Is it time to look at open banking?

Jacinda Ardern waded into banks making record billion-dollar profits this week, referring to whether they should reassess their “social licence to operate”.

Her comments followed ANZ New Zealand on Tuesday announcing a record profit of $2.3 billion, up 20 per cent on the prior financial year, and Westpac NZ on Monday revealing a 12 per cent boost to its net profit which hit $1.047b. BNZ followed that up yesterday with profits up 7 per cent or $92 million to $1.4b for the year to September 30. BNZ’s total operating income rose 9.5 per cent to $3.131b with a strong rise in its net interest income which was up 14.8 per cent to $2.604b.

The banks are doing their level best to explain these figures at a time Kiwis are tightening belts to survive rising inflation and the crippling cost of living. ANZ chief executive Antonia Watson says the profit margins are “about the middle of the road for the top NZX companies” while BNZ chief Dan Huggins says our economy has been more resilient than expected and most of the bank’s customers “are in good shape”.

Simplicity CEO Sam Stubbs says banks are raking in too much and the Government could show it cares by taking action, pointing out it could have brought in open banking and account number portability years ago. Number portability is essentially keeping the same bank account numbers while moving to other banks.

Open banking allows thirdparty payment services and other financial service providers to access banking transactions and other data from banks and financial institutions. This enables secure interoperability in the banking industry and leads to lower transaction fees and reduced service costs.

It was initiated as an experiment by the German Federal Post Office in 1980 by using five external computers and inviting 2000 people to take part. The test showed users could carry out banking transactions from their homes. Ensuing developments included the introduction of personal identification (PIN) numbers. Europe has followed the German lead, including the UK in 2017. America has a limited form known as “screen scraping” and Australia introduced open banking in July last year.

So what are the drawbacks?

One is low credibility with customers. Banks have also resisted the transfer of services they traditionally controlled.

Sharing data is the biggest concern, with the heightened risk of information breaches and cyber-attacks. But overseas territories have negotiated through this with protocols that can be mirrored here.

The Government might be better wading into whether its “social licence” requires fasttracking open banking.