Open banking - what it means for New Zealand's financial services sector
At our recent financial services seminars held in Auckland and Wellington, we explored open banking and how its introduction may affect other participants in New Zealand’s financial services sector.
We had the opportunity to hear from a number of guest speakers who shared their insights on what they think open banking means for New Zealand.
What is open banking?
Open banking can be described as the process by which banks share a customer’s data, via open Application Programming Interfaces (APIs), with third parties nominated by the customer, in a form that facilitates its security and use by those third parties to provide services to the customer. Ultimately, it’s about rights of ownership and use of information to give customers more and better choices.
Kara Daly, Special Counsel in our Wellington office, explored the evolution of open banking from the UK and EU to Australia and New Zealand, noting that New Zealand is taking an industry-led approach in preference to the highly regulated approach being taken in Europe and Australia. This approach is supported by government, but Minister of Commerce and Consumer Affairs, Kris Faafoi, has signalled to the banks and Payments NZ that he has not ruled out regulation if he does not see greater momentum towards the launch of open banking in New Zealand.
Kara noted that even if open banking is not expressly mandated by government, some specific regulation is likely to be required to enable open banking to operate effectively, given the complex web of financial services regulation both banks and new service providers must comply with. Examples include the need to expressly mandate a data portability right (akin to the proposed Consumer Data Right to be introduced in Australia) and regulation to allow the use of digital identity mechanisms for compliance with anti-money laundering legislation.
Steve Wiggins, CEO and Chad Haighmark, Strategy Manager, Payments NZ
Payments NZ governs the country’s core payment systems and works with the industry to promote an innovative, safe, open and efficient system. Steve Wiggins spoke at our Wellington seminar and Chad Haighmark spoke in Auckland, sharing their thoughts on open banking and the API pilot that Payments NZ is currently leading. The API pilot is part of a broader industry-led payments direction initiative that kicked off in 2015, tasked with understanding the future of payments.
Steve noted that the key focus for open banking needs to be on delivering the right outcomes to New Zealand consumers, whether it be better financial outcomes or better service delivery. He highlighted that one of the biggest obstacles for open banking that industry will need to address is earning the trust of consumers – a balance needs to be struck between ensuring that access is not too difficult and also that the integrity of the system is not undermined by untrustworthy parties.
Anand Ranchord, Head of Propositions, Experience & Design, Kiwibank
Anand Ranchord spoke at our Wellington seminar, sharing his personal perspective on the open banking opportunity, emphasising the importance of data access and the opportunities presented by open banking:
- An open playing field is vital in which customers can meet their needs and access a range of services.
- Examples include loan applications and money management which could be simplified through data sharing providing a holistic view of the customer’s financial information.
- The key challenge for banks and third party Fintechs is privacy. Trust issues must be addressed, and this is a great opportunity for the large banks to leverage their strength as trusted providers.
Ben Lynch, Creator of Jude
Ben Lynch created the “Jude” app which allow users to link all their bank accounts to its platform, enabling account management through a single digital portal. Ben addressed our Auckland seminar, discussing the opportunities available through open data. Ben posed the view that the next generation largely values access over ownership, citing the success of various access providers (i.e. Spotify, Netflix, Airbnb). Open data will allow businesses, such as Jude, to provide access to customer data through a single platform, streamlined for the customer experience, and allowing customers to own, control and profit from their own data.
Privacy – Kate Anderson and Richard Wells
Kate Anderson (in Wellington) and Richard Wells (in Auckland) wrapped up the seminars by talking about the Privacy Bill currently before Parliament, the absence of an express data portability right, and whether the Bill is therefore fit for purpose.
Kate and Richard both noted that the Privacy Commissioner, in his submission on the Privacy Bill, has recommended “bolstering the right of individuals to access their own personal information by including ‘data portability’ as a right for consumers to transfer their personal information to another service provider”. We will not know whether these submissions have resulted in further changes to the Privacy Bill until the Select Committee reports back on all submissions in October. However, it may be that a data portability right would be better expressed in a broader way under separate consumer legislation.
Implications for the wider financial services sector
If open banking means that we each own, or have the right to open access to the data held by banks about us, then the same principles must apply in respect of information held by other services firms that we obtain services from (e.g. telcos and energy companies, but also fund managers, insurers and finance companies)
We recommend that financial services firms follow closely the development of open banking in New Zealand, because fintech innovation in the way in which all financial services are delivered is already upon us.
Once open banking is successfully rolled out in New Zealand, it is not inconceivable to think that customers will demand open access to their data held by other financial services firms in order to access third party digital services offered by customer facing start ups, either as an adjunct to those existing financial services, or in direct competition.
Global approaches to open banking, including the approach taken by banks in New Zealand, will provide useful testing ground for the ways in which other financial services firms can adapt to the digital economy.
We will watch with interest progress towards the launch of open banking in New Zealand, and the parallel issues of government mandated open access to data and digital identity verification.
If you have any questions in relation to open banking please contact our team.
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