By Gareth Vaughan
In five years' time we would see things we can't imagine today if the Government adopts the Commerce Commission's recommendations to boost competition for personal banking services, Commission Chairman John Small says.
Speaking about the Commission's draft report from its banking market study in the latest episode of interest.co.nz's Of Interest podcast, Small says he'll be interested to see what sort of response the Commission gets from the big four banks, ANZ, ASB, BNZ and Westpac, who it says are an oligopoly who don't face strong competition.
"We haven't accused them of doing anything nefarious. They're responding to the incentives that are in front of them. And we think that they've settled into a particular pattern of conduct that we think should be disrupted. But we don't blame them for that," Small says.
"I'll be really interested to see what they do have to say about it."
The Commission makes 16 recommendations in its draft report, and says they should be considered as a whole. He's optimistic about what the market for personal banking services could look like five years from now if the Government was to adopt them all.
"We would see things that we just can't imagine today. So if open banking is operational within a couple of years, if Kiwibank has already been disruptive, then I think we've set the industry up for a really healthy, competitive future that will be greatly beneficial to New Zealanders throughout their economy. And that [interest] rates will be sharper, and the range of services will be much wider and the choice between providers, trusted providers, will be much wider as well. So I would see it as being really positive five years from now," says Small.
In the podcast Small also discloses which three of the Commission's 16 recommendations he believes are most important. With the Commission recommending the Reserve Bank review its bank regulatory capital settings, he also discusses dialogue with the Reserve Bank about this, and wanting them to "think really carefully about the competitive aspects of their decisions."
He also talks about why the big four banks don't face strong competition, what could be done to make Kiwibank a disruptive competitor, how the banking industry hasn't disrupted itself via open banking, customers moving between banks, the competitive landscape for home loans versus deposits, his take on the idea of a windfall profits tax on banks, and what a parliamentary select committee bank inquiry could probe.
*You can find all episodes of the Of Interest podcast here.
15 Comments
The big if is whether the government is willing to finally enforce open banking and help the likes of Kiwibank get access to substantial capital so it can.properly compete.
The cynic in me thinks this is just another ComCom report about to gather dust in a drawer somewhere while the government doesn't have the balls to make any material changes.
Remember there was a similar scenario with the supermarket industry last year, and from what I can see, a whole lot of nothing has changed in that space.
Hard to see into the crystal ball for that one. Given the plethora of over the top questioning one gets trying to open an account at a different bank, the removal of barriers to switching banks would, at least, force more competition given you’d expect an uptick in customer mobility
Agree. Over the years they've been nothing but highly paid report compilers. But at the end of the day, only the government can enforce their recommendations. Unfortunately every government is lobbied into keeping the status quo. Until that changes nothing will happen.
Good news though, we have a Minister of Groceries. His name is Pierre van Heerden. Sanitarium better tread lightly....
Pierre has some 25 years’ experience across the FMCG sector, including as Executive General Manager at Sanitarium Health and Wellbeing New Zealand for 10 years, and managing Farrah’s Breads and Mojo Coffee.
https://www.beehive.govt.nz/release/first-grocery-commissioner-appointe…
https://www.fgc.org.nz/pierre-van-heerden-welcomed-as-grocery-commissio…
It would be great to see open banking finally get its day in the sun. The Big 4 have done absolutely nothing to assist this. Funny that. I'd like to see Kiwibank able to run Freddie/Fannie type programmes. It could really open up for them on behalf of all NZers including the govt. It's just a law change at the end of the day, but to be fair, it's hard to see this govt dropping their pants for the hard working people of this small nation. Don't get me wrong, it would be good if they could, but if you've noticed, they're all wearing the same type of clothing, they all go to the same restaurants & they all live in the same suburbs, unfortunately. Perhaps Winnie or David could pick up the pencil here?
The banks really need to have their wings clipped. They used to have margins of 1% on their mortgage/deposit rates (showing my age) these have blown out to 2%+. I know the RBNZ is requiring them to hold more cash etc to better equipped them to weather financial storms. The reason for the latter is because they had to be bailed out during the GFC as they were negligent lenders. There needs to be more competition to stop the greed creep. Get on with it !
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Good podcast Gareth. Bring back the state mortgage!
Just as seriously, I don't understand why John referred to customer deposits as a 'source of funding'? My understanding is that these deposits are a liability for the bank, and that their assets are loan agreements, securities they own, settlement deposits at RBNZ, and equity. Banks create the deposits when they make loans - they don't rely on deposits to make loans! What have I got wrong here?
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