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New Zealand a step closer to open banking

The era of open banking has moved a step closer in New Zealand.

Payments NZ, the bank-owned organisation that governs the country’s payments system has published a set of standards to accompany the technology it has developed to facilitate open banking.

Open banking will see banks open parts of their systems to third parties that can carry out some banking functions, effectively placing third parties on top of banks’ infrastructure so consumers can use them to make payments or access their bank accounts.

While the UK and Australian governments have forced banks to engage in open banking to drive more competition, New Zealand’s government tasked Payments NZ with undertaking the work and kept regulation as a last resort.

Reciprocity a safeguard

Payments NZ has now completed a set of standards for banks and third parties engaged in open banking to use.

The standards outline how open banking should be designed to manage risks and be secure. Customers who entrust a third party to access their banking information must be informed when consenting to this and can also opt out whenever they want.

They exclude any principles of reciprocity, so a third party using a bank’s data isn’t obliged to share their data with the bank in return. However, commerce and consumer affairs minister Kris Faafoi has indicated he supports reciprocity.

Echoing the view of his Australian counterparts, he said it could act as a safeguard against open banking ultimately giving powerful tech giants like Facebook and Google an entry into banking – to the detriment of banks and smaller financial technology firms keen to innovate in the payments and budgeting spaces.  

Costs “won’t be prohibitive”

In coming months banks and third parties will be able to start applying to Payments NZ to become accredited users of the technology and the new standards.

They will be required to be an annual fee, as yet undetermined although Payments NZ CEO Steve Wiggins says they “won’t be prohibitive” and will depend on the volume of transactions being made, with bigger players likely to pay more.

“We want to make it at a level that encourages people to join the service,” added Wiggins. “The entry level is relatively low when you compare it to other jurisdictions.”

Payments NZ will establish the framework and standards, banks and third parties will need to negotiate on sharing the costs of operating open banking services. Faafoi promises to ensure that banks don’t set the price so high that third parties can’t afford to partake in open banking.

“We need to have a chat with the banks to make sure their idea of what is fair and reasonable aligns with us,” he says.

Active players

Focus now turns to the speed at which banks choose to apply to become registered as a part of Payments NZ’s application programming interface (API) service and make themselves open to more competition through open banking.

While ASB, BNZ and Westpac were involved with a pilot run by Payments, Wiggins says ANZ and Kiwibank have also been active in the space although neither are involved with two of the main open banking systems already in place, run by Datacom and Paymark respectively.

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Control & Compliance in Operations