Market operates as a "stable two-tier oligopoly," says commission chair
A recent market study conducted by New Zealand’s Commerce Commission has unveiled competition issues within the country’s personal banking sector.
The study referred to the current market structure as a “stable two-tier oligopoly” dominated by four major banks—ANZ, ASB, BNZ, and Westpac.
These banks maintain high levels of profitability at the cost of significant underinvestment in core technological innovations and limited competition, according to the study.
Commerce Commission chair John Small (pictured) highlighted the findings in a draft report released in late March, noting that “ongoing disruption needs to be baked in” to boost competition in the market.
“In a well-functioning banking market, we’d expect to see strong competition driving innovation and choice for customers, rather than the price-matching strategies we see here in New Zealand, which result in very stable market shares,” he said.
The analysis also pointed out that competition among the major banks occurs in sporadic bursts, often triggered by external events such as interest rate changes,
“The lack of a disruptive force in our banking market means competition between the majors is sporadic and not sustained,” Small said.
Recommendations to foster competition
The Commerce Commission has put forward several draft recommendations aimed at fostering lasting competition within the sector:
- Improve the capital position of smaller providers and Kiwibank
- Accelerate progress on open banking
- Support competition through regulatory adjustments
- Empower consumers to access the benefits of competition more readily
These recommendations are intended to lower barriers to entry for new players and enhance consumer empowerment in choosing banking services, according to Small.
“Many of the issues we’ve identified are systemic, so this isn’t about quick fixes, but we would expect to see sustained and enduring improvements in competition across personal banking services over time,” he said.
Targeted support for vulnerable demographics
The draft report also found that certain demographics are disproportionately affected by the lack of competition in the banking sector.
These demographics include individuals who find it difficult to access basic banking services, as well as those who struggle with understanding banks' terms, interest rates, and how to compare different products and services.
Additionally, the commission has identified that certain issues uniquely affect Māori communities, particularly in accessing capital for housing development on Māori freehold land.
Consultation and engagement
The commission conducted its study on the personal banking sector after receiving instructions from the Minister of Commerce and Consumer Affairs last June.
“There’s been significant interest in this market study, and our thinking and preliminary findings have been guided by the feedback and evidence we’ve received,” said Small. “This has included broad engagement with the sector – the major banks and the smaller banks, as well as non-bank participants – and communities and demographics who have taken the time to share their experiences of personal banking services.”
A final report is set to be published in August. The commission will continue to accept feedback from stakeholders until April 18.
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