The Commerce Commission has opened a market study into personal banking services that will examine how well competition is working and consider options for enhancing competition for the long-term benefit of Kiwi consumers.
Commerce Commission Chair, John Small, says New Zealanders should be able to be confident that they are getting great value, clear choices, and innovative offerings in their banking services.
“This sector is hugely important to New Zealanders and the broader economy. We know there is public interest in seeing how competition is delivering for consumers in accounts, lending, and deposit-related products and services – and whether people can switch providers easily.
“We also know that pretty much every household in New Zealand has a bank account and debit card, nearly 60% have a credit card, and the residential mortgage market accounts for $346 billion in overall lending.”
Dr Small says the study will assess whether there are barriers or behaviours that are preventing competition from driving providers to offer the quality and services consumers should expect.
“This competition study will be a first for New Zealand – providing a deep and focused analysis of how consumers’ diverse needs for personal banking services are being met.”
Dr Small says the 14-month timeframe is necessary for a comprehensive and robust study of the breadth of personal banking services that Kiwis use, and to allow for consultation with the public.
Focus areas of market study
Potential areas of focus for the study are current accounts, deposit accounts, and overdraft account services, personal loans, and mortgage and credit card lending. There will be less of a focus on financial services such as KiwiSaver, wealth management, insurance, and foreign exchange.
Dr Small says the proposed terms of reference for the Commission’s study have been drafted flexibly to allow consideration of further products and services as appropriate, such as broad, cross-portfolio assessments of banks’ financial performance.
While the study is firmly focused on the process of competition, it will also consider some outcomes of that process, including bank profits. Dr Small says there are plenty of profit indicators already available and that, in this part of the study, the Commission will focus on assessing them and potential interpretations of them.
Next steps
Stakeholders and interested parties, including bank customers, will be invited to share information to help inform the study, following the release of a Preliminary Issues Paper by August 2023. The Preliminary Issues Paper will set out the areas the study will consider, including the structure of the industry and the nature of competition in personal banking, the conditions of market entry and expansion, consumer behaviours and preferences, and other areas that might be explored.
The Commission must prepare a draft report and release it to the public for consultation. It must allow a reasonable time for comments on the draft report and must have regard to any comments received, before finalising its final report for the study. The final report must include the Commission’s findings and may include recommendations. Any recommendations are non-binding, but the Government must respond within a reasonable time. The Commission’s process paper – which sets out the timeline for the study – will be published shortly.
In conducting a competition study, the Commission may use its information gathering powers under the Commerce Act if it is necessary or desirable for the purposes of carrying out the study and preparing its associated reports.
About market studies
A market study, referred to as a ‘competition study’ in Part 3A of the Commerce Act, is a study into the factors affecting competition for particular goods or services, to find out how well competition is working and whether it could be improved.
By gathering and analysing information on an industry, the Commission can identify whether there are features preventing competition from working well, as well as considering how things might be improved for the long-term benefit of New Zealand consumers.
Outcomes of the Commission’s work may range from a ‘clean bill of health’ for the sector to recommendations for changes to enhance market performance. The Commission’s recommendations are non-binding, but the Government must respond to any recommendations within a reasonable period.
