Commerce Commission warns ANZ, ASB, Westpac and BNZ against ‘unfair practices’
Praneeta Mahajan
Hamilton, August 21, 2024
The Commerce Commission has issued a stark warning to the dominant Australian banks operating in New Zealand, calling for significant changes to foster competition and improve consumer outcomes in the personal banking sector.
In its recently released Final Report, the Commission has laid out a series of recommendations aimed at disrupting the current market, which is largely controlled by four major retail banks, and empowering consumers with better choices and services.
Breaking the status quo
The Commission’s report highlights the lack of competition in New Zealand’s banking sector, where the four major Australian-owned banks control a significant share of the market.
This dominance has created a stable, highly profitable oligopoly, with little incentive for these banks to innovate or reduce costs for consumers.
Dr John Small, Chair of the Commerce Commission argued that Kiwibank, as a state-owned entity, has the potential to be a “disruptive maverick” in this environment, provided it receives the necessary capital and strategic backing from the government. “Kiwibank is uniquely positioned to shake up the status quo, but it needs the tools to do so. With the right support, Kiwibank can challenge the major banks and drive the kind of competition that benefits all consumers,” he said.
The report also points out that the major banks have shown little interest in pursuing new customers or offering more competitive rates, which has led to a stagnant market. Dr Small urged the government to take a more active role in fostering competition by empowering Kiwibank and ensuring that regulatory frameworks support new entrants and innovative practices.
Game changer
The Commerce Commission’s Final Report into competition in the personal banking sector points to the potential of a stronger Kiwibank as a disruptor to the four major retail banks, and open banking as a “game-changer,” unlocking competition and revolutionising choice for Kiwi consumers.
Dr Small, emphasised the need for a “multi-faceted approach” to introduce meaningful competition in the banking sector. He pointed to the implementation of open banking and the strengthening of Kiwibank as crucial steps in challenging the entrenched positions of the major banks. “In a truly competitive market, we would expect banks to aggressively compete for customers by offering better products, services, and prices. Unfortunately, that is not what we see in New Zealand today,” Dr Small stated.
Consumer empowerment
Another key recommendation from the Commerce Commission is the accelerated implementation of open banking—a system that allows consumers to securely share their financial data with third-party providers. Dr Small described open banking as a potential “game-changer” for New Zealand, enabling greater consumer choice and fostering a more competitive market.
“Open banking could revolutionise the way consumers interact with financial services, giving them more control over their data and access to better products tailored to their needs,” Dr Small explained. However, he also noted that progress towards open banking in New Zealand has been disappointingly slow, and called for a unified effort from both the government and the industry to push forward with its adoption.
The Commission has recommended that open banking be fully operational by June 2026 and that the government should act as an early adopter to build confidence in the system. By doing so, the government can set a precedent for the industry and help accelerate the development of a more competitive and consumer-friendly banking sector.
Regulatory Reforms
To support these initiatives, the Commission has put forward several regulatory recommendations aimed at making the banking sector more competitive and accessible for consumers. These include reducing the regulatory barriers that hinder new entrants, making it easier for consumers to switch banks, and ensuring that competition is given greater consideration in the Reserve Bank’s regulatory decisions.
Dr Small emphasised that these changes are necessary to put power back in the hands of consumers. “Our goal is to make it easier for consumers to shop around, switch providers, and get better deals. A more dynamic banking sector will lead to better outcomes for everyone,” he said.
The report also addresses long-standing issues faced by specific demographics, such as the challenges associated with lending for housing on Māori freehold land. The Commission’s recommendations include targeted reforms to improve access to financial services for these under-served groups.
Collaboration Required
With the release of the Final Report, the focus now shifts to how the government and the industry will respond. If the recommendations are adopted, the government will need to convene a steering group to oversee the accelerated implementation of open banking. This group would include representatives from banks, fintech companies, consumer advocacy organisations, and government agencies, ensuring that all stakeholders are involved in shaping the future of New Zealand’s banking sector.
The Commission has already taken steps to facilitate the implementation of its recommendations, including approving Payments NZ’s application to develop a framework for partnerships between banks and fintechs—an essential component of open banking.
Looking ahead, Dr Small reiterated the Commission’s commitment to monitoring the sector and intervening if necessary to ensure that the market moves towards greater competition and consumer empowerment. “We have laid out a clear path forward, but it will require collaboration and decisive action from both the government and the industry to realise the full benefits of these recommendations,” he said.
Praneeta Mahajan is an Indian Newslink reporter based in Hamilton.
