Apr 23 2024
The new era of open banking
A financial revolution is afoot as our major banks move closer to an open banking system, expected to be in place by May 2024.
What is open banking?
In essence, it’s a system where bank customers have greater control over their banking data, allowing it to be aggregated across multiple banks and shared with third parties. For example, at present if you use more than one bank, you must log-in to each one separately to see your account details. With open banking and the assistance of a third-party provider, you’ll be able to see all your bank account details on one platform. But open banking is much more than just this.
Fostering more competition
In 2021, the Government implemented a new legislative framework for a Consumer Data Right (CDR), to allow people to securely share data that is held about them with third parties, using standardised data formats and interfaces. Banking was chosen as the first sector to implement the CDR.
The aim of open banking is to increase competition between banks and deliver a better deal for consumers. With open banking, it will be much easier for consumers to switch banks, compare interest rates and apply for loans. For example, with open banking you’ll be able to change banks and transfer over all your existing automatic payments and direct debits. You might choose to have your credit card with one bank and your term deposits with another, while being able to see all your balances in one place and to transfer money easily between accounts. If you wanted to apply for a loan from one bank, you could enable them to view your transaction history from a different bank.
The charge towards open banking is being led by Payments NZ – a governance organisation formed in 2010 by ANZ, ASB, BNZ, Citi, HSBC, Kiwibank, TSB, and Westpac. It has a business unit called the API Centre, which develops, maintains, and publishes API standards (for data sharing) and governs their use by registered API providers and third parties. By May 2024, the four big banks – ANZ, BNZ, ASB, and Westpac – are expected to launch open banking, with Kiwibank following in 2026. These banks together will cover around 90% of bank customers.
Learning from other countries
New Zealand is well behind other OECD countries in adopting open banking but that gives us the advantage of being able to see the impact it has had elsewhere. The biggest changes will come via innovations from fintech (financial technology) companies. There are already many fintechs in other countries providing customer solutions using open banking, including systems that allow you to analyse your banking data, create budgets, and tap into your bank account directly without a card when you make a purchase.
Consumers have a better idea of their overall financial health as a result, including spending patterns, saving habits and investment portfolios. With open banking, consumers are in full control over what happens to their data.
Benefits outweigh the risks
Open banking does not come without risks, primarily around giving third parties access to your banking data. Consumers will need to be assured of data security and privacy protections before using third parties. Another challenge, especially for those who are less tech savvy, will be keeping up with the changes in technology. It won’t be long before multinational fintech companies swoop on New Zealand offering their wares, and the rate of change could be unsettling for some. These new services will, however, be optional and consumers will still be able to bank as they always did.
There are significant benefits to be had from open banking despite the risks and challenges. Consumers will be empowered to take control of their finances, to access innovative new products and services, and to make more informed decisions. Open banking will lead to greater convenience and choice. It is something to be embraced rather than something to be afraid of. So be prepared to join the revolution!
Written by: Liz Koh
Liz Koh is a money expert who specialises in retirement planning. The advice given here is general and does not constitute specific advice to any person.