Open banking is finally on its way

Open banking is finally on its way

Written by Money Empire

July 24, 2023

For many years it’s been a common complaint that banks in New Zealand, wield far too much power over their customers, and actively stand in the way of authentic competition.

At a time when inflation is rearing its ugly head to a degree not seen in decades, household budgets are being stretched further than ever. This has forced the government to look at the surrounding issues in greater detail – and with more urgency, developing a new approach that will level the playing field significantly.

Officially announced in November 2022 by then Commerce Minister, David Clark, the establishment of a consumer data right framework (CDR) has been designed to allow Kiwis to easily access favourable mortgage rates and generally get better deals that fit in with their own particular circumstances.

How does it work?

Traditionally banks in New Zealand really have jealously guarded their customers’ details, refusing to divulge transaction information to competitors, because of a vested interest in protecting and ultimately increasing their own profits.

Under open banking, those banks will be required to share that data between themselves and their rivals, if and when requested by the customer.

This means that ordinary Kiwis will finally have the ability to actively compare mortgage interest rates, apply for loans from a variety of lenders, and even change banks – with their current situation, and their history, effectively on the table for all parties to see.

Is this really something new?

Well, it’s certainly new in a sense and a big step forward for New Zealand, but open banking has been the system model in the United Kingdom and Australia for a while now, meaning customers in those countries have already been able to shop around, safely and securely, when looking for better deals.

What else does this mean for me?

Open banking is expected to transform the fields of mortgage broking and financial services because a customer will be empowered to direct their bank to share specific data with a broker or financial advisor, enabling these industry professionals to better serve their interests, keeping them up to date with unfolding changes – such as rising or falling interest rates – all in a timely fashion.

When will these changes happen?

Officially, open banking is due to arrive in New Zealand in the middle of 2024 but many banks, having anticipated this major adjustment have already factored it into their systems.

It’s been reported that ANZ, BNZ, ASB and Westpac are ready for kickoff in May next year, while Kiwibank is currently due to get onboard in 2026.

“It encourages greater competition and customer innovation by allowing consumers to access a wider range of products and services from different providers. Over time, more new players will join the ecosystem and I look forward to seeing innovation thrive as a result,” Payments NZ chief executive, Steve Wiggins, told RNZ in May 2023.

Wiggins also said that the scope of open banking would eventually develop further, and with more industry players, potentially include fintechs and payments services providers.

What about security?

Customers can be genuinely justified in questioning the safety of their personal information under open banking.

While it represents a fresh new way of doing things, open banking comes with its own issues, including those around data protection and common standards. These are aspects being worked through by experts within the industry.

One major bank has already outlined how the new open banking processes will work, stating that the ‘other bank’ in any situation, should first send a request to the customer’s existing bank.

Under the new framework, a secure window will be opened on the customer concerned app or website access – requiring private, encrypted verification.

Next, the customer will be asked to choose their relevant account and will be able to approve the activity involved – with two-factor authentication for extra assurance. Finally, the request will be completed.

Sophisticated APIs (Application Programming Interfaces) will serve to secure these open banking interactions, providing customers with confidence. Widely used in international banking, they deliver a safe connection between all the parties involved.

Money Empire is already exploring these exciting banking developments and team members are happy to chat to clients about the new freedoms and possibilities they bring.

“Don’t hesitate to get in touch,” says Kayne.

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