The Commerce Commission has released its final report on competition within New Zealand’s personal banking sector, highlighting the potential of a stronger Kiwibank and the introduction of open banking as significant “disruptors” to the country’s banking landscape.

The report suggested that these changes could bring about much-needed competition and improved choices for Kiwi consumers.

The Commission’s recommendations follow a 14-month market study that concluded New Zealand’s banking sector operates as a “stable, highly profitable, two-tier oligopoly” with limited price competition and no significant disruptive players.

Commission Chair, John Small said the additional consultation and analysis conducted after the Draft Report in March only strengthened the view that competition is not functioning as it should, to the detriment of Kiwi consumers.

Dr. Small highlighted the importance of personal banking services to New Zealanders, saying that nearly every household has a bank account, with around 60% holding a credit card and a mortgage market valued at approximately $340 billion.

He explained that in a truly competitive market, one would expect more aggressive strategies to attract customers away from other banks.

However, he said that the major banks in New Zealand are primarily focused on maintaining market share and profitability, resulting in limited innovation and muted competition.

To address these issues, the Commission has put forward a series of recommendations aimed at stimulating competition and ensuring it is “baked in” to the sector.

These recommendations include measures to support new market entrants, reduce regulatory barriers, and empower consumers to secure better prices and services.

A key recommendation is the acceleration of open banking, which Dr. Small described as a potential “game-changer” that could provide financial services to thousands of underserved Kiwis and revolutionise consumer choice.

He expressed concern that progress on open banking has been too slow and called for a unified approach from both the industry and the Government, with the latter taking an early adopter role to build confidence in the system.

The report also stressed the importance of reducing barriers to entry and expansion in the banking sector.

In the short term, the capitalisation of Kiwibank was identified as a way to introduce the disruptive force currently missing from the market. In the long term, open banking was seen as the primary tool for fostering competition.

The Commission recommended changes to make it easier for consumers to switch banks, obtain better mortgage deals, and access basic bank accounts. Specific recommendations were made to address systemic issues, such as improving access to lending for housing on Māori freehold land.

The report’s recommendations are organised into four key areas: enhancing Kiwibank’s role as a competitive force, accelerating open banking, ensuring the regulatory environment supports competition, and empowering consumers.

The next steps involve the Government deciding whether to support the Commission’s recommendations. If it does, a steering group will be convened to accelerate the implementation of open banking, with representation from banks, fintechs, the Government, and consumer groups.

The Commission also recommended that the Minister of Commerce and Consumer Affairs designate the interbank payment network under the Retail Payment System Act to give the Commission regulatory authority to drive progress.