years longer than the UK.”
At the meeting, National MP Dan Bidois said: “I think we’re all frustrated with how long progress takes to improve competition.”
“The purpose is certainly to apply as much pressure to the likes of the Reserve Bank, the FMA [Financial Markets Authority], ComCom [Commerce Commission] to make sure that they’re doing everything they can as quickly as possible.”
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