Government announces market study in the banking sector

Finance Minister Grant Robertson told media on Tuesday, “the most important thing here is that consumers get a fair go.”

“The cost of living is top of mind for many Kiwis and we need to ensure there is a competitive market among banks,” Robertson said.

It comes after Consumer NZ’s bank satisfaction survey showed consumers have an increasing perception that banks’ profits are a result of charging customers too much. In March, KPMG, an auditing, tax and advisory firm, reported that New Zealand’s banking sector had a net profit of over $7 billion.

The New Zealand Banking Association (NZBA) said bank profits are proportional to banks’ size. “Banks are amongst our biggest businesses so their profits look big,” it said.

The Commerce Commission is set to complete the market study by the end of August 2024.

Four major Australian-owned banks dominate the sector, with smaller players making up the rest. Robertson said the study wasn’t intended to target any specific banks or imply the sector wasn’t sound.

“What we want to do here is focus on identifying any systemic sector wide issues that may be impeding or discouraging competition and therefore meaning that consumers are not getting the fair deal they deserve.”

NZBA believes “the enquiry will ease any concerns in the community about competition and innovation in the banking industry.”

“We have a competitive banking sector, with 16 retail banks operating in New Zealand and easy bank switching,” it said.

Customer satisfaction with banks declining

Our bank satisfaction survey found that customers’ satisfaction with their banks is declining.

Customers want banking services to be convenient, accessible, transparent and trustworthy. Our most recent sentiment tracker survey showed as of April 2023, 39% of New Zealanders don’t trust banks. The survey also revealed three out of five people thought it was at least very important for the banking sector to be ethical.

Consumers think it’s too hard to switch banks

Only 4% of New Zealanders we surveyed switched banks last year, suggesting competition for customers is low in the sector. There’s also a perception switching banks is difficult, with nearly a third of New Zealanders indicating they thought switching was difficult.

Consumer NZ supports the market study

Consumer NZ welcomes the study, which will focus specifically on:

• consumer experiences with switching
• introduction or lack of innovation, such as open banking
• whether there are barriers to new entrants which limit competition.

The Commerce Commission will also examine banks’ profitability and other financial measures as part of the study.

What is a market study?

A market study is “an in-depth and independent 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,” according to the Commerce Commission’s website.