ComCom: Strengthen Kiwibank to break up banking oligopoly

The Commerce Commission’s Final Report into competition in the personal banking sector points to the potential of a stronger Kiwibank as a disruptor to the four major retail banks, and open banking as a “game-changer”, unlocking competition and revolutionising choice for Kiwi consumers.

The Commission is recommending a raft of regulatory and structural changes to drive more competition for the benefit of Kiwi consumers – after the 14-month market study found “a stable, highly profitable, two-tier oligopoly with no disruptive maverick and a lack of obvious or aggressive price competition”.

Commission Chair John Small (pictured above) said the further work and consultation following the release of the Commission’s Draft Report in March this year, “has only served to reinforce our view that competition isn’t working as it should in this sector, and Kiwi consumers are missing out as a result”.

Small said personal banking services are “hugely important” to New Zealanders and the broader economy – with almost every household having a bank account and debit card, nearly 60% having a credit card, and a residential mortgage market of around $340 billion. 

“In a well-functioning market with strong competition, we’d expect to see more aggressive strategies to win customers from other banks,” Small said.

“What we see in New Zealand is that the major banks have little strategic differentiation, and their growth targets focus on maintaining market share and protecting margins and profitability.”  

Small said this means they avoid significant competitive responses, “resulting in limited investment in innovation, muted competition and some demographics being poorly served currently”.

Recommendations to help “bake in disruption”

Small said stimulating competition in personal banking services requires a “multi-faceted approach to ensure that it’s baked in." 

The Commission’s recommendations to Government released in the Final Report today are designed to work together to support new entrants and expansion, reduce the regulatory barriers to competition, and empower consumers to get better prices and services. 

“We believe that the best prospect for driving change in the sector will come over time from accelerating open banking and ensuring that the regulatory environment better supports competition.” 

Small said open banking could be a game-changer, giving thousands of underserved Kiwis access to financial services and revolutionising consumer choice. 

“Industry-led progress to date on open banking has been far too slow – we need a unified approach from industry and Government and a clear timeline if the benefits are to be realised. And the Government needs to be an early adopter of open banking to build confidence and assist in developing a market,” Small said.

“We also see a need for progressive regulation, where competition is given a higher weighting to ensure an appropriate balance between financial stability and competition.” 

Small said reducing barriers to entry and expansion is fundamental to a more competitive personal banking sector.

“In the shorter-term, we see the capitalisation of Kiwibank providing the sector with the disruptive maverick that’s currently missing. Longer-term, it is through open banking,” Small said.

“We’re also recommending changes that will put the power back in the hands of consumers, allowing them to more easily switch providers and access better prices and services.”

In practice, he said this means making it easier for mortgage advisers to present several quotes to their clients and making it more efficient for lenders to process applications quickly, “so that consumers can truly test the market”.

For some particular demographics, the Commission has made recommendations that seek to address systemic issues – such as access to basic bank accounts and the barriers to lending for housing on Māori freehold land.

The Commission’s recommendations are grouped into four interdependent areas that reflect the regulatory, behavioural and strategic impediments that make it difficult for new and existing providers to enter and expand in the market.

Capitalise Kiwibank

• The Government, as Kiwibank’s owner, should consider what is necessary to make Kiwibank a disruptive competitor, including how to provide it with access to more capital.

Accelerate and co-ordinate progress on open banking

• Industry and the Government should commit to ensuring open banking is fully operational by June 2026.
• The Government should support open banking by being an early adopter and taking an All-of-Government approach to adopting payments enabled by open banking functionality.

Ensure the regulatory environment better supports competition

• The Reserve Bank should broaden the way it undertakes competition assessments under the Deposit Takers Act, placing more focus on reducing barriers to entry and expansion in the banking sector.
• The Reserve Bank should place greater emphasis on competition in several specific upcoming decisions.
• The Government should ensure that existing legislation and future decisions do not unintentionally favour banks, particularly larger banks, over other providers.
• The Government should lessen barriers to switching home loan providers as part of the Credit Contracts and Consumer Finance Act (CCCFA) reforms.
• The Government should prioritise competition concerns when reforming the Anti-Money Laundering and Counter Financing of Terrorism regime.

Empower consumers

• Banks should invest in making improvements to its switching service.
• Home loan providers should present offers in a readily comparable manner, accounting specifically for the effective value of cash contributions.
• Home loan providers should pro-rate all clawbacks for mortgage adviser commissions and bank cash contributions.
• Mortgage advisers and banks should make changes to promote price competition and choice for home loans.
• Industry and the Government should prioritise reducing barriers to lending for housing on Māori freehold land.
• Industry should make basic bank accounts widely available.

Stakeholder engagement

The Commission was directed to undertake a competition study into personal banking services by the Minister of Commerce and Consumer Affairs last June to examine how well competition is working and consider options for enhancing it for the long-term benefit of Kiwi consumers.  

Small said the Commission has analysed significant volumes of internal bank documents and engaged with a wide range of stakeholders during its study.

“This sector is hugely important to New Zealanders and the broader economy. We’re grateful to the sector – the major banks and the smaller banks, as well as non-bank participants and fintechs – and the communities and demographics who have taken the time to share their experiences with us,” Small said.

“Our findings and the recommendations of the Market Study have been guided by the evidence and the feedback we’ve received over the last 14 months.”

Next steps

If the Government supports the Commission’s recommendations, it will convene a steering group to accelerate progress towards open banking, with broad representation across banks, fintechs, Government and consumer groups.  

The Commission has recommended that the Minister of Commerce and Consumer Affairs designate the interbank payment network under the Retail Payment System Act. This would provide the Commission with regulatory backing to convene the steering group and accelerate progress. 

The Commission has also approved Payments NZ’s application for authorisation to jointly negotiate an accreditation framework and standard terms and conditions for the partnering between banks and fintechs needed to implement open banking. 

If the Government supports our recommendations, we will monitor industry progress and be ready to intervene if it is insufficient.

The full Final Report and recommendations, an abridged version and an executive summary are available on the Commerce Commission’s website.