The Reserve Bank admits it might need to change the way it oversees banks' books, as banks are poised to start servicing their customers more through third parties

Adrian Orr by Jacky Carpenter.

The Reserve Bank (RBNZ) is keeping tabs on how open banking is developing in New Zealand, noting the move towards more data sharing could affect the soundness of the financial system.

The banking regulator, in its latest Bulletin article on financial technology, says prudential standards may need to be adjusted if open banking really takes off in New Zealand.

The issue is that if banks start sharing their customers’ data with third parties, the relationships they have with their customers may be more at arm’s length.

For example, open banking might see someone make payments by accessing their bank account via a financial technology company app on their phone, rather than by using their credit card. So as opposed to them interacting with their bank directly, they’re doing so through a platform that plugs into their bank.

Furthermore, the RBNZ notes the additional competition created by open banking, as financial technology firms start offering services traditionally only offered by banks, could see customers change banks more often.

This churn, as well as weaken bank/customer relationships, could result in a loss of customer loyalty. The RBNZ says this may in turn make deposits a less stable source of funding for banks.

“This increases liquidity risk, while weaker customer ties could reduce the ability to cross-sell and diminish profitability, and could have implications for incumbents’ ability to manage credit risk,” it says.

“While the system as a whole is not necessarily weakened, prudential standards may need to be adjusted, for example to treat deposits as less sticky to take weaker customer loyalty into account, or to tighten requirements on banks’ estimation of credit risk and monitoring of provisioning.”

In other words, the RBNZ is aware a more competitive landscape may change customer behaviour and therefore require the tests used to measure banks’ financial soundness to be tweaked.

Commerce and Consumer Affairs Minister Kris Faafoi also acknowledges that should open banking take off – as he hopes it will – the RBNZ may have to “step in and think about more oversight in that area”.

Currently the Ministry of Business, Innovation and Employment is the main government agency keeping an eye on open banking developments.

However unlike in Australia and the UK, government regulators aren’t actively forcing banks’ hands when it comes to open banking.

Faafoi has towed the line of his National Party predecessor, Jacqui Dean, by telling banks to facilitate open banking on their own accord or face regulation.

Payments NZ, the bank-owned organisation that governs New Zealand’s core payments systems, is trialling APIs (or application programming interfaces) with banks and third parties that will enable accredited third parties to make retail payments on behalf of their customers.

The trial, expected to be completed late this year, will help Payments NZ establish common standards that banks and providers can use to share customer data.

Meanwhile there are a few cases of open banking already in action.

For example, a partnership between Datacom, Westpac and Opotiki District Council means Westpac customers who want to pay infringement notices, rates, consent permits, etc, can connect to their accounts from the Council’s website and authorise a payment from there. This way they can avoid paying credit or debit card fees or having to set up a debit payment from their internet banking.

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28 Comments

Where do I sign up to help them sort all this out?

https://www.rbnz.govt.nz/careers

Just don't tell them your interest.co.nz handle; that likely won't help your cause.

Nymad

Do you think I should change my name before I apply? I wonder if the name Augustine Lau is free to use these days?

Michael Reddell might be available..

While increased competition can be argued to be a good thing, I still struggle to be convinced that the banks are sufficiently different to the average Joe Public to warrant a high degree of mobility. Looking at the banks at the superficial level the primary differences appear to be percentage points in interest on loans and deposits, and maybe some options around investing.

While not clearly explained here, one reason the RBNZ may be concerned is that some provisions of the OBR may be enacted if there is a higher degree of deposit mobility, such as the "haircut", as bank liquidity becomes threatened. Again they can act to fix this quite simply by acting to protect the customer rather than the bank. If they made the deposits the property of the depositor rather than the bank, and the bank more accountable for how they handle them, customers may feel a little more secure and less likely to be sufficiently mobile to threaten the bank's liquidity. The ultimate protection would be if they removed the "haircut" provision completely as well. It is after all legalised theft of depositors funds by a private institution.

I was hoping "open banking" would mean the end of Visa, Mastercard, PoLi etc for online shopping. But apparently it means "sharing customer data" - no thanks.

In 2039 NZ might even have transactions with descriptions over 15 characters.

End of Visa and Mastercard? Credit cards are here to stay. Why would I give up my credit card.. I'd have to spend my own money if I got rid of those. Much better to spend somebody else's money now and pay them back later.

Paymark have introduced an 'Online Eftpos' option to selected merchants that sends the payment request to your mobile phone. You then approve the payment (from one of your bank accounts) using your banking app. No Visa, Mastercard or Poli involvement. I believe just ASB and Westpac have signed up so far

RBNZ needs to look at eye watering mortgage profits and affect on house affordability.

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This years Deloitte Top 200 Awards results were published in the Herald this morning.
They reveal that the banks are continuing to increase their share of company profits made in NZ.
Last year the ratio of the Top 30 financial companies profits to the Top 200 companies was 61%.
This year it is 65%. The large majority of this finance sector profit goes off shore to 4 Australian banks.
This is a ridiculous profit for a handful of companies who's principal activity is just shifting a few digits around inside a few computers.
What is wrong with this government? These profits are extortionate and the government needs to do something meaningful that brings powerful competition and lower these profits to a more appropriate level.

NZ is a vicarious recipient of Australia's 4 Pillars legislation. There is good and bad with a concentrated, highly profitable banking sector however having been exposed as profit driven at the expense of their customers best interests, the balance has tipped to the bad. I am a strong believer in Open Banking, in time it will reduce the Big 4 to little more than giant payment processors. Banks are un-trusted, complex product-bundlers and Fintech will use AI and vastly superior customer experience to obliterate them.

Banks make their money on supplying credit. How the money is moved about is of little concern, so long as you are paying interest on it.

Open banking takes the cherry off the cake.. but they still have the cake.

Do you know what Open Banking is?

Lets hear your version, and how it takes the bulk of deposits and credit creation (mortgages, personal loans,term deposits, transaction accounts) out of the hands of banks.

I really can't be bothered explaining it to you. You are aware that anyone with a banking/credit license can extend credit though right?

Sure, but first you have to attract enough money at low enough rates to have something to lend out at rates that are attractive in the first place, and satisfy a bunch of regulatory hurdles. If it was easy we'd have more than a handful of banks.

Actually Term Depo's aren't that cheap a funding source (ANZ paying 3.50% for 2 years). On call and cheque yes but they are relatively small. At the very minimum OB will see platforms sitting above your bank account which will allow you to seamlessly transact with any provider. AI will allow a lender to form a granular credit profile of every single client and the best credit will be cherry picked. Alternative funding sources include securitisation, RMBS, Covered Bonds, Industry and PE. Not being a retail deposit taker removes some pretty onerous regulation.

"Actually Term Depo's aren't that cheap a funding source (ANZ paying 3.50% for 2 years)." And if a large stable trusted institution like BNZ with an AA- credit rating has to pay 3.648% what is some unknown startup going to have to pay? https://www.interest.co.nz/bonds/96890/bnz-borrows-550-million-3648-five...

Open banking makes it easier for a finance company to build a credit profile of you? Thats it?

No that's not just it, did you read what I wrote? You are conflating funding and OB - related but not the same. Funding is not going to be an issue for those cherry-picking customers via OB. Look at After-Pay, funded up the wazoo. Banks rely heavily on transactional services, insurance, wealth (though that's unraveled spectacularly) to boost NIM and those are open to disruption via OB. It won't be overnight but it will happen

Im not conflating them, i'm simply pointing out you have to have money to lend money. And that is where the money is made.

You also seem to think the banks will sit still and not also leverage open banking to cherry pick the best customers. More information is going to make it more competitive for everybody.

Afterpay that charges merchants 4-6%? Why not just take credit cards at <3%?

And I have pointed out there are a number of ways a non-bank can fund themselves. I hadn't considered banks taking advantage of OB to acquire customers however I would see that as still greater competition for more desirable customers

Regarding After Pay, that's a totally different dynamic where the non-After Pay consumer is subsidising the After Pay customer. I'm not sure how this plays out - but why would a consumer use a credit card when they can avoid interest with After Pay?

Who pays interest on a credit card?.. You're doing it all wrong if you are paying interest. You pay with the credit card to get x days of credit, rewards points, extended warranty, then you pay the bill before it's attracting interest.

After Pay is 4 months interest free and a credit card 30 days. I would also anticipate a % of AP users don't have credit cards.

Ah, if you want to fight over the segment of the market that can't get credit cards go for it. Plenty of competition in that segment already tho, payday lenders abound. They won't notice the extra 5% loaded on the prices by the retailer to recover the after pay margin anyway.

I'm countering your assertion that a credit card is superior to After Pay, it's not and they're not the same. BTW many do not pay off their credit card balances monthly - otherwise they wouldn't exist.

All those methods are also open to the banks, and the banks are lower risk so pay less, and therefore can either lend cheaper, or have a higher margin. That's the bit you seem to be missing.

Do-littlee is an anagram of these awards....nearly.....?

I think I rest my case......Perfect for the TOP 200....

Would not know what work is.....but knows how to screw. and blow up ..the System.