What's the deal with 'open banking'?

In New Zealand, the organisation that looks after how we pay for things, Payments NZ, is setting rules for open banking. One of the big banks, the Bank of New Zealand, has already started using these rules. Other banks are expected to start using them before May 2024. But what does 'open' banking actually mean - is it a good thing or not?

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What is Open Banking?

Open banking is a new way for banks and other finance companies to manage your money and data. Right now, there are a lot of walls around financial information. For example, if you had an account with Kiwibank and an account with ANZ, Kiwibank wouldn't be able to see the transactions you've made with your ANZ account, and vice versa.

The same is true between banks and third parties. The best example is budgeting apps. That's a third party company who you might want to be able to see your transactions, so they can automatically count them against your budget. Right now, that's a tough thing to do, and so budgeting apps have to work around these issues or ask you to do annoying manual bits.

Here's an overview by Australia Bank, which uses open banking:

Essentially, open banking is like giving your bank a key to a safe box that holds all your financial information. This key can be used by other companies too, if you allow it. This means you can share your financial information, like how you spend your money, with other banks or companies.

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What Does Open Banking Mean for You?

Open banking could make banks compete more for your business. This could lead to better services and lower prices. It could also give you more control over your money. For example, in the UK, some companies are using open banking to offer services that help people manage their money better. In Australia, one bank is using open banking to approve digital mortgages in just 10 minutes. That extra transparency might make it easier for you to get better deals and access to more intuitive tools.

However, it's not all sunshine and roses. Open banking means that more companies can see your financial information. In New Zealand, banks and finance companies have very strict rules around access to this information and they have to have extremely tough protections. With open banking, more companies might have access to that data, which could introduce a weak link around those protections.

One thing we're a bit concerned about too is that open banking doesn't address the elephant in the room for New Zealand finance. People are too often judged purely on their transactions, especially when it comes to getting a loan, and they can end up getting rejected based purely on the numbers, rather than the story behind those numbers. Open banking could make those numbers even more entrenched in the application process. We're hoping that open banking doesn't end up excluding people for the wrong reasons.

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Summary

Open banking is a big change in how we handle our money. It could lead to better services and more control over our money. But, it's also important to make sure our information is kept safe and ensure that open banking continues to serve all Kiwis, not only those with the numbers required to tick the boxes.

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