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New Zealand’s Commerce Commission has granted conditional authorisation to Payments NZ to develop a framework for open banking, as regulators look to disrupt the "oligopoly" of the country’s four largest banks.
On Tuesday (August 20), the Commerce Commission confirmed that it had authorised Payments NZ to develop a partnering framework for the provision of application programming interface (API) services for open banking.
The authorisation means that Payments NZ will work with current and future API providers to develop and apply a partnering framework for providing API services to third parties.
As noted by the commission, the API providers will typically be banks, while the third parties seeking access to these APIs will typically be fintechs.
The project aims to accelerate the delivery of open banking in New Zealand by making it easier for third parties to work with API providers.
“The benefits include the potential to reduce the transaction costs associated with partnering between API providers and third parties, and the development of more efficient contract terms for such partnering,” said the commission.
The proposed agreement between the commission and Payments NZ will be valid for 18 months, subject to certain conditions that must be upheld by Payments NZ.
The main risks of the authorisation, as detailed by the commission, relate to potential conflicts of interest in the decision-making process where API standards are concerned.
Many of the conditions of the agreement, therefore, relate to controls that Payments NZ is expected to apply to ensure a level playing field between API providers and third parties.
Payments NZ will be required to establish an Accreditation and Partnering Working Group, representation on which should be open to all API standards users.
Any matter or recommendation concerning the shared framework should receive majority support from the Accreditation and Partnering Working Group before it goes to Payments NZ’s API Council.
The majority should be made up of at least half of the API providers and half of the third parties in the group, and 70 percent of the group’s members must cast a vote for the majority to be valid.
Payments NZ was seen as a suitable coordinator of the API standards due its ownership by banks and its role as the operator of three of New Zealand clearing systems.
Since 2019, it has also operated the API Centre, an industry-led initiative for the development of open banking and open data sharing standards.
Three open banking ‘workstreams’
The commission said the authorisation is one of three “significant moves” that are designed to accelerate the delivery of open banking in New Zealand.
In addition, the commission has recommended to the minister of commerce and consumer affairs that New Zealand’s interbank payment network be designated under the Retail Payment System Act 2022.
If this proposal is accepted, it would allow the commission to impose a deadline for the delivery and adoption of an API-enabled payment ecosystem by all interbank network participants.
Under the authorisation described above, Payments NZ cannot impose such a deadline: it only authorises Payments NZ to lead open banking participants in the development and implementation of accreditation criteria and API standards.
The other significant move for the country’s open banking push is the commission’s ongoing work on competition in the market for personal banking services.
Also published on Tuesday (August 20), the commission’s final report on this issue recommended several measures for the government and industry to consider.
Disrupting New Zealand’s banking ‘oligopoly’
As outlined in the report, the commission found that New Zealand’s four largest banks — ANZ, ASB, BNZ and Westpac — do not face strong competition in the market for personal banking services.
“There is a two-tier market, with the major banks in a stable oligopoly in the first tier, smaller providers in the second tier, and Kiwibank currently sitting between the two tiers,” it said.
New Zealand’s state-owned Kiwibank is the country’s fifth largest bank by total asset value.
The commission said the four largest have “high and largely stable” market shares, holding 85 to 90 percent of the assets of all registered banks.
Smaller providers, including fintechs, lack the scale to compete with the major banks and tend to focus their effort on specific regions, products or consumer groups, it said.
The commission, therefore, made several proposals to “disrupt” the personal banking market. First, by further capitalising Kiwibank, and second, by accelerating the rollout of open banking.
“Industry and the government should commit to ensuring open banking is fully operational by June 2026,” it said.
“In the medium to long term, open banking has the greatest potential to promote ongoing disruptive competition for personal banking services.
“Commitment to ambitious milestones and coordinated work between industry and government, particularly over the next 12 months, will bring early gains to consumers.”
