"Proper Open Banking"
I love me some Sam Stubbs as much as the next person, he’s a pretty onto it guy, but when people start saying that “proper open banking” is going to be our ticket out of one of the least competitive banking ecosystems I start to get worried.
It took us 40 years to get into this extractive banking mess, and it will take 20 years to get out of it. But KiwiBank beefed up AND proper open banking will go along way.
And he’s not alone! The New Zealand Commerce Commission said much the same thing in their bombshell report on the competitiveness of the personal banking sector, essentially offering the enablement of open banking as one of the two main recommendations to increase the competitiveness of the banking sector.
Don’t get me wrong - I understand the appeal: a banking sector where customers can securely and easily connect their bank account to diverse and useful ecosystem of applications that might help with financial planning, enable easier access to credit, allow instantaneous bank-to-bank to consumers or businesses, and seamlessly allow you to switch banks.
In this “proper open banking” utopia small banks and banking startups can compete on a level playing field with the big international banks that currently dominate the New Zealand market as everyone has access to the same open banking ecosystem and there is a low barrier to moving between banks.
But is that the open banking ecosystem that we’re currently building?
As someone who is currently involved with the creation, regulation, and utilisation of of the open banking ecosystem and APIs I think we’re running a real risk of building something that locks in the lack of competitiveness in our current banking system.
Let me tell you why:
The barriers to entry for startups and small companies wanting to engage in the Open Banking system are currently far too high, and there is a real risk that they’re just going to get higher. This risks strangling the ecosystem before it even starts and ensures that only large, well capitalised, companies are able to participate.
Currently only the big 4 Aussie-owned banks (ANZ, ASB, BNZ, & Westpac) are required to have open banking APIs available. With Kiwibank (theoretically) having their APIs available in 2025/2026.
We’ll leave a deeper dive into the barriers to entry for another blog post but I think the real issue is around the banks that will be supporting these open banking APIs. These are the banks that that are going to have access to the applications and capabilities that will develop in the open banking ecosystem which will be a compelling incentive for consumers to shift away from the smaller NZ banks that don’t support open banking to the large Australian banks that do.
The net result is likely to be a movement of consumers to the Australian banks which will continue to reduce the competitiveness of the market.
How do we solve this? Do we fund the development of open banking capabilities for smaller banks, cooperatives, and credit unions? Do we hope that digital-first banking competitors will emerge?
I don’t know. But we’d better figure it out if we don’t want to be stuck in the same place 20 years down the track.