The Commerce Commission says it wants New Zealand banks to get serious about giving consumers full control of their financial data so they can change lenders more easily.
It comes after the consumer watchdog, in a draft report released on Thursday, said the country's personal banking sector experiences constrained competition due to the four leading banks employing price-matching tactics and facing minimal disruptive influences.
So, what does open banking mean and why does the Commerce Commission want to accelerate its progress?
Open banking refers to the practice where banks and financial services allow customers and third parties easy digital entry to their financial information, allowing them to download and exchange data regarding account balances, payments, transactions and investments.
Consumers might want to disclose their banking information to another provider to try and seek cheaper services.
In theory, easy access to data also simplifies the process for customers to switch from one provider to another. Rapid transfer of information, such as direct debit instructions, alleviates some of the obstacles that hinder individuals from changing banks.
The Commerce Commission said customers should have greater access to their data to reduce barriers when it comes to changing providers.
"Comparing offers from different banks is challenging for consumers due to the various strategies employed by banks to market their interest rates, fees, cash back incentives and quality of mobile apps," the commission's draft report said.
"There are both real and perceived difficulties with the logistics of switching providers, which reduce the competitive pressure on the major banks. The industry-led account switching service is not working well.
"Open banking has helped tip the scale for fintechs in the UK and Australia. However, progress towards open banking in New Zealand has been too slow because the major banks have been left to set the nature and the pace of change."
The Labour Government in 2021 stepped in to require banks to share customer data, but the commission said progress had "been too slow compared to Australia and the UK".
"Setting a clear deadline and having regulatory backstops available so these minimum requirements are delivered will support the acceleration of open banking. We recommend that the Government target having open banking fully operational by mid-2026," the commission said.
Commerce and Consumer Affairs Minister Andrew Bayly said the Government was committed to delivering better banking outcomes for New Zealanders.
"I am working with our Coalition partners to determine any possible response including the option of the Select Committee inquiry but will determine what actions to take following the release of the final report."
The final report is due to be released in August.
