There’s been a lot of chat about open banking following a Commerce Commission report into personal banking this week. But what does it even mean? 1News explains.
The Commerce Commission says New Zealand needs to do a few things to shake up competition in the personal banking sector.
One of those things is expanding open banking, which it said could be a game-changer for New Zealanders.
Here’s what you need to know about what could be coming to your personal finances.
What is open banking?
Payments NZ describes open banking as “a system in which customers can make payments and instruct their banks to share their financial data … with third party providers like fintechs”.
Fintechs (short for financial technology) are companies or innovations that use technology to provide financial services in new and efficient ways.
OK. But what does that mean in practice?
In simple terms, open banking is a way for people to make payments and share their data with other parties, says banking expert Claire Matthews.
This can enable a few things.
The Commerce Commission has released its final report into the industry, finding competition is neither strong nor sustained. (Source: 1News)
“One key element of open banking is having other ways of making payments other than through your bank account,” Matthews said.
Payments NZ is a key player in that aspect via the development of its API Centre.
API stands for application programming interface. It is a framework that allows software applications to communicate with each other.
“[Payments NZ] have developed these APIs, the banks use these APIs and then a fintech gets authority to use the API so that they can then access the bank’s data,” Matthews said.
Four fintechs currently have contracts in place to use the Payment Initiation API in New Zealand, Matthews said.
Some of these enable customers to shop online without a credit or debit card. Others let customers share a link with people so they can get paid without having to use account numbers.
“For example, if you’ve gone out to dinner with a group of friends, one person could pay for it all and then send the link to their friends via their mobile phones to pay their share — you wouldn’t have to set [people] up through your banking app,” Matthews said.
“That’s one of the things that open banking is seen as doing — allowing person-to-person payments without having to go through that whole hassle and process of setting up an online payee.”
1News business correspondent Katie Bradford takes a look at the Commerce Commission’s final report. (Source: Breakfast)
What else could open banking do?
Open banking could also make it much easier for people to switch between banks for different services, Matthews said.
Many people hold accounts at different banks for a variety of reasons. A fintech could potentially provide a service where customers could access all their different bank accounts in one place.
“Again, that’s through open banking because the company that’s providing that service would be using the API to go to all the banks and gather your information,” Matthews said.
Such a service could encourage people to go to different banks for different services, she said, thus boosting competition between them.
Reporter Corazon Miller takes a look at how open banking could change things for Kiwis. (Source: 1News)
“If you’ve got a [fintech] provider that can bring all your information to one place, you might decide to have your home loan with one bank and then a savings account with another bank that might have better interest rates, for example,” Matthews said.
“It may facilitate better financial management because you’re able to choose the best products in each category.”
Open banking is also expected to provide a better balance of power between banks and customers, Matthews said.
“Because you’ve got these third parties, and so you’ve got alternatives beyond just using the banks.”
What risks are there with open banking?
All this data sharing between parties might make people nervous, Matthews said, but she said the API process should allay those concerns.
“In order to access the bank information, the fintech company is using the API that’s addressing those security and privacy and customer authentication concerns,” she said.
So, what now?
The Commerce Commission yesterday gave Payments NZ conditional authorisation to further develop its open banking framework for an 18-month period.
“This is intended to make it easier for third parties to work with API providers and accelerate the delivery of open banking in New Zealand,” the Commission said.
The Government also said yesterday it would act on all 14 recommendations in the Commission’s report, including those around open banking.
Commerce and Consumer Affairs Minister Andrew Bayly said the Government was on track to meet the Commission’s recommendation that open banking be fully operational by June 2026.
“Open banking will make it easier for Kiwis to find services tailored to their needs, creating room for innovative start-ups to challenge the big established banks,” he said.
