Govt Moves to Tackle Banking Competition, Accepts Inquiry Recommendations

“The inquiry’s findings echo those of the Commerce Commission’s report into personal banking last year,” said Minister Willis.

The New Zealand Government has taken a decisive step toward fostering greater competition and fairness in the financial sector by accepting or partially accepting all recommendations from the Finance and Expenditure Committee's inquiry into banking competition. The inquiry, which focused heavily on business and rural banking as well as lending to Māori entities, exposed deep-seated concerns over market dominance, barriers to entry, and inadequate consumer tools for comparison and choice.

Finance Minister Nicola Willis and Commerce and Consumer Affairs Minister Scott Simpson have outlined a comprehensive response that builds on the Government's ongoing work to deliver a more competitive, transparent, and innovative banking system.

"The inquiry's findings echo those of the Commerce Commission's report into personal banking last year," said Minister Willis. "We are moving forward with reforms to ensure that banking works for consumers, businesses, and under-served communities."

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Inquiry Findings: A Sector Dominated by a Few

The inquiry found that the banking sector remains highly concentrated, with a small number of large players—mostly Australian-owned banks—holding the lion's share of customer deposits, loans, and profits.

Key issues highlighted include:

• High profitability levels across banks, raising concerns of excess margins

• Barriers to entry for new players, especially digital-first or community-based institutions

• Limited competition in business and rural lending, affecting productivity

• Challenges faced by Māori entities in accessing flexible and culturally appropriate lending products

These issues are seen as limiting innovation, slowing down financial inclusion, and resulting in less favourable outcomes for everyday New Zealanders.

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Government Action: Delivering on the Recommendations

The Government has committed to progressing all recommendations, either fully or in part, through a mix of legislative reform, regulatory updates, and direct engagement with banks and financial agencies.

🏦 Supporting Kiwibank and Public Sector Banking

The Government has already allowed Kiwibank's parent company to raise additional capital to increase its reach and offer a stronger, state-backed alternative in the market.

🏛️ Greater Role for the Reserve Bank

The Reserve Bank of New Zealand (RBNZ) will be required to place more emphasis on banking competition across its policies, including prudential supervision and macroeconomic decision-making.

This shift signals a more pro-consumer posture in regulatory oversight, with competition seen as critical to long-term financial system health.

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New Initiatives to Improve Transparency and Innovation

Commerce Minister Scott Simpson detailed several new steps aimed at empowering consumers and enabling fintech innovation.

🔍 Standardised Banking Information

Simpson will write to major banks urging them to:

• Standardise financial product disclosures so customers can easily compare interest rates, fees, and loan options

• Improve the digital presentation of financial products, encouraging the use of comparison tools and mobile-friendly dashboards

💸 Profitability Disclosure

Banks will be encouraged to disclose profitability data specifically for:

• Transaction accounts

• On-call savings

• Term deposit products

This will help consumers see which banks are making the highest margins on everyday accounts, increasing market pressure for fairer rates.

🧪 Expanding the Regulatory Sandbox

Simpson will also write to the Financial Markets Authority (FMA) to request an expansion of its regulatory sandbox—a programme that lets financial startups test innovative products and services in a controlled environment.

The move aims to:

• Foster more fintech-led competition

• Encourage safe innovation without excessive red tape

• Create more diverse offerings for consumers and businesses

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Streamlining Licensing for New Entrants

Work is also underway on a single licensing model for financial services. This would consolidate overlapping approval processes into a unified system, making it easier and cheaper for new players to enter the market and compete on fair terms.

This model is expected to particularly benefit:

• Fintech startups

• Community-based credit unions and building societies

• Digital-only banks seeking faster go-to-market timelines

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Ongoing Monitoring and Oversight by Treasury

To ensure the changes lead to real outcomes, the New Zealand Treasury will coordinate monitoring and reporting on the implementation of the recommendations. This includes:

• Tracking improvements in service access for rural and Māori customers

• Monitoring shifts in banking margins and fees

• Reviewing new market entrants and consumer satisfaction

"This Government is committed to driving competition in the banking sector, encouraging innovation, and delivering a better deal for consumers," Simpson said.

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A Broader Reform Agenda for Financial Fairness

The acceptance of the committee's recommendations builds on the Government's wider efforts to rebalance financial power in favour of the public, including:

• Supporting open banking and data-sharing to increase consumer choice

• Backing local banking options like Kiwibank and community lenders

• Reviewing consumer credit laws to ensure they don't over-regulate responsible lending

With momentum growing for reform, the banking sector is on notice: it must evolve to better serve all New Zealanders—urban, rural, and iwi alike.