Squirrel Views On The CommComm Study Into Competition In Banking: Much Ado About Nothing

Friday 23rd August, 2024

Squirrel has today responded to the findings of the Commerce Commission’s report into competition across New Zealand’s banking sector, saying its failure to present a suite of truly impactful solutions is “as expected”.

It notes that the report—a nearly 400-page document released earlier this week—provides an excellent analysis of the challenges inherent to the pricing oligopoly of New Zealand’s largest banks.

However, Squirrel CEO, David Cunningham, says that, with just one exception—the recommendation to invest heavily in the growth of Kiwibank—none of the proposed solutions stand to deliver meaningful change in terms of increased competition.

“Squirrel is broadly supportive of many of the Commerce Commission’s recommendations. There are some excellent ideas contained in the report—which, if put into practice, would deliver a range of very real benefits for New Zealand banking customers, including helping to improve customer outcomes. But the majority of these recommendations will do little to promote competition. In fact, we’d argue that one of the recommendations actually has the potential to lessen competition.

“The reality is that the only way we’re going to see significantly more competition in New Zealand is if our big banks are forced to become more competitive in order to protect their market share against the emergence of a new player—or the growth of an existing one, like Kiwibank—offering more competitive rates.

“So, we were pleased to see the Commerce Commission recommend heavy investment into Kiwibank to enable it to grow and become that maverick player we need. It’s unlikely that government will provide the necessary capital, so the obvious approach would be for Kiwibank become a listed company—which presents its own potential challenges. But it’s the one recommendation which truly hit the mark in terms of delivering on the purpose of the study,” says Cunningham.

The 14 recommendations outlined in the report span a broad range of areas—including open banking, mortgage pricing and application processes, increased ease of access to banking services, anti-money laundering, and reducing barriers to entry (and growth) for new non-bank deposit takers in New Zealand.

Squirrel’s view, in a nutshell:

• Only one of the 14 recommendations will meaningfully increase competition. And that idea isn’t new.
• Together, a few of the supporting recommendations will have some impact – in particular, encouraging open banking – but again, that idea isn’t new.
• One of the recommendations, we believe would likely lessen competition by making it much slower for Kiwi borrowers to get a home loan approved.
• The Commerce Commission report is overly focused on home lending, which has the most competition (largely due to the prevalence of mortgage brokers), but has failed to focus on the real issue which is what banks pay (or more accurately, don’t pay) for retail deposits.

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