Open banking innovation – is it NZ’s time?

Published on the 09/05/2024 | Written by Heather Wright

Open banking innovation - is it NZ's time?

Standards deadlines near, but clarity is lacking…

“The next six months signal the beginning of the open banking innovation phase for New Zealand.”

So says Philip Cass, manager of the API Centre, a Payments New Zealand run initiative which is coordinating the development, management and governance of payment-related API standards.

The end of this month signals a milestone delivery date in New Zealand’s open banking journey with the four big banks – ANZ, ASB, BNZ and Westpac – all required to be ready and offering the payments initiation API.

“It’s been a very laissez-faire hands-off ecosystem.”

Cass is open: It won’t be a game changer for New Zealand business, at least initially.

“It’s not going to be a big switch turning on open banking. It signals a beginning, although we do have open banking propositions in the market at the moment.”

The May 30 deadline will be followed by a November 30 requirement for account information. (Kiwibank has an additional two year to meet the requirements.) None of the deadlines are regulatory, with the banks instead signing on to deliver by those dates.

“We’re working really hard with the banks to make sure they do met those dates,” Cass says.

He says he’s expecting to see some innovations ‘sooner rather than later’ on the back of the standards required this month, including bill presentation. Delivered by third parties and banks and enabled by the payment initiation standards, it will enable businesses to present bills to customer via a banking app, with customers presented with the bill information when they log into their banking app, and simple click to pay options.

The account to account payments should also see reduced transaction fees, he notes.

“Withthe different ways for making payments, it enables more streamlined payments which reduce customer friction and enable a smoother customer experience.

“Around the world we are seeing big uptake particularly for businesses using open banking payments.”

Recurring payments, such as for toll roads, are also ‘coming in the near future’, enabling customers to set up automatic payments for each time they go through a toll road. Again, the data will appear in your banking app, asking if you want to pay now, or even auto-paying for you up to certain levels pre-set by the user.

You’ll also have two avenues for cancelling direct debit payments – via either the third party, or the banking app.

“In your banking app you’ll be able to see all the payments and be able to cancel them at any time.”

He says the account information API – that’s the November deadline – will provide opportunities for businesses in regards to their accounting systems.

“It’s a very secure way to obtain data and see it in real-time, helping improve cash flow management. It will provide an opportunity to obtain greater access to financial services just through begin able to share your data and get tailored solutions.

The two APIs are just the base standards, Cass notes, with iterations, reviews and ongoing industry consultation to understand what standards need to come next.

For New Zealand, open banking’s promise of providing more control for customers over data, and new efficiencies and innovations has been just that – a promise. While other countries, including Australia and the UK have advanced down regulatory-driven open banking paths, New Zealand has pursued – or perhaps through lack of government action, been forced down – the path of an industry lead approach open banking.

Jason Roberts, Fintech NZ executive director, is concerned about New Zealand’s slowness in open banking, saying we need to accelerate to catchup and bring in the era of open banking and competition or fall behind, not just in consumer impact, but in terms of export capability.

“The big picture is that New Zealand exports about $2.3 billion a year in revenue from fintech services. Which to give context is fifth largest income earner by sector in New Zealand and is on par with the wine industry. It is a big industry. It is important to us.

“We need innovation, we need competition and that brings better value for customers and better outcomes for New Zealand as an exporter.”

He describes New Zealand’s current state as ‘in progress but still under construction’.

“New Zealand has an industry lead approach to open banking and doesn’t have a standardised interface. It’s been a very laissez-faire hands-off ecosystem for some years.”

Kris Faafoi attempted to kick start things in 2017, telling banks to get going on open banking and warning that he’d be watching them – and the deadlines his predecessor, National’s Jacqui Dean, had set up.

Despite plenty of apparent enthusiasm, little action followed. In 2019, the API Centre was established. There have been ‘adjustments around the edge’, with the regulator providing some guidance, but changes haven’t been forthcoming.

Roberts says legislation to support open banking appears to have stalled. It’s ready to go to parliament, but was held back due to the general election.

“My understanding is the current government are giving indications of interest to pursue and carry on the work that was done, but there is no timeline, no expectation, no understanding of what that is.

“It leaves the industry in a state of uncertainty and holds back innovation, investment and a whole bunch of other things. It leaves us in a state of limbo.”

It’s not all bad news though.

Says Roberts: “But the bigger picture is the government has handed this over to the industry, the industry has taken up the mahi (work) and developed to a certain level and capability and we’re going to start seeing now a new capability coming on stream and accelerating.

Cass believes the industry lead approach is a huge benefit for New Zealand, enabling industry experts, including fintechs and banks, to design and develop the standards and ecosystem to create base platforms that fit New Zealand.

“What we have seen overseas is where it has been regulated, the ecosystem standards have been designed by those that are probably not that close to the industries and don’t fully understand the detail and intricacies of what is required.”

He notes issues in Australia which have seen several reviews and updates of standards and rule changes requiring reworking.

“We have managed to avoid doing that. But in saying that as well, we do support a right-sized regulatory backstop just to ensure the momentum of open banking continues.”

More contentious perhaps is the role of Payment NZ – its board is ultimately responsible for the API Centre – but some argue the two need to be split, given Payments NZ’s strong links with incumbent banks.

Cass argues that the API Centre has a strong governance structure and its working group and council members include fintechs as well as the banks and, in the case of the council, independents.

He also argues that breaking apart the two – as has been suggested by some – would create a fragmented sector at a time when there’s much work to be done.

“At the moment there is a lot of work going on in other areas in Payments NZ for next-generation payments which includes real-time payments, and there are opportunities within that to reduce fraud and make payments faster and easier. And open banking and APIs will play a key role in that.”

Roberts also questions where the government stands around things like inviting overseas competitors to come in and provide capability other than that provided by Payments NZ.

“It is possible, but just a little bit harder [with Payments NZ as the intermediary].

“By not having a regulated for a standard, how does that hold back innovation, competition and diversity? Is it really just maintaining the status quo of the four or five banks who now will carry on and can get an advantage because of the ecosystem? These are questions that are unanswered, that are open to debate.”

One big concern for some fintechs has been the issue of how much they might have to pay to consume the APIs. Cass says New Zealand – or the API Centre more specifically – will look to the UK for guidance. They have pricing structures and principals in place and Cass says seeing if they will work in the New Zealand environment will be the first port of call.

Payments NZ has sought authorisation to work with API Providers and third parties to develop arrangements it says will facilitate the open banking framework. That includes setting up an accreditation regime enabling third parties to work with banks who are API Providers and the pricing principals.

“We haven’t been able to have these conversations because under the Commerce Act it would be seen as collusion,” Cass says.

Roberts says he doesn’t think New Zealand will ever become a top-down standardised API ecosystem driven by the government. They don’t know enough, he says bluntly. They’re also not prepared to invest or be that heavy handed.

“I think going forward we will see Payments NZ maintain and be given the authority – which isn’t bad thing, but the bigger picture around governance of Payments NZ and how this work needs a little bit more tidying up.

“And that’s a role for the government, for industry groups like the Financial services Council and Fintech, to get that clarified with the view of bringing in more innovation, diversity and competition so that ultimately we have best services for Kiwis by Kiwis but also in doing that opens up international scalable export capability – which we are very good at.”

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