Speaker 1: Gielda.
Speaker 2: I'm Chelsea Daniels and this is the Front Page, a
Speaker 2: daily podcast presented by the New Zealand Herald. An inquiry
Speaker 2: into New Zealand's banking competition or lack thereof, is currently
Speaker 2: under way. Finance Minister Nikola Willis announced it in June,
Speaker 2: putting particular emphasis on rural banking and lending. A ComCom
Speaker 2: market study has already, unsurprisingly found a lack of competition
Speaker 2: among our largest financial institutions, with a full report due
Speaker 2: next month. So what does it all mean for the
Speaker 2: average kei we consumer and is their hope on the
Speaker 2: horizon for some healthy competition. Later on the Front Page,
Speaker 2: ABC journalist Dan Zipper explains what lessons could be learned
Speaker 2: from Australia's massive royal mission into banking. But first, Victoria
Speaker 2: University of Wellington Associate Professor of Economics, Martin Lubrink is
Speaker 2: with us to take us through the state of our
Speaker 2: banking sector. Martin, can you explain to us what New
Speaker 2: Zealand's banking landscape looks like at the moment?
Speaker 3: Well, the banking landscape at the moment looks very concentrated.
Speaker 3: There's four big banks and then there is a handful
Speaker 3: of smaller banks. That is not atypical. It's normal in
Speaker 3: many countries like France and the Netherlands. They also have
Speaker 3: concentrated banking landscape with a few dominant players. What is
Speaker 3: typical here, I think is that the profitability of the
Speaker 3: large banks very high, where does the profitability of the
Speaker 3: smaller banks is low, and I think that creates a
Speaker 3: bit of tension.
Speaker 2: Our competition watchdog, the Commerce Commission, released its draft report
Speaker 2: into the state of Personal Banking in New Zealand earlier
Speaker 2: this year. Does that offer any solutions to our banking
Speaker 2: woes here?
Speaker 3: Well, I think it's a good study, and in terms
Speaker 3: of solutions, there are some solutions that I would support
Speaker 3: the particularly when it comes to open banking and innovations
Speaker 3: and things that can improve the banking experience for customers
Speaker 3: and also for businesses. But these are recommendations appearing at
Speaker 3: the end of the report, whereas the main recommendations are
Speaker 3: very much focused on helping the smaller banks. And I
Speaker 3: struggle with that a bit because the smaller banks, they're
Speaker 3: kind of vulnerable and to expect a lot of solutions
Speaker 3: from them, whereas the bigger banks are much more powerful
Speaker 3: or stronger and much more resilient. It's kind of asking,
Speaker 3: you know, the mouse to be the elephant, and that's
Speaker 3: a bit of a concern in my view.
Speaker 2: Is it an issue that are four major banks that
Speaker 2: all Australian owned.
Speaker 3: I'm not to worry about the ownership of the Australian banks.
Speaker 3: Also because there's good cooperation between the Reserve Bank as
Speaker 3: a prudential supervisor and the opera the Australian prudential supervisors,
Speaker 3: so you know, the communications is easy and it flows easily.
Speaker 3: I think, you know, it would be different and if
Speaker 3: it were a Latin American bank or maybe a Southeast
Speaker 3: Asia located bank, where you probably have a different supervisiony culture.
Speaker 3: The supervision culture in Australia and New Zealand is very
Speaker 3: similar my guesses, and also similar to other very resilient
Speaker 3: countries like Canada. And so these countries in Australia and
Speaker 3: New Zealand and Canada have amongst the saving banking systems
Speaker 3: of the world. It's well documented. But nevertheless you'll just
Speaker 3: four big Australian banks that have a strong influence here
Speaker 3: on the market. Yes, that's true.
Speaker 2: How could the government better capitalize smaller banks?
Speaker 1: Say like Kiwi Bank.
Speaker 3: That's a tricky one because it's not the role of
Speaker 3: the government to proper banks or to capitalize them, because
Speaker 3: that creates all sort of what they call moral hazard issues,
Speaker 3: in the sense that if suppose that Kiwi Bank gets
Speaker 3: more capital and starts becoming the really disruptor bank, it
Speaker 3: may start making risky bats and start gambling with that money,
Speaker 3: and then you have a well capitalized bank that gambles
Speaker 3: with money, but that nevertheless can go sideways in a
Speaker 3: very bad way. So it's tricky to expect the government
Speaker 3: to step in, and it's also very hard to require
Speaker 3: or to fund the other banks. The smaller banks will
Speaker 3: recaplize them through the state, because that's a bailout in
Speaker 3: one way, shape or form, and that is never good
Speaker 3: because if that fails, what do you do? Then if
Speaker 3: it's success, then the question is when to step out.
Speaker 3: So that creates more messiness than actually it does help
Speaker 3: solve problems.
Speaker 2: The inquiry launched by Finance Minister Nikola Willis will look
Speaker 2: into competition but also rural banking and lending.
Speaker 1: What does that all mean?
Speaker 3: Well, I think them inquiry was very much focused on
Speaker 3: retail banks and that's only half of the picture and
Speaker 3: my justice. When it comes to retail banking, there is competition.
Speaker 3: You know, maybe the competitions are not as strong as
Speaker 3: people would expect it, but if you go around for
Speaker 3: a mortgage, you will find good deals offered by various banks.
Speaker 3: So people are very well informed about what is available
Speaker 3: for retail mortgages and they will play banks against each other. Now,
Speaker 3: maybe that's not perfect in the commissioned way, and it
Speaker 3: could be better, but when it comes to lending to
Speaker 3: the small and medium sized or the agre sector, it
Speaker 3: is far more opaque in terms of what the best
Speaker 3: deals are because they're all bespoke deals. There's not a
Speaker 3: lot of advertising. The market is very intransparent, and that
Speaker 3: creates opportunities to extract more profits from borrowers.
Speaker 4: Farmers and others in the primary sector have told us
Speaker 4: that access to borrowing has become more difficult, that farmers
Speaker 4: are paying higher interest rates compared to other borrowers.
Speaker 5: Their history has shown us that leading to businesses incloding.
Speaker 5: The egg rey sector is riskier than leanding to homeowners,
Speaker 5: and as a result, we do hold twice as much
Speaker 5: capable against an eggry line is a prime line.
Speaker 3: So I think it's good to have another inquiry that
Speaker 3: looks in particular into that sector, these small and medium
Speaker 3: sized firms in the augre sector, because there's probably where
Speaker 3: the gains are made for the commercial banks, but we
Speaker 3: don't know. I haven't seen the report, but from the
Speaker 3: start with the Commerce Commission report focusing on retailers, I
Speaker 3: feel like, you know, yeah, that's more or less looking
Speaker 3: for your keys onder the lamppost and you know, if
Speaker 3: you go through the part of the Commerce Commission, they
Speaker 3: noticed there is some competition, whereas I'm not sure what's
Speaker 3: happening in the SME market or the business market for lending.
Speaker 3: Neither do I have a good idea what's going on
Speaker 3: within the harky business lending. So there's you know, I
Speaker 3: think it's very good to have that report to show
Speaker 3: the other side of lending and boring and that part
Speaker 3: of the market, because that gives it a far better
Speaker 3: view of what's going on in banking here in New Zealand.
Speaker 2: Isn't it true that there is a lack of competition
Speaker 2: because those four banks do own up to say, ninety
Speaker 2: percent of the sector in New Zealand. Does that discourage
Speaker 2: them from say, investing in things like security measures for
Speaker 2: customers and doing other things like that.
Speaker 3: Yeah, I'm not saying that there's a lack of competition
Speaker 3: because you know, you can do shopping and the report
Speaker 3: in the Commerce Commission notice is that there are deals
Speaker 3: to be had. You can get favorable deals, although it's
Speaker 3: not perfect. I mean, yes, you know there is some competition,
Speaker 3: but it could be sharper. But you know, in circumstances
Speaker 3: like this, I wouldn't worry too much about that.
Speaker 1: But I agree with you.
Speaker 3: The last point in particular is that give that the
Speaker 3: banks are very profitable, in particularly the larger one, They're
Speaker 3: very profitable. You know, there's no doubt about that. It has
Speaker 3: been well documented. And then to see the services provided
Speaker 3: in terms of technology and support, and also the risks
Speaker 3: that are imposed on customers when things go wrong, I
Speaker 3: think there is a lot of gains to be made.
Speaker 3: You know, hotter stories about people being scammed. And then
Speaker 3: I think, you know, as far as I know most
Speaker 3: of these cameras, the cost of these scams are upon
Speaker 3: you and me, Whereas I think you know, the better
Speaker 3: informed party and the stormer party is the bank, and
Speaker 3: they should have systems in place to prevent that.
Speaker 2: Well, New Zealand's currently looking at introducing confirmation of PAYE,
Speaker 2: which essentially is the ability right for customers to check
Speaker 2: the account owner's name and account number and make sure
Speaker 2: they match before they make a payment. The fact that
Speaker 2: this is available over season is only something that we're
Speaker 2: looking at.
Speaker 4: Now.
Speaker 2: Does that mean that we are quite behind in those
Speaker 2: protections for customers?
Speaker 3: Yes, I would say so we're lagging and the incentives
Speaker 3: to improve are not there. A lot of the innovations
Speaker 3: are in the European market. You know, the US market
Speaker 3: is even more backward than ours. They still work with
Speaker 3: checks and some You cannot transfer money from one small
Speaker 3: bank to the other small bank in US, so that's
Speaker 3: a very different territory. But Europe has a pretty advanced
Speaker 3: and I think Australia as well, but in particular Europe
Speaker 3: has a very advanced or pretty advanced banking system where
Speaker 3: you have real time online payments, so you transferm money
Speaker 3: and then within seconds it's at the receiving bank and
Speaker 3: you have number confirmation to make sure that the person
Speaker 3: you pay to is the right person.
Speaker 1: So yes, you know we're behind, and.
Speaker 3: So if you look at it, you think like, you know,
Speaker 3: there's all these profits made by the banks, and if
Speaker 3: there's the Reserve Bank or the Minister of Finance or
Speaker 3: whoever is in charge, can tell these banks like, you know, yes,
Speaker 3: it's fine that you're working in a profitable sector, but
Speaker 3: we expect more of you in terms of service.
Speaker 1: I would really encourage that, you know, top.
Speaker 3: Down approach to forcing the larger banks in particular to
Speaker 3: offer better services. Whereas the Comcoman report focuses very much
Speaker 3: on the solid banks, most of the innovations has to
Speaker 3: come from the larger banks, and the larger banks are profitable,
Speaker 3: so regulation can be written in such way that they
Speaker 3: prescribe these innovations to be implemented in New Zealand.
Speaker 2: And of course there was the Royal Commission into Banking
Speaker 2: in Australia five years ago. Now do we need something
Speaker 2: like that or are there lessons to be learned from
Speaker 2: the Royal Commission over in Australia. I know that there
Speaker 2: was a completely different set of circumstances that led to
Speaker 2: that Royal Commission, But what can we learn from that hard.
Speaker 3: To say because shortly after the Royal Commission came out
Speaker 3: with their report, the FMA and the Reserve Bank did
Speaker 3: a similar report, and then that report shows nothing to
Speaker 3: be seen here, and so we have to take their
Speaker 3: words for it that it's true. So there's not immediately
Speaker 3: the issue that we saw in Australia where mortgages were
Speaker 3: given to people that didn't exist, and where the emphasis
Speaker 3: on sales were so hard that bad behavior starts happening.
Speaker 3: Occasionally hear stories here in New Zealand what's happening, but
Speaker 3: it's not well documented and so I'm not sure what
Speaker 3: we can learn from that. Plus, what people forget is
Speaker 3: that many of the recommendations of the Royal Commission in
Speaker 3: Australia they would lead to a more competitive and probably
Speaker 3: less profitable banking sector. So one of the things that
Speaker 3: happened in Australia because of the COVID crisis is that
Speaker 3: many of these recommendations where I think frozen or just like,
Speaker 3: oh yeah, well, maybe it's not great to implement these
Speaker 3: proposals now because it will go at the expensive jobs
Speaker 3: in the banking sector.
Speaker 1: So I'm not sure what.
Speaker 3: Happened afterwards after COVID and which of the recommentation is
Speaker 3: still being implemented. But it seems as though that the
Speaker 3: banking sector in Australia is pretty powerful and lobbied in
Speaker 3: such a way that they probably can keep going on
Speaker 3: with what they did before the Royal Commission report.
Speaker 1: But that's speculation for my side.
Speaker 2: What do you think is the biggest issue facing our
Speaker 2: banking sector?
Speaker 1: Now, well, that's a good question.
Speaker 3: I think actually there's nothing really that affects the banking
Speaker 3: sector here except for the complacency the tardiness when it
Speaker 3: comes to innovations, and that is because of the way
Speaker 3: the market is structured. There's not a lot of competition,
Speaker 3: for example, from in FinTechs. You don't see that. The
Speaker 3: expectations are that the smaller banks are meant to be competing,
Speaker 3: which I think is beyond belief in a way. You know,
Speaker 3: innovations should come from the largest banks, the big four,
Speaker 3: They should be leading there, so you know we have
Speaker 3: a sable financial system. But it's just as slowness and
Speaker 3: the tardiness with the innovations that probably upsets people.
Speaker 2: Thanks for joining us, Martin. The majority of New Zealand's
Speaker 2: banks are OSSIE owned and those banks went through a
Speaker 2: Royal Commission into their practices five years ago. In Australia,
Speaker 2: to discuss the outcomes of that and the lessons it
Speaker 2: could pose for New Zealand. We're joined now by ABC
Speaker 2: journalist Dan Ziffer. Dan, you've covered banking in Ozzie for
Speaker 2: years now. Can you give us a brief background of
Speaker 2: the woes Australia has faced and is facing. I guess
Speaker 2: when it comes to its banking sector.
Speaker 6: We've probably need to go back about ten years.
Speaker 4: There was a series of scandals, a lot of them
Speaker 4: in financial advice, a lot of them really to do
Speaker 4: with the banks putting the interests of customers well below
Speaker 4: the interests of the institution. These scandals build up and
Speaker 4: up and up until there's quite a political weight to
Speaker 4: call a commission of inquiry, which in Australia is called
Speaker 4: World Commission. This became very politicized. Our Labor Party on
Speaker 4: the left wanted it. The government who had the coalition,
Speaker 4: the Conservatives didn't want it. But essentially the National Party,
Speaker 4: who are a partner with the coalition, they kind of
Speaker 4: eventually came on board and the numbers grew and grew
Speaker 4: and grew to such a point that in late twenty seventeen,
Speaker 4: the then Prime Minister, Malcolm Turnbull called Royal Commission, a
Speaker 4: very short and sharp one which went for a year
Speaker 4: all the way through.
Speaker 6: Twenty eighteen, and then reported slightly after that.
Speaker 4: So since then we had the pandemic, which again changed
Speaker 4: people's relationships with the bank.
Speaker 6: They're now on probably, i'd say, a better keel.
Speaker 4: The regulators are stronger, the public scrutiny is still there,
Speaker 4: but they certainly have launed their reputations.
Speaker 6: I don't meant that in the malicious way.
Speaker 4: They've actually improved what they do from where we were
Speaker 4: a decade ago, but they had to get through a
Speaker 4: lot in the middle first.
Speaker 2: When it comes to that Royal Commission, it's been five
Speaker 2: years since the final report and recommendations. What has actually
Speaker 2: been tangibly done a lot.
Speaker 4: I will say that when all the journalists and I
Speaker 4: were covering it, we used to joke RC twenty three,
Speaker 4: which meant that we'll be back here in five years
Speaker 4: time we'll be having another one of these. But actually
Speaker 4: what happened is they did a lot of boring but
Speaker 4: important work. They spent hundreds of millions of dollars in
Speaker 4: improving really old systems that were allowing these bad things
Speaker 4: to happen. They changed internal culture and certainly fixed it,
Speaker 4: but they certainly made big shifts so that problems would
Speaker 4: be elevated. Every single thing that was exposed at the
Speaker 4: Australian Banking Royal Commission was something that was noted inside
Speaker 4: the bank, sometimes by a junior lawyer, an IT worker
Speaker 4: in Bangalore, by customers. All of these problems were known,
Speaker 4: but they just couldn't penetrate a high enough level to
Speaker 4: get something done about them, or even if people were
Speaker 4: made aware had reasonably senior level, they didn't care enough
Speaker 4: to fix the problem or to create a long term
Speaker 4: solution for the problem. So since then we've seen really
Speaker 4: big shifts. We've seen changes in the law. We've seen
Speaker 4: much stronger regulators and a different attitude from regulators. Rather
Speaker 4: than essentially being the mosquito on the back of the
Speaker 4: elephant and working out essentially cozy deals to deal with problems,
Speaker 4: actually started prosecuting banks and when they've done things wrong
Speaker 4: in a civil and even a criminal level, they've prosecuted
Speaker 4: them for them. So that stuff does make a difference
Speaker 4: in attitude, and it also tells the public that the
Speaker 4: regulator is more serious about looking after them.
Speaker 7: The frenzy of scandals exposed at the Royal Commission made
Speaker 7: banks put customers first. The industry says it's gone back
Speaker 7: to basics. Banks have simplified their operations, exiting financial advice,
Speaker 7: wealth management and insurance. They now have a razor sharp
Speaker 7: focus on core banking services that serve businesses and households.
Speaker 2: As an aside, this Commission prompted the RBNZ and FMA
Speaker 2: here in New Zealand to do a joint review of
Speaker 2: bank conduct and culture here, which led to the instruction
Speaker 2: of something called the Conduct of Financial Institution Amendment Act. Banks,
Speaker 2: insurers and non bank deposit takers have until March thirty
Speaker 2: first next year to have a KOFEE license as a
Speaker 2: result of that, it's something if similar being done in Australia.
Speaker 4: We haven't changed the licensing so much, but certainly every
Speaker 4: problem that existed at one bank existed in the others.
Speaker 4: You know, they were really broad and systemic. So the
Speaker 4: biggest one was a thing called fees for no service,
Speaker 4: which is exactly what it sounds like. It's taking fees
Speaker 4: for services that were never rendered. It we're never going
Speaker 4: to be rendered. This was a problem in the billions.
Speaker 4: I mean Australians have received back about six billion dollars
Speaker 4: from this problem. And of course, in all the ways
Speaker 4: of these scandals, it started off very small. It's very isolated. Oh,
Speaker 4: it's just to this section of the bank. Actually it's
Speaker 4: a little bit broader. Actually, hold on, no, it's a
Speaker 4: billion dollars.
Speaker 6: You know, these.
Speaker 4: Problems do tend to be systemic because if one bank
Speaker 4: is doing them, they share employees, they share systems, they
Speaker 4: share processes. Sometimes these things are falling through the cracks
Speaker 4: and happening. So there hasn't been any change in the licensing.
Speaker 4: I would say the biggest changes in Australia have been
Speaker 4: attitudinal and cultural, as in internally with the bank, they
Speaker 4: have improved and they've proved their focus on hold on,
Speaker 4: this is actually four customers.
Speaker 6: We don't exist for the bank. We exist four customers.
Speaker 4: And with regulate, it's having that focus to the public
Speaker 4: as well, rather than just trying to manage the banks
Speaker 4: and deal with them, actually focusing on well, what's the
Speaker 4: impact and how can we get a better result, not
Speaker 4: just now but in the future.
Speaker 2: It seems like New Zealand is years behind the countries
Speaker 2: in the way of protecting customers from scams and the like.
Speaker 2: We're only just looking into rolling out something called a
Speaker 2: confirmation of paye and that's things like reimbursement, et cetera.
Speaker 2: It seems like if a customer here is scammed, it's
Speaker 2: their fault and it's quite the fine to get their
Speaker 2: money back.
Speaker 6: What's it like in Australia, It's pretty similar.
Speaker 4: So a lot of the consumer groups here wanted essentially
Speaker 4: UK model where the banks pretty much give back the
Speaker 4: money in most circumstances.
Speaker 6: Now, the banks, understandably you can see their argument.
Speaker 4: Here, push back and said, look, if we pay money
Speaker 4: back for every single scam, then there has to be
Speaker 4: something on the customer to not act really.
Speaker 6: Rashly and foolishly.
Speaker 4: Now, the issue, of course is the scams are coming
Speaker 4: increasingly sophisticated, so it's not as simple as what we
Speaker 4: call the kind of Nigerian print scam that used to
Speaker 4: exist where people say, hey, I've got all this money,
Speaker 4: but it's locked up and I just need a bit
Speaker 4: of help to get it out and then you can
Speaker 4: share our riches. The scams now are really sophisticated. They
Speaker 4: look like it's coming from your accountant or your bank
Speaker 4: or your child saying hey, we need your money or
Speaker 4: we need your details. So there is certainly a very
Speaker 4: live discussion here about how much consumers need to wear
Speaker 4: and how much care they need to take, and how
Speaker 4: much responsibility banks should take given that they certainly have
Speaker 4: access to power and more systems. The good things that
Speaker 4: are happening here, I'm sure similar is happening in New Zealand,
Speaker 4: is that they are working with the telcos and mutility
Speaker 4: companies and to change those systems and make them more secure.
Speaker 4: As simple as now it happens at most banks that
Speaker 4: didn't happen a year ago is when you put in
Speaker 4: a code to pay a bill, it actually checks whether
Speaker 4: that code is the utility bill that you're going to
Speaker 4: pay or if it's a completely different company. So there's
Speaker 4: a lot more to be done, and I think it's
Speaker 4: an ongoing discussion about how much risk there is for
Speaker 4: a customer and how much risk the bank needs to wear,
Speaker 4: both of them essentially and introducing work.
Speaker 2: Thanks for joining us, Dan. That said, for this episode
Speaker 2: of the Front Page. You can read more about today's
Speaker 2: stories and extensive news coverage at NZ Herald dot co
Speaker 2: dot nz. The Front Page is produced by Ethan Sials
Speaker 2: with sound engineer Patty Fox. I'm Chelsea Daniels. Subscribe to
Speaker 2: the front page on iHeartRadio or wherever you get your podcasts,
Speaker 2: and tune in tomorrow for another look behind the headlines.