Open Banking is coming – through the Consumer Data Right

It’s all happening in fintech regulation.

The Government announced today that the banking sector will be the first in New Zealand to implement a new Consumer Data Right (CDR) in an executive push towards “open banking” – confirming the expectations of most in the sector.  

Open banking allows customers to securely share their own banking data with trusted third parties through standardised technology. In practice, it relies on legislation to compel banks (and other data holders) to share customer data if the customer provides consent. The goal is to make it easier for consumers to compare financial products and services and switch between banks, and to encourage the development of new fintech solutions through better access to financial data (think smart digital lending, wallets and investment platforms). It also has the potential to drive innovation in payments, as it can be used to allow accredited parties to initiate payments on a consenting customer’s behalf.

Over time, the CDR will be extended to other sectors, which (the Government hopes) should give consumers access to a wider range of products and services at more competitive prices.

Open banking is established practice overseas. And New Zealand has already made some progress towards building the infrastructure for open banking, through Payments NZ’s API Centre programme. The API Centre has established an industry-led form of open banking – reliant on an agreed set of rules and individual commercial contracts as opposed to legislation.  

A CDR has been mooted by the Government since July 2021 but, notwithstanding today’s announcement, still looks to be some time away. Commerce and Consumer Affairs Minister David Clark says the Government will now begin consultation on the open banking framework, with the expectation that legislation be passed within two years. Although the issues are complex (other regimes have struggled with challenges like accreditation of participants, development of standards and consumer adoption) – New Zealand has had the advantage of a ringside seat as similar regimes were rolled out in the UK and Australia. We can also draw on the existing work and knowledge gained from the API Centre programme.

The CDR is also likely to play an important role in the implementation of “Buy Now, Pay Later” (BNPL) regulation announced by the Government this month. Because BNPL products don’t charge interest or fees (other than default fees) or take security, they have not been required to comply with the Credit Contracts and Consumer Finance Act 2003 (CCCFA). This means that BPNL providers are not currently legally obliged to assess a customer’s financial position or make their own assessment about the customer’s ability to repay the debt without substantial hardship, as required under the CCCFA.    

The Government has now proposed to apply the CCCFA to BNPL, although smaller loans below a threshold (currently proposed at $600) will be exempt from the CCCFA requirement to assess affordability. In theory, it could be possible for BNPL providers to conduct real-time (or at least highly efficient) affordability assessments if they had visibility over the income and expenses of their customers. In practice, this could make BNPL significantly more difficult without open banking. The CDR will apply to bank account information, and open banking could facilitate real-time assessments of whether an individual transaction is affordable to a consumer.  

If that wasn’t enough to keep the sector on its toes, regulations take effect this week (13 November) that are designed to reduce the fees that businesses must pay to accept Mastercard and Visa payments. The initial pricing standard under the new Retail Payment System Act 2022 limits interchange fees for Mastercard and Visa credit and debit transactions by setting fee caps. It is intended to reduce costs to merchants, and the Commerce Commission (which monitors the retail payment system) has stated that it “expects” those savings to be shared with consumers.

Grappling with these developments (and multiple moving parts) will be top of mind for many in the banking and fintech sector right now.

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Social media image credit: Andre Taissin