The New Zealand government has announced a series of sweeping reforms aimed at injecting competition into the country’s retail banking sector, following a scathing report from the Commerce Commission published on Tuesday. The report confirmed what many Kiwis have long been dealing with: the banking sector is dominated by four Australian-owned banks, leading to high profits, limited innovation, and poor outcomes for consumers.
Finance Minister Nicola Willis has pledged to act on all 14 of the Commerce Commission’s recommendations, which include boosting the role of state-owned Kiwibank, accelerating the implementation of open banking, and overhauling regulatory frameworks. “We are not getting a good deal from the big banks,” Willis said. “This is not good enough. Our Government will inject some genuine competition into the market for the benefit of all New Zealanders.”
Market Dominated by “The Big Four”
The Commerce Commission’s report paints a bleak picture of New Zealand’s banking sector. The four major banks—ANZ, ASB, Westpac, and BNZ—control 90% of the market, resulting in what the Commission describes as a “two-tier oligopoly” where competition is virtually non-existent. The report highlights that these banks are highly profitable compared to their international counterparts but offer fewer choices and poorer services.
Commerce Commission Chair John Small noted that the sector lacks a disruptive force to challenge the status quo. “What we see in New Zealand is that the major banks have little strategic differentiation,” Small said. “Their growth targets focus on maintaining market share and protecting margins and profitability.”
Strengthening Kiwibank
One of the most significant recommendations from the Commerce Commission is to strengthen Kiwibank, the country’s fifth-largest lender, to create a more competitive environment. Willis echoed this sentiment, stating that Kiwibank needs more capital to become a true challenger to the big four banks. “I want it to have the growth capital it needs to become a ‘maverick’ that exerts real competitive pressure on the big four,” she said.
The government is exploring several options for raising new capital for Kiwibank, including investments from KiwiSaver funds, New Zealand investment funds, and contributions from everyday New Zealanders. Proposals are expected to be presented to Cabinet by December 2024.
Kiwibank CEO Steve Jurkovich welcomed the government’s commitment, saying, “Kiwibank is up for the challenge of fulfilling the role of ‘maverick’ and taking on the larger banks. We’d welcome more access to capital over time to deliver on our purpose.”
The Promise of Open Banking
Another cornerstone of the government’s strategy is the implementation of open banking, which is set to be fully operational by June 2026. Open banking will allow consumers to share their financial data with third parties, making it easier to compare services and switch providers.
Commerce and Consumer Affairs Minister Andrew Bayly emphasised the transformative potential of open banking. “We agree with the Commission that open banking has the greatest potential to promote ongoing disruptive competition in the medium to long-term,” Bayly said. He added that the government is on track to meet the Commission’s recommended timeline and is committed to fostering an environment where innovative startups can challenge established banks.
Regulatory Overhaul
The government also plans to reform regulatory frameworks to lower barriers to entry for new banks and promote a more competitive landscape. Willis announced that a new Financial Policy Remit would be issued to the Reserve Bank of New Zealand, mandating the central bank to place greater emphasis on competition in its decisions. “We’ve got the balance too far in favour of financial stability, such that it’s making it almost impossible for new entrants,” she said.
The Commerce Commission also recommended changes to the Credit Contracts and Consumer Finance Act (CCCFA) to make it easier for consumers to switch home loan providers and ensure transparency in mortgage advising. These reforms are aimed at empowering consumers by providing them with better information and more options, thereby intensifying competition among lenders.
Looking Ahead
The government’s reforms are expected to shake up New Zealand’s banking sector, but the road ahead may be challenging. Established banks have already pushed back against the Commission’s findings, with ANZ New Zealand CEO Antonia Watson stating that the bank disagrees with the characterisation of the sector as uncompetitive.
Despite the resistance, the government is pressing forward with its plans, viewing the reforms as essential for creating a more dynamic and consumer-friendly banking environment. “We need to have that regime in New Zealand and that is one of the key benefits of open banking,” Willis said. “I’m accountable to New Zealanders. If ultimately that means that we need to weigh changes to the Acts governing the Reserve Bank then of course we should consider that.”
As New Zealand embarks on this ambitious reform path, the long-term goal remains clear: to create a banking sector that serves all Kiwis better, offering more choice, better prices, and improved services. The coming months will be crucial as the government works to implement these changes and monitor their impact on the market.
ComCom’s August 20th 14-point Report
Here are the 14 points made in the Commerce Commission’s August 20th report.
Source: A stronger Kiwibank and open banking could shake up NZ banking sector
- “The Government, as Kiwibank’s owner, should consider what is necessary to make Kiwibank a disruptive competitor, including how to provide it with access to more capital.
- Industry and the Government should commit to ensuring open banking is fully operational by June 2026.
- The Government should support open banking by being an early adopter and taking an All-of-Government approach to adopting payments enabled by open banking functionality.
- The Reserve Bank should broaden the way it undertakes competition assessments under the Deposit Takers Act, placing more focus on reducing barriers to entry and expansion in the banking sector.
- The Reserve Bank should place greater emphasis on competition in several specific upcoming decisions.
- The Government should ensure that existing legislation and future decisions do not unintentionally favour banks, particularly larger banks, over other providers.
- The Government should lessen barriers to switching home loan providers as part of the Credit Contracts and Consumer Finance Act (CCCFA) reforms.
- The Government should prioritise competition concerns when reforming the Anti-Money Laundering and Counter Financing of Terrorism regime.
- Banks should invest in making improvements to its switching service.
- Home loan providers should present offers in a readily comparable manner, accounting specifically for the effective value of cash contributions.
- Home loan providers should pro-rate all clawbacks for mortgage adviser commissions and bank cash contributions.
- Mortgage advisers and banks should make changes to promote price competition and choice for home loans.
- Industry and the Government should prioritise reducing barriers to lending for housing on Māori freehold land.
- Industry should make basic bank accounts widely available.”