Tug-of-war over open banking rollout
Com Com to review application amid banks vs fintechs services stoush
Banks are fighting to maintain the upper hand, as they come under increasing pressure to loosen their grips on their customers’ data. The Commerce Commission wants the Government to crack the whip on banks, which have for several years been hesitant to share their data with financial technology firms.
It believes competition in the sector would be enhanced if fintechs could offer more banking-related services — undercut credit card companies by facilitating cheaper payments, or help people budget by tracking their spending from different bank accounts.
While successive Governments have said they’d like to see open banking accelerated, as it has been (to varying levels of success) in Australia and the UK, progress has been slow.
The technology that enables banks to link up with third parties — application programming interfaces (APIs) — is well understood. The pinch-point is commercial: on what terms, and at what cost, should banks share their customers’ data. Should their customers request this? And who is liable if something goes wrong?
Banks are currently having these discussions with fintechs on a caseby-case basis.
Merco — owner of popular payment provider POLi — claims banks are quoting quite different rates to link up with fintechs.
“We’ve received API pricing proposals as diverse as 50 per cent of our revenue to 5 cents an API call. The former would, incidentally, result in our insolvency,” Merco director Allister Hunter said.
But the real kicker, from Hunter’s perspective, is that the terms and conditions banks would require Merco to meet are uneconomic and over-the-top. He claims banks want to control both the technology and who fintechs do business with.
“It’s just not viable. It’s ridiculous.” Furthermore, banks want to create default terms and conditions to apply to open banking and run their own accreditation scheme to decide which fintechs can connect to their systems.
Payments NZ, a bank-owned company that’s been working on operationalising open banking for years, has asked the commission to allow it to work with banks and third parties to set up this framework.
Without this authorisation, Payments NZ could be accused of acting anti-competitively under the Commerce Act.
Payments NZ argues a framework will make it easier for third parties to work with banks, getting open banking off the ground more quickly.
It doesn’t believe the framework should detail what third parties should have to pay to connect to banks’ systems, but is of the view “consistent pricing structures and principles will achieve the objective of fair and transparent pricing that does not unduly restrict access”.
However, Hunter can’t see this working in practice.
“How could we viably run a business where a core solution component has differing price points for the same input?” he told the commission.
“There is no recognition in the Payments NZ submission that APIs are not competitive. How can they be? If you want a Westpac API you can’t, for example, go to BNZ and get a Westpac API.”
Shane Marsh, co-founder of fintech Dosh, believes an independent organisation, like the Financial Markets Authority, should oversee open banking.
“Payments NZ is conflicted in such a role and would further add to a power imbalance that already exists in the market,” Marsh said.
Similarly, Squirrel chief operating officer Dave Tyrer said: “Squirrel believes the Commerce Commission should reject the bid by Payments NZ in favour of a Government-led alternative. The objectives of this organisation should be to move at a speed that’s deemed safe and delivers services beneficial to NZ Inc in promoting innovation and competition, ultimately, across industries.”
The Commerce Commission is expected to reach a decision on Payments NZ’s application by July 10.
The elephant in the room is while the commission wants banks to share their data to improve competition, banks are urging customers to protect themselves from scammers by not sharing their banking information.