Westpac floats idea of mutual anti-money laundering due diligence across banks to help improve the customer switching experience

Westpac New Zealand is suggesting allowing mutual recognition of Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act) due diligence across banks as a way to improve the bank switching process for customers.

Westpac NZ floats the idea of " transferable AML/CFT" in its submission to the Commerce Commission's market study into personal banking services. This would mean if a customer wants to move from Bank A to Bank B, if Bank A has already done AML/CFT Act due diligence and approved the customer, Bank B could accept the customer without putting them through the same process again.

In its submission Westpac NZ notes the AML/CFT Act, which took effect in 2013, has increased the requirements on banks when opening bank accounts for new customers.

"Allowing mutual recognition of AML/CFT customer due diligence across banks would enhance the switching process for customers. This would remove a perceived barrier to switching between banks and allow challenger banks to rely on the customer due diligence that has already been undertaken by the incumbent bank," Westpac suggests.

It's a point that's highlighted in a Link Economics cross submission on behalf of Kiwibank.

"Our findings that Kiwibank’s consistently low rates for home lending do not translate to customer acquisition, and that small banks struggle to increase their market share through switching, instead relying heavily on acquiring new-to-system customers, indicates that switching constraints are holding back competition. As a result, we suggest customer education and an advanced switching process, including relief from CCCFA [Credit Contracts and Consumer Finance Act] and AML requirements, would strengthen competition," Link Economics says.

What the Commerce Commission makes of Westpac NZ's suggestion remains to be seen. However, it may find a sympathetic ear in the new National Party-led government.

Andrew Bayly, who was National's commerce and consumer affairs spokesman whilst in opposition, told interest.co.nz last month of his desire to simplify AML requirements so people don't have to repeatedly go back and verify information that has already been verified.

Bayly said he'd had a working group of eight to 10 people looking into this for about 10 months, with the use of biometric authentication in the mix, as potentially was the blockchain.

No official data is currently available on the volume of customers switching between NZ banks. The best estimate we have is Consumer NZ’s annual banking survey. The latest one shows the number of people switching banks at 4%, unchanged year-on-year. (Consumer NZ surveyed 2,022 people with the result based on nationally representative data).

As interest.co.nz reported in March, a simple bank switching process managed by the bank the customer is moving to was established in 2010. In 2014 the Productivity Commission noted no public data was available on the number of customers moving between NZ banks even though banks were understood to get monthly data on the volume of customers switching between them.

Such information, the Productivity Commission said; "would help demonstrate the effectiveness of the current switching process and give consumers greater confidence about the ease of switching banks - hence sharpening the overall level of competition between banks."

Nine years later this data still isn't publicly available with Payments NZ, the bank-owned company that oversees the payments system, telling interest.co.nz in March; "we don’t hold, or plan to hold, data on the number of customers who switch banks as this type of information is commercially sensitive."