Prime Minister Jacinda Ardern is asked about the record profits being made by the banks. Video / Mark Mitchell
Kiwis will be able to shop around for better deals from banks with greater ease under a suite of measures announced by Commerce Minister David Clark today.
Known as “open banking”, the changes mean banks will be required to seamlessly share a customer’s data with a competing bank, should the customer request it. The practice is already common in the United Kingdom and in Australia, where New Zealand’s big four banks’ parent banks are based.
It’s hoped the changes will lead to more competition and lower fees.
The move is possible thanks to the consumer data right (CDR) framework, established by the Government last year, which is meant to allow consumers to access a wider range of products and services by promoting data portability.
Clark said banks would be the first sector to use the framework.
“Open banking ensures banks must share customer information if they request it, making it easier for New Zealanders to compare mortgage rates, apply for loans and switch banks.
“Under open banking if somebody wanted to re-fix their mortgage at a lower interest rate, they could ask their bank to securely share transaction information with a competitor.
“They could also instruct their bank to share specific data with a financial adviser of their choice – meaning more tailored and timely advice.
“The businesses and services wishing to receive this data would have to meet a number of safeguards to ensure the information could be handled safely and securely.
“The key point is that open banking allows customers to shop around for better deals. That means banks will also have to work harder to retain their customers, leading to savings for consumers.”
Banks have been in the spotlight this week after Prime Minister Jacinda Ardern questioned whether their super profits could be justified.
“The Prime Minister has urged banks that are reporting record profits to do what’s right for their customers and help them out in challenging times. Open banking is an additional tool to promote competition and ensure consumers are getting a fair deal,” Clark said.
Customers wanting immediate better deals may be left wanting however. The Government thinks it will take up to two years to implement.
Banks have already begun proactively updating systems to be ready for open banking.
The next step is consultation on an exposure draft of the legislation that will underpin the new scheme.
The New Zealand Bankers Association, which represents New Zealand’s banks said it was important to take the time to get any scheme right.
Chief executive Roger Beaumont said the “consumer data right 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”.
Beaumont warned that the weight of other banking regulation being imposed by government and the Reserve Bank meant that banks would “need time to enable quality products that will excite New Zealand consumers”.
He said that New Zealand could also learn from other countries experiences with open banking.
“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,” he said.