Why are the banks making open banking so difficult, asks Diana Clement.
Why are the banks making open banking so difficult, asks Diana Clement.
Opinion by Diana Clement
Diana Clement is a freelance journalist who has written a column for the Herald since 2004. Before that, she was personal finance editor for the Sunday Business (now The Business) newspaper in London.
Why are our banks so far behind in providing customers with open banking? It’s a service that will improve a range of financial tasks, ranging from remortgaging to budgeting. Other similar countries have had this technology for years.
Open banking is a relatively simple concept. The idea is thatthe financial data that banks hold should belong to the customer, not the bank. The customer should have the right to choose to give permission to third-party services to access their data.
That can make switching banks easier, or applying for mortgages and loans. Instead of sending over three months of bank statements to the new bank or lender, we simply give the other lender permission to access our data via a secure system.
Personally, I like the idea that open banking would allow us to give permission for third-party budgeting apps to access a person’s banking transactions automatically. That makes budgeting easier, which in turn helps people manage their money better.
In the UK, which has had open banking for years, third-party companies offer services that use artificial intelligence to analyse a person’s bank transactions in order to provide advice on saving and investing.
Our banks say third-party apps that can access our online banking currently breach their terms and conditions. Yet they opened their systems to Xero and MYOB to access data. Then they complain that other third parties use screen scraping to access customers’ data.
At the moment the banks are pushing all the risk onto us if we use systems that can access our online banking. A good example is using Australia Post’s POLiPay, when paying for Air New Zealand airfares. When you pay with POLiPay on the Air NZ website you are directed to a window that allows you to log into your banking and pay your airfare direct, thus avoiding credit card surcharges. Technically you’re breaching your banking terms and conditions if you pay this way via the Air NZ website.
Banks in New Zealand have long dragged their feet or pulled the “too dangerous” card when it comes to open banking. Why is it dangerous in New Zealand but not in most of our banks’ parent country Australia, where open banking is already up and running?
More like they want to delay open banking because it allows nimble new market entrants to eat their lunch. It means they have less of a hold on customers who can use tools to better manage their money, which may reduce bank profits. And of course open banking makes it easier to jump ship to a new bank.
The onus with open banking is on the banks to open their systems in a secure way so that consumers can make payments safely using available systems. The bank’s application programming interface [API] and its security systems keep you safe.
As a Government press release noted in November 2022: “Consumers should have the power to shop around for better deals, and make sure they’re getting the best bang for buck out of their investments.”
We aren’t expected to get open banking here until 2024 for the four main banks and 2026 with Kiwibank. That’s the dates when the banks need to be “technically and operationally ready” for open banking.
Kiwibank won't have open banking until 2026.
In 2019, the Minister of Commerce and Consumer Affairs told the banks to start moving a bit faster. In 2021, the Government announced it would establish a consumer data rights framework (CDR) which would require, among other things, banks to ensure their customers can gain access to open banking. The Customer and Product Data Bill is progressing through Parliament, and consultation is open until July 24.
It’s not just open banking where we’re not getting the protection consumers in some other countries have.
While writing an article about travel money recently I was talking to Banking Ombudsman Nicola Sladden who pointed out our banks don’t match account numbers and names when customers are making payments. This is compulsory in the UK. Here if you type in the wrong number, the bank doesn’t match it with the name you’ve entered and as a result you can lose your money.
Payments NZ ran a matching trial in 2018, but it didn’t proceed. I asked Payments NZ why the trial was dropped, and here is the answer: “As we progressed, the development partners found they had stronger use cases for the Payment Initiation standard within the constraints of the minimum viable product (MVP) environment. This then led the group to focus their efforts toward testing the Payment Initiation API standard.”
