“We just need a bit of freedom to get on with it,” Westpac NZ chief executive Catherine McGrath said, noting banks had to prioritise responding to regulatory changes.
This ate into the resources they had available to modernise their systems and offer innovative products.
The backdrop to the discussion is that banks have been reporting high profits by international standards.
ANZ NZ and Westpac NZ reported net profits of $2.1 billion and $1.1b respectively in the past financial year.
The level of competition in the banking sector is being scrutinised by a parliamentary select committee inquiry, which is building on the findings of a year-long market study the Commerce Commission concluded in August.
McGrath said banks had to do things in the right order – get some of the basics up to speed first, to avoid “painting the walls before the insulation was in”.
She believed standardised digital identities would be a fundamental building block that would reduce the time and expense that goes into ensuring banks really know their clients and meet stringent anti-money laundering rules.
ANZ NZ chief executive Antonia Watson agreed, saying government should be involved, so everyone didn’t have to create their own systems.
Similar to McGrath, she said banks should focus how maximising their “scarce” resources, rather than try to do everything.
As a large “full service” bank, Watson said ANZ had to be “everything for everybody”. She said it had to be inclusive, and was in a different situation to financial technology firms that could target narrow markets.
McGrath also made the point Westpac didn’t need to build all the innovative offerings itself. It could partner with financial technology companies.
Watson and McGrath’s comments came as the Government is pushing banks to accelerate open banking, or make it easier for fintechs to use customers’ bank data (with their permission) to provide banking services.
Open banking has the potential to enable fintechs to compete with credit card companies in the payments space, or help people bring together their data from various financial institutions in one platform to better manage their money, for example.
Watson recognised this area wasn’t as dynamic as it could be, as fintechs that wanted to link up with banks and engage in open banking had to negotiate with banks individually.
She said the Commerce Commission’s decision to allow banks to work together to create some standardisation would help.
She also believed progress was being made figuring out where the liability sits between all the parties involved if something goes wrong.
“How does the consumer trust their data or their money will be looked after, and who do they go to if they have a problem?” Watson said.
Both she and McGrath stressed the importance of ensuring open banking actually solved a problem consumers wanted addressed.
“We risk innovating and we risk spending money on things that consumers don’t adopt,” McGrath said.
Commerce Commission chair John Small believed the solution was for regulators to better work with industry to support innovation.
He said “regulatory failure” had enabled innovation in the payments space to stagnate.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in Government and Reserve Bank policymaking, economics and banking.
