Commerce Commission Report Urges Stronger Competition in NZ Banking Sector

• The Commerce Commission’s report calls for increased competition in New Zealand’s personal banking sector.
• Recommendations include capitalising Kiwibank and accelerating the adoption of open banking by 2026.
• The Government pledges to implement all 14 recommendations, aiming to improve services and prices for Kiwis.

The Commerce Commission has released its Final Report on competition in New Zealand’s personal banking sector, highlighting the potential for a stronger Kiwibank to disrupt the dominance of the four major retail banks. The report also positions open banking as a crucial “game-changer,” which could significantly increase competition and enhance choices for Kiwi consumers.

The 14-month market study led to a series of recommendations aimed at enhancing competition for the benefit of consumers. The Commission described the current market as a “stable, highly profitable, two-tier oligopoly with no disruptive maverick and a lack of obvious or aggressive price competition.”

Commission Chair Dr John Small stated that further work since the March Draft Report has only reinforced their view that competition in the sector is lacking. This, he noted, is to the detriment of Kiwi consumers. Dr Small stressed the importance of personal banking services to New Zealanders, with almost every household holding a bank account and the residential mortgage market alone valued at around $340 billion.

Dr Small pointed out that in a truly competitive market, banks would employ more aggressive strategies to attract customers, which is not currently happening. Instead, major banks focus on maintaining market share and protecting profits, leading to limited innovation and muted competition.

To address these issues, the Commission recommended a “multi-faceted approach” to stimulate competition, including capitalising Kiwibank to serve as the disruptive force the market needs. Accelerating open banking is also central to these recommendations, with a goal of full implementation by June 2026. Open banking could revolutionise the sector, providing consumers with better services and more choices.

The Government has committed to acting on all 14 recommendations. Finance Minister Nicola Willis and Commerce and Consumer Affairs Minister Andrew Bayly both expressed their determination to inject genuine competition into the market. Willis emphasized the need for Kiwibank to become a true “maverick” in the banking sector, while Bayly affirmed the Government’s commitment to open banking and the ongoing reforms needed to support it.

The New Zealand Banking Association welcomed the report, acknowledging the focus on reducing regulatory barriers that could enhance competition.

If the Government follows through with the Commission’s recommendations, including revising the Reserve Bank’s Financial Policy Remit to prioritise competition, New Zealand’s banking sector could see significant changes aimed at benefiting consumers.