New Zealand is at a crucial point in its financial services history. While it has led the world by embracing initiatives such as EFTPOS and peer-to-peer payments, the future is looking a lot more uncertain. Other countries, such as Australia, are rapidly progressing with open banking and making the most of its benefits. However in New Zealand, the conversations and decisions needed to implement such a system are only beginning. The flip side is that New Zealand is well placed to learn from other markets.
Fintech New Zealand together with Deloitte produced an Open Banking Report looking into the industry locally. In addition to Envestnet | Yodlee contributing to the report, Australia and New Zealand Country Manager, Timothy Poskitt also participated in a webinar to discuss the findings. The key observations are below and the full webinar can be viewed here.
Trust takes time
Looking to the United Kingdom, we know that the uptake of open banking services hasn’t been as quick as what was predicted. Most New Zealand consumers do not yet fully understand what open banking is and the opportunity it presents.
The responsibility to build trust falls with both business regulators and businesses. Regulators must clearly communicate their intentions and timelines. The business community can help by building solutions based on traditional open data techniques, to increase familiarity among consumers. It’s critical for the financial services industry to bring Kiwis on the journey and promote use cases to help build trust.
Clear regulation is critical
Banks and fintechs want to embrace open banking and the benefits it can deliver for consumers and the economy. There are two key things regulators can do to help the sector achieve this.
Firstly, clear guidance is needed on the structure and expected timelines of Consumer Data Right (CDR) legislation. This will assist in preparations and provide the certainty needed to undertake the large investment of developing localised open-banking products.
Secondly, the sector and existing data holders should be permitted to continue to use traditional data aggregation technology. This will enable it to launch solutions that can eventually be transitioned into CDR provided APIs. Slowing down the current momentum data-aggregation space would also slow the adoption of open banking.
Some lessons to ponder
There are several best practice lessons that can be derived from other markets. One of these is to implement write access, as well as read access. While read access opens up a world of portable data, write access unlocks much stronger value. Payments, account switching, transfers and automated investments all become possible. If the data is available, we should make the most use out of it as possible.
Something to avoid is constant re-authentication. When the UK and EU required consumers to reauthenticate their data, drop-off rates were above 50%1 due to the repetitive and cumbersome nature of the task. Rather than requiring re-authentication, New Zealanders should only have to re-confirm that they are happy having their data shared.
Tiered accreditation models should also be implemented. In some markets, gaining full authorisation involves satisfying several requirements with rightfully high bars around compliance, privacy and security. However, a ‘one size fits all’ approach doesn’t work, as smaller companies often need comparatively limited access, but can’t afford to satisfy the requirements needed to obtain full access. A tiered accreditation model opens the door for innovation and competition.
An exciting opportunity
New Zealand is in a position to learn from other markets about how to implement open banking successfully. It needs to capitalise on this unique status now to bring benefits for consumers and the wider economy in the future.
Footnote
1 https://www.altfi.com/article/7934_why-we-need-to-rethink-the-90-day-rule
