How Open Finance will develop in New Zealand over the next 3 years

Note: This article was first published on the Open Finance ANZ blog.

Last week the government announced that it will introduce a Consumer Data Right (CDR) to New Zealand to enable the future of Open Finance. These regulations have been in the works since 2019, and will likely be enacted in 2022 or 2023. I assume that you’re familiar with open finance jargon — but if you want a jargon-less primer, start here.

In this article I will present a mixture of fact and opinion on how Open Finance infrastructure is likely to develop in New Zealand over the next 3 years.

But, if you want to skip ahead to a relevant section, here’s the outline:

  • Historical context
  • How the 3 open finance movements will converge
  • Expected details of NZ’s CDR regime
  • Resources

Historical context

To date, there have been 3 movements towards Open Finance in New Zealand — industry-led, government-led, and market-led.

1. Industry-led

The major New Zealand banks own a self-governing industry body called Payments NZ, which was established to manage payments innovation.

Since 2017, Payments NZ has been working on API standards that are largely based on the UK open banking specifications. This work transitioned to a new subsidiary called “API Centre”, which coordinates the development of those specifications.

Progress towards the Payments NZ specifications has been perceived as slow. In December 2019 the Minister of Consumer Affairs wrote an open letter to the New Zealand banks setting out concerns regarding the pace of progress with the development of industry-led open banking. He also notified the banking sector to expect a public discussion document during 2020 on whether consumer data rights regulation is desirable in New Zealand.

Major banks are currently at various stages of API development to meet the Payments NZ specifications.

2. Government-led

In August 2020, the government released the expected consultation paper regarding potential consumer data right regulations (“CDR”).

In July 2021, the government confirmed that it will introduce CDR to New Zealand. The bill is expected to be introduced to parliament during 2022.

3. Market-led

A number of organisations have developed screen scraping and reverse engineered solutions that enable consumers to interact with their bank accounts across the web. For example:

  • Home loan applications: Most brokers invite their clients to connect bank accounts in order to automate parts of the application and assessment process.
  • Online payments: Organisations including Air New Zealand, NZTA, and Spark offer an option to “Pay with POLi” which involves a consumer connecting their bank account to initiate a payment.
  • Personal finance: Providers like Pocketsmith enable users to connect their bank accounts to automate budgeting.

How the 3 Open Finance movements will converge

Here’s where we get into opinions rather than facts.

I think that the industry-led work which has been coordinated by Payments NZ will be subsumed into the incoming CDR. My hope is that CDR regulations will adopt the work that banks have already been doing. That’ll avoid re-litigating the details, and will deliver a workable solution to consumers much faster.

I estimate that it will be 3+ years before the CDR regime delivers better functionality for consumers than the current market-led solutions for accessing and sharing data.

When CDR is implemented in 2022 or 2023, there will probably be a phased rollout in the first designated sector (which is likely to be banking). That will give time for data holders to build out systems to comply with the requirements. Given the timeframes to enact and implement the legislation, followed by the expected timeframes for a phased rollout, I estimate that it will be 3+ years before the CDR regime delivers better functionality for consumers than the current market-led solutions for accessing and sharing data.

If CDR is designed well, it should entice participants to migrate from market-led solutions to the CDR regime as it rolls out and matures.

So I think it’s clear that existing market-led solutions will co-exist alongside CDR when it’s first implemented. If CDR is designed well, it should entice participants to migrate from market-led solutions to the CDR regime as it rolls out and matures.

Before CDR is implemented, it’s possible that data holders and API consumers will bilaterally agree on terms of data access — similar to how Xero and MYOB currently retrieve transaction data from connected accounts in NZ. New bilateral agreements are likely to be based on the expected CDR terms. CDR will remove the need for bilateral agreements to access “CDR data”. But once CDR is established and mature, there may still be a place for bilateral agreements with data holders for access to proprietary functionality.

Expected details of NZ’s Consumer Data Right regime

Government has given a helpful steer on CDR details. The most interesting aspects are:

  • CDR will span multiple sectors. When a sector is designated, “data holders” and “CDR data” will be defined for that sector, and timeframes will be given for compliance.
  • Both individuals and businesses will be “consumers” and therefore in scope.
  • Product data may be in scope for each designated sector (in addition to consumer data).
  • Both “read access” and “write access” are in scope.
  • Secondary legislation will cover topics like consumer consent, uses of CDR data, fees, and accreditation.

Resources

For further reading you might like to check out the following:

  • MBIE is managing the policy-making process for CDR. Official updates are published on this page. Another consultation paper is expected before the end of 2021.
  • Here’s a list of products or features that are enabled by open finance in New Zealand.
  • If you feel like a long read, here’s the 67-page regulatory impact statement regarding CDR.

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