Commerce Commission issues draft determination authorising Payments NZ to develop an open banking partnering framework

  • Legal update

    08 July 2024

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The Commerce Commission (the Commission) has recently issued a draft determination on a proposed arrangement between Payments NZ Limited (Payments NZ), banks and third party developers to create a partnering framework relating to the provision of application programming interface (API) services by API providers (such as banks and other financial institutions) to third parties (such as fintechs and other companies wanting to use the APIs in order to provide services to customers). 

Payments NZ sought authorisation from the Commission in January 2024 to create a new partnering arrangement to help facilitate a more well-utilised, secure and innovate open banking framework. The purpose of the proposed arrangement would be to create: 

  • an accreditation scheme for third parties; and 
  • standard terms and conditions on which API providers would contract with third parties who meet the accreditation criteria.

Because the proposed arrangement is likely to have the effect of substantially lessening competition in the relevant market, Payments NZ applied to the Commission under section 58 of the Commerce Act 1986 to request authorisation for the arrangement. 

The Commission has decided to grant authorisation for the proposed arrangement subject to certain conditions for a period of 18 months as it is satisfied that the proposed arrangements (with conditions as detailed below) will in all the circumstances result, or be likely to result, in such a benefit to the public that the conduct should be permitted. To read the full determination, click here.

What is the proposed arrangement? 

The proposed arrangement would allow Payments NZ to set up a new partnering framework with API providers and third parties who wish to utilise the APIs to provide services to the customers of the API Providers. 

The proposed arrangement seeks to standardise the process through which accredited third parties are able to access APIs developed by banks and other financial institutions, with the aim of reducing costs of partnering between API providers and third parties. The two main ways the proposed arrangement seeks to achieve this are through the development of an accreditation scheme (including the criteria for accreditation) to assist third parties in meeting the standards set by API providers, and the creation of standard terms and conditions for use between API providers and accredited third parties. 

Payments NZ reasoned that the joint development of an accreditation system and standard terms and conditions would lower transaction costs between API providers and third parties, and reduce the time taken to reach agreement for development, access and use. Payments NZ submitted in its application that this would reduce the ongoing difficulties associated with partnership between API providers and third parties, which are acting as barriers to the uptake of open banking in New Zealand. It was argued that the proposed arrangement would result in an increase in the variety of use cases for open banking, and lead to innovation in the industry which would ultimately benefit consumers. 

What was the Commission’s view?

The Commission’s preliminary view was that it held reservations that the proposed arrangements would actually provide the expected public benefits being claimed by Payments NZ, citing that there was a risk of a conflict of interest arising from the decision making processes that may inhibit any of the benefits from being realised. 

However, the Commission has decided to grant the authorisation on the basis that it is satisfied the benefits of the arrangement would likely outweigh the detriments, subject to imposing the following conditions to minimise the potential conflicts of interest:

  • an Accreditation and Partnering Working Group is to be established to develop the terms for and make decisions in relation to the proposed arrangement, with any matter or recommendation put to the API Council requiring majority support from this group. Each API provider and applicable third party will be entitled to appoint a member to this group to ensure broad and fair representation;
  • increasing the number of independent members, third parties and API providers who are needed to support a resolution of the API Council;
  • only allowing independent Payments NZ board members to make decisions in relation to the proposed arrangement (as non-independent board members commonly hold management positions at banks/API providers);
  • removing the ability for API Providers and/or third parties to apply for exemptions in relation to any accreditation scheme and standard terms and conditions jointly developed and applied under the proposed arrangement; and 
  • requiring Payments NZ to keep detailed records of all meetings, recommendations, decisions and communications relating to the proposed arrangement for a period of seven years to ensure that any benefits to future regulation arising from the proposed arrangement is realised. 

The Commission also limited the proposed arrangement to a term of 18 months, as opposed to the five years requested by Payments NZ. The Commission’s view was that this timeframe would allow the Commission to re-evaluate the value and benefit of the proposed arrangement, noting that the expected benefits may decrease following the implementation of other regulatory interventions such as the Customer and Product Data Bill and the potential designation of an interbank payments network under the Retail Payment System Act 2022. 

Next steps 

The Commission is now seeking written submissions on the draft determination by 15 July 2024. If you have any questions relating to this determination, or would like assistance in drafting a submission, please get in touch with one of our subject matter experts.