Commerce minister David Clark. Photo / Mark Mitchell
Two years is a “ridiculously long” time to implement open banking and will cost consumers billions of dollars in excess banking fees, says Sam Stubbs - a long-time critic of bank profits.
But the banking industry body says it needs that time to prepare due to other regulatory demands, along with staffing and supply chain constraints.
Commerce minister David Clark this morning announced the banking sector would be the first cab off the rank to use the new consumer data right framework which means banks will be required to share a customer’s data with a competing bank should a customer request it.
The change is designed to allow Kiwis to shop around for better deals from banks and other financial service profits. But the Government thinks it will take up to two years to implement.
Stubbs, founder and chief executive of KiwiSaver provider Simplicity, has hit out at the timeframe.
“Two years is a ridiculously long time to implement something as simple as open banking.
“We estimate this delay will cost ordinary New Zealanders between $2 and $4 billion in excess banking fees. And that’s for the two years the Government says it will take.”
Stubbs said given how ambitious the overall policy was, the change would probably take even longer than that.
“The rest of the world brought in open banking first, with the much more complex issue of consumer data rights later on. Why is this Government doing it the other way round, when the consequences will cost Kiwis billions?
“The big bank CEOs will be cracking open the champagne tonight. The Government has just handed them a two-year suspension of competition, and a free pass to carry on making excessive profits from Kiwis to give to the Aussies.”
He said the Government was either out of touch with the banking industry, or were captive to it.
“Here is the farce of this announcement. The same big banks as we have here are already using open banking, and we know they are already prepared for it here. In Australia, open banking means there are now 82 banks , with huge customer choice and lower fees. Do we really have to wait two years for the same thing here, so the Government can engineer, hopefully, the perfect solution?”
New Zealand Bankers’ Association chief executive Roger Beaumont said it had told the Government that banks needed time to enable it to build quality products for consumers.
“The consumer data right [CDR] will help make open data sharing a reality for banking and other sectors. It’s important to make sure we get it right for consumers. Because of the weight of other regulations and compliance falling on banks at the moment, such as the new conduct regime and increased capital requirements, along with staffing and other supply chain constraints, we’ve told the Government that banks need time to enable quality products that will excite New Zealand consumers. This will take some time to implement.”
Beaumont said getting CDR right would involve ironing out a lot of detail, such as ensuring customer privacy and data security when third parties access their information.
“There may also be lessons from other countries the Government could take into account as it develops the legal framework, especially around the need to align CDR with other regulation to make it as easy as possible for participants to implement.
“In the meantime, the Government may wish to consider investing in a public awareness campaign about CDR. Our research shows that around two-thirds of New Zealanders think sharing your banking information with third parties to access other financial services is either a bad idea or they don’t understand it.”
Consumer New Zealand chief executive Jon Duffy, said while the move towards consumer data rights was a positive step forward for New Zealand, it did not believe banking was the best place to start with it and would have preferred it to start with telecommunication or electricity data.
“That’s a really sensitive way of facing this. There are some potential fishhooks in there and the trust element is a big one. If this is going to be delivered well New Zealanders need to be along for the ride and that is a real shift in focus, particularly for the banks who have been saying for many years we need to seriously guard and protect our financial data. It’s a real shift in focus to say actually now it’s all good we can share it with X startup.
“That’s not to say it can’t be done right it just needs to be communicated really clearly and be really measured in its roll-out.”
Duffy said for it to work well in banking it was going to require a shift in messaging.
“It’s going to rely on the banks being on board and let’s be honest; this, if it is done well eventually, not over the short term but over the medium term, this has the ability to ease barriers to switching and give people more control over their finances which is in some ways counter to the interests of the bank - so they may be quite reticent to move quickly on this.
“Banks are conservative by nature and they won’t want to move quickly and this will involve investment.”
He said banks had been expecting open banking to come in for some time and that many banks already had open banking teams or dedicated teams.
“The writing has been on the wall for a while.”
Duffy said if open banking was done well it could increase competition and help switching.”
He said mortgage borrowers tended to shop around a fair bit but when it came to personal banking only around 4 per cent of people had switched in the last year.
“If you think about how much of a hassle to switch your bank for your personal banking - you are basically unwinding your whole life from this commercial entity. You can see why people would be reluctant. If open banking and the technology delivered through it can ease that that’s great, because more competition should drive businesses to offer better services and prices.”
Duffy said he believed the two-year timeframe was realistic.
“If they are starting with banking I think that is realistic because banks move slowly. Banks fear change and move slowly. I think that is realistic.
“Even if it was implemented tomorrow it’s not going to impact the high profitability of the banking sector overnight.”
Mitchell Pham, co-chair of Fintech New Zealand, said the move to open banking was welcome and was long overdue.
“The fintech industry welcomes it and the consumer industry welcomes it.”
He said opening up banking data would bring new products and services.
“We will receive far richer services from the financial services sector. We will have more accessibility - financial services will become far more accessible than just through banks and their limitations.”
Many of these services already exist overseas.
Pham said he believed banking should be the first place to start for data sharing.
“Everything else you do ultimately ends up in a banking transaction. We have seen that demonstrated by the UK, Australia by other parts of the world. We are not having to reinvent this wheel. There is more than enough evidence, it has just been very slow because of private business interests.”
He said the big four banks here were Australian-owned and were already part of open banking in Australia. He said the slowness here was down to protectionism. “They don’t like opening up so that more competition can come in.”
“The fintech sector has been waiting for this. It means we now have access to more data about consumers who we want to serve.”
He said fintechs were quick to innovate, unlike the large institutions but the larger companies sat on huge amounts of data that smaller fintechs did not have access to.
Pham said New Zealand’s fintech industry was relatively small and slow to grow but would be able to grow faster if they were able to innovate using the open banking platforms.
“It means we can innovate faster and then we can go global faster.” He said at the moment overseas investors did not like the fact that Kiwi companies had built systems on a non-open banking regime which was not compatible with what was happening overseas.
“I have been involved with some potential international partnerships where this is a problem. It’s our entire ecosystem for financial services is behind. So this is super exciting.”
Pham said before he learned about how Government worked he would have said that two years was way too slow.
“But if you think about the Government once they have decided and they take two years to roll it out - there is so much they have to do to make sure all the checks and balances are in place. And that when they regulate that the regulations are not going to have an adverse effect on all of us.
“The banking industry has been sitting on this for 10 years - that’s the one I would complain about not the two years of Government. They could have done all of this without regulation.”
Pham said open banking should bring better business practices to the financial sector.
“It should rebalance profitability with levels of service and benefit to customers that is fair and competitive globally. It then makes the NZ financial services industry more compatible globally. I see very few NZ financial services organisation going global because they can’t - they are too used to very fat margins. They don’t know how to service much bigger markets with lower per customer margins.”
It was a lifestyle of flashy opulence - until the money ran out.