Commerce Commission says regulating bank transfers could level playing field for new entrants to offer services for making in-person bank transfers

The Commerce Commission is eyeing regulation of the bank transfer network to give New Zealanders more options to make in-person payments directly between bank accounts.

Bank transfers include bill payments, automatic payments, direct debits or direct credits. The Commerce Commission says current options to make bank transfers don't provide businesses with a simple trusted indication that a payment has been made by a consumer in the same way card payments do. 

Thus the competition watchdog says it's looking to remove barriers to more innovative payment options as a low-cost alternative to current, primarily Visa and Mastercard, card payment options.

Chairman John Small says the Commerce Commission sees a lack of innovation in options enabling people to pay for goods and services via in-person bank transfers. In contrast overseas payment related regulation, including open banking and consumer data right (CDR) regimes, have enabled environments where new entrants have created innovative options to make bank transfers for in-person and online payments. These include in-person bank transfers initiated using mobile phone apps that use either a quick-response (QR) code, the near field communication (NFC) capability of their phone, or a unique identifier such as a username or phone number.  

“Bank transfers are typically one of the lowest cost payment options and if it were safe and easy for Kiwis to pay this way in-person, merchants would benefit from faster, cheaper payments,” Small says.

“New Zealand’s Eftpos network has delivered Kiwis an effective low-cost payment option for many years, however its use is declining due to consumer preferences and fewer Eftpos cards being issued by banks."

“Our preliminary view is that a designation of the bank transfer network and subsequent use of our regulatory powers would create a more level playing field for new entrants to launch innovative options to make in-person bank transfers in New Zealand,” Small says.

“We have seen this work successfully overseas with the use of QR codes and mobile applications that facilitate new in-person payments and believe this approach is complementary to the Government’s development of a Consumer Data Right (CDR) regime. 

“We can require banks to provide access to the necessary systems ahead of CDR legislation going live, so that the sector is ready to meet the expectations it sets to deliver benefits to all New Zealanders," Small adds.

The Commission says it's proposing to use its regulatory powers to complement work by Payments NZ, the bank industry overseer of NZ's payments plumbing, on the requirements to enable an environment for new entrants to create innovative options to enable in-person bank transfers.

“We support this work and we don’t want it to stall, so we are proposing to use our regulatory powers to complement Payments NZ’s work," says Small.

The Retail Payment System Act, passed last year as part of a Labour Party 2020 election promise to regulate merchant service fees charged by banks to small business customers for accepting card payments, enables the Commission to monitor the retail payment system.

It can regulate designated retail payment networks with the aim of benefiting businesses and consumers who rely on it to buy and sell goods and services.

The Visa and Mastercard networks have initially been categorised as "designated networks" by the Act. This means the Commission has powers to:

• determine how prices can be set or expressed – an ‘initial pricing standard’ has already been set under the Act that limits ‘interchange fees’
• require greater transparency of certain information
• allow other participants to access aspects of the network.

The Commission also has powers to issue merchant surcharging standards for any network to ensure surcharges for payment services such as credit cards or contactless payments reflect the actual cost of providing that payment option.

The Commission is seeking views "on its characterisation of the issues and opportunities in this space," and is seeking feedback on a paper it has published by 4pm on September 25.

The Commission's announcement increases pressure on Payments NZ and the banking industry incumbents after the Reserve Bank last week criticised NZ’s banking and payments industry for not providing real-time payments fast enough.

The competition watchdog says it can provide the "regulatory certainty that the banking sector will deliver" its commitments to allow payment providers to securely connect with the banks to initiate bank transfers using application programming interfaces (APIs) technology. It notes that to date only one of the five major banks, BNZ, has built APIs to the standards required in the open banking industry implementation plan.