Open banking is a term used in financial services to explain a shift in traditional banking organisations toward working and sharing data with third parties to deliver new experiences to consumers. For example, under open banking, a major bank could connect with an online retailer to ensure consumers have seamless access to their funds at the point of purchase. In the future, it is envisioned that open banking could allow consumers to effectively pick and choose the banking facilities they want, from the providers they want.
How does New Zealand’s payment industry compare internationally?
The New Zealand payments market is unusual because it is self-regulated. It works closely with government but the industry drives innovations, decisions and change. This is different from other major markets, such as the United Kingdom and Europe, where governments regulate progress. In Europe, open banking is underpinned by the Payment Services Directive, known as PSD2. In the United Kingdom, open banking has been driven by the Competition and Markets Authority, for the Government. Both systems are designed to promote innovation and increase the sharing of data between organisations.
What is the status of open banking in New Zealand?
New Zealand’s payments market has made significant advances toward an open banking environment. It recently completed a pilot on standards around APIs, which are the back-end tools to support a more open payments ecosystem. Participants in the pilot included major banks like BNZ and ASB, and market participants such as TradeMe, Datacom and Paymark. The market is now exploring the introduction of APIs which would mean market participants such as banks, fintechs and online retailers would work together to share data and offer a smoother experience for consumers.
Will my data be secure?
Good question – and one that is difficult to answer. High-profile data breaches have understandably made consumers nervous to hand over access to data. But historic breaches have also ensured a razer-sharp focus on the issue, in both the corporate and government sector. Organisations in the financial sector are particularly experienced in protecting data and ultimately, consumers should engage with organisations which are reputable and which have a data-sharing permissions process they are comfortable with.
How will this affect me?
Open banking will affect us all. And while its onset may be gradual, consumers should ultimately find themselves with more options for financial interactions between banks and organisations, and more seamless interactions. Payments, borrowings and managing your money should become easier and more cost effective. Bank customers should ensure they stay informed of their own providers’ progress in this area and take advantage of innovations.