New Zealand
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Banking Market Study 6/10: “Can Do Better” — MonopolyWatch NZ

Auckland, 20 June 2023 — Four months ago MonopolyWatch NZ proposed terms of reference for a banking market study. Our 26 recommendations covered structure and competition, pricing and margins, barriers to entry, behaviour, services and obligations under Te Tiiriti ō Waitangi.

Some of these of these have been taken up in whole or in part by Minister Webb in setting out the terms of reference for a Commerce Commission study into personal banking services. Conspicuously absent is any reference to banks’ behaviour, their treaty obligations, the myriad factors that underly their excessive profitability or the failure of Kiwibank have any significant impact on competition.

“This is not a great day for consumers. It’s not even a good day. It is a rather unexciting (and even predictable) day, foreshadowing a protracted Dr Doolittle inquiry,” said MonopolyWatch NZ spokesperson, Tex Edwards. “That is our reading of the response from the Banking Industry Association, who believed the inquiry would ease any concerns in the community about competition and innovation in the banking industry.

Mr Edwards said that New Zealand consumers were being groomed by banks into tolerating delay and excessive costs. “We should expect nothing less than international best practice in in innovation, pricing and household asset allocation between KiwiSaver funds and mortgages. We are not getting that.

“Our ambition is to see sensible prices and bespoke innovation for customers of New Zealand banks, not superyacht level profitability for bankers.”

Wanted: more effective market studies

Mr Edwards said that the Commission needs to learn from previous market studies, which have had limited effect. “An initial gust promises change but ultimately fizzles out when it comes to recommending substantive changes that will improve competition and benefit consumers.

The threshold of inquiry needs to be raised so it answers the question: what will it take to create more effective competition in banking? The role of the Commerce Commission should be to fix broken markets, not simply inquire into them, and a market study should be a means to that end, not an end in itself.”

Improving competition

Market Studies should be a tool for improving competition and driving much-needed change, yet a great many well-informed observers have been disappointed at the outcomes. Since MonopolyWatch NZ proposed terms of reference for a banking study we have undertaken further research and now make the following observations.
 

Mandatory participation of incumbents

The structure of market studies like this needs to be reviewed so as to require the mandatory participation of organisations deemed to have significant market power.

“It beggars belief that Carters did not participate in the conference of the building materials study and answer questions to the Commission. It speaks to arrogance and contempt,” said Mr Edwards.

Mandatory participation of relevant government agencies

Further, government agencies with significant involvement in a market should also be required to participate in market studies. MBIE, the Productivity Commission and Kaianga Ora all had a stake in building materials, yet none submitted or were represented.

Mitigate the influence of industry lobbyists

We urge proposed regulation of lobbyists be in place before the banking study is completed. As we have seen with other studies, the relationships between lobbyists, officers, government officials and politicians are frequently too cosy and too fresh to be allowed to continue unchecked.

Bold and Independent scrutiny on behalf of customers

Banking is too critical a sector for scrutiny to be left in the hands of banks and regulators. For the sector to be subject to appropriate scrutiny and sustained consumer pressure requires the establishment of a Banking Users Association, similar to TUANZ, the Telecommunications Users Association and MEUG, the Major electricity Users Group. A professional body, with the personnel, resources and skills needed to advocate on behalf of both commercial and personal banking customers. It is apparent that Consumer NZ does not have the funding, board composition or mandate to deliver expert opinion in most market studies and counterbalance incumbent monopolists.

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