New research found that 37 percent of South Asian respondents use traditional banks for remittances. Photo: RNZ / 123rf
Kiwibank needs to strengthened and open banking must be brought in to bring more competition to the bank sector, the Commerce Commission says.
Its final report on personal banking repeated there was little competition in the sector, with the dominant big four Australian owned banks making high profits, while Reserve Bank's rules make it difficult for smaller banks and new entrants to challenge.
Commission chair John Small said a properly functioning market would have stronger competition and more aggressive efforts to compete for customers.
"What we see in New Zealand is that the major banks have little strategic differentiation, and their growth targets focus on maintaining market share and protecting margins and profitability."
He said changes were needed to "bake in" disruption particularly to encourage the development of open banking to allow consumers easier bank switching or being offered competing services and products from third party finance concerns.
"We believe that the best prospect for driving change in the sector will come over time from accelerating open banking and ensuring that the regulatory environment better supports competition."
He said banks had been too slow in developing open banking and it would need the government and industry to work together to bring it in.
The report said disruption was needed to shake up the sector ranging from easing the financial requirements needed for small banks to compete or new companies to enter the market.
"We also see a need for progressive regulation, where competition is given a higher weighting to ensure an appropriate balance between financial stability and competition."
Beefing up Kiwibank
The commission said the government should find ways to increase the capital funding of Kiwibank, which has about 7 percent market share, so it could be a more effective competitor.
It also called for rule changes to reduce the financial burden on smaller banks and other finance concerns wanting to enter the sector.
"We also see a need for progressive regulation, where competition is given a higher weighting to ensure an appropriate balance between financial stability and competition."
Small said changes were also needed to put more power in the hands of consumers, including improving the bank switching process, changes to the way mortgage offers were presented, and mortgage advisers and banks to promote price competition and choice.
The recommendations are little changed from the draft report in March and steer clear of suggesting the big four Australian banks should be broken up.
More to come ...
