How consumer data rights will affect your client

This article was current at the time of publication.

New Zealand businesses and consumers will soon see the shape of legislation aimed at promoting an array of new financial services.

An exposure draft of a bill introducing a Consumer Data Right (CDR) is expected to be issued for consultation in the coming months.

The CDR will require businesses in a designated industry to share prescribed customer data with licensed data recipients, with the aim of enabling new products and services, reduced search and switch costs and increased competition.

Affected sectors

The New Zealand government has listed insurance, other financial services, energy, the primary sector, telecommunications, and loyalty schemes as sectors that may potentially be designated in the future.

However, Commerce and Consumer Affairs Minister David Clark has chosen banking as the “natural starting point” for rolling out CDRs.

“Banking was also the first sector to be designated in Australia, so we can learn from them,” he says.

“This is a logical starting point given the data banks hold for both individuals and businesses,” says Kristen Beadle, policy lead for the Consumer Data Right of CPA Australia.

For businesses, open banking potentially offers greater competition in overdrafts and business finance as well as credit and debit cards, and deposit and transaction accounts.

A report from EY New Zealand says the country has an opportunity to reduce the multi-stage, multi-year rollout approach and accelerate the move to open banking. 

“This is feasible with lessons learned from overseas and industry standards for payments ready to go. It will take strong co-ordination at the industry level and legislation with teeth,” says the report. 

Lessons to learn from the Australian experience

However, the Australian experience to date suggests the New Zealand regime will need to be carefully crafted. CDR rules have been in place across the Tasman since February 2020.

Firms seeking data from banks told The Australian Financial Review in January 2023 that the three-year-old regime risks becoming “a white elephant” because some banks’ data is unreliable and the competition regulator – the Australian Competition and Consumer Commission (ACCC) – is failing to resolve problems quickly.

Entrants said data holders had no incentive to share data and were participating reluctantly. They added that penalties for infringements were too low, and entrants were wearing the costs of identifying and reporting problems, a job the regulator should be doing.

According to a recent report by consultancy Open Finance Advisors, 92 per cent of data holders had data reliability issues and “implementation gaps” as at December 2022. Seventy per cent had failed to comply with implementation timelines and 90 per cent had outstanding “rectification” work.

One example given by the AFR was that three years after open banking implementation, there is still no operator offering a price comparison tool to compare savings accounts.

The report from Open Finance Advisors also said that, in the face of the expiry of billions of dollars of fixed rate mortgages this year, data on mortgages is not detailed enough to allow customers to compare home loan pricing across the banking sector.

Beadle adds, “This is the data that is relevant to consumers right now.  The CDR should be allowing consumers to make informed decisions on their finances.”

Adam Grocke, founder of Sherlok – a company developing CDR applications for mortgage brokers, told the AFR banks had no incentive to participate in open banking because it made it easier for their customers to switch to other providers.

“If the way to get participation is with a stick, the stick is not big enough.”

Timeline

While a CDR Bill and consultation are imminent, Clark has said open banking may still be two years away.

According to EY New Zealand, in the interim, banks will need to decide whether to when to engage.

For the oversight regime, simplicity would be essential, with the Financial Markets Authority, Reserve Bank of New Zealand, Ministry of Business, Innovation and Employment, Department of Internal Affairs, the Privacy Commissioner and the Commerce Commission all playing roles in CDR and open banking as envisaged.

Fintech NZ co-chair Mitchell Pham says open banking is already theoretically possible in New Zealand.

But the big four banks, all owned by banks in Australia, have been “sitting on” it because “they don’t like opening up so that more competition can come in,” he told the New Zealand Herald in November 2022, when the government announced banking would be designated.

The potential was to allow “far richer” products and services, and better business practices in the financial services sector.

“It should rebalance profitability with levels of service and benefit to consumers that is fair and competitive globally.”

It would also help New Zealand fintechs and financial services firms to compete globally.