A banking expert suggests that open banking alone won’t resolve the lack of competition in the industry. According to a draft report by the Commerce Commission, commissioned by the government in 2023, the report recommends setting a deadline of 2026 to facilitate easier switching between banks. It highlights a two-tier market where major Australian-owned banks dominate, with smaller players posing no significant challenge to their dominance.
Massey University Professor David Tripe, speaking to Checkpoint, notes that while open banking is one factor, it’s not the sole reason for the competition deficit. He explains that open banking relies on individuals consenting to data sharing, and banks are cautious about sharing data even with consent. Tripe emphasizes that open banking won’t completely address competition issues but may make switching banks easier.
Regarding bank profits, Tripe mentions that the major banks’ profits are satisfactory, partly due to their size and scale economies. He explains that larger banks can spread costs over a broader base, resulting in lower relative costs compared to smaller banks.
The Commerce Commission report suggests the need for a disruptive force in the market to encourage aggressive competition currently lacking. It recommends bolstering Kiwibank by increasing its capital to transform it into a disruptive competitor. Tripe agrees that Kiwibank could play a more significant role but notes the substantial capital injection required for it to effectively compete.
First Union supports the Commerce Commission’s recommendations but notes they are medium to long-term solutions. It suggests implementing a windfall profit tax or banking levy to foster a more competitive environment in the short term.
Commerce and Consumer Affairs Minister Andrew Bayly acknowledges the challenges in achieving open banking by 2026. He highlights ongoing work on anti-money laundering laws and consumer data rights legislation. Bayly mentions concerns about Kiwibank’s ability to disrupt the market and discusses potential options for capitalizing it, including government investment or involving third parties.
The Banking Association acknowledges the importance of competition but points out regulatory barriers hindering new entrants. Its chief executive suggests that most recommendations in the report target government or regulatory action rather than banks themselves. Regulatory relief, he argues, would allow banks to focus more on innovation and competition.