New Zealand’s banking industry is set to experience significant structural changes as regulation and technology evolve to give consumers more power and choice over the next decade, according to a report by law firm Chapman Tripp. The sector will face a more diverse, difficult, and competitive trading environment, resulting in wins and losses for both the biggest and smaller players. The speed of change brought about by technological advances will not be unique to New Zealand, but the country is facing these changes head-on, all at once, at a time when technology is advancing into unknown territory and modern banking “truths” are being re-examined.
The report suggested that New Zealand’s relatively slow uptake of cryptocurrencies was expected to rapidly grow in line with the rest of the Asia Pacific region, alongside the fintech sector. The report further suggested that new bank products that can keep deposits within the bank ecosystem will become vital, as consumers are expected to demand more from banks. The current inflationary environment will incentivize customers to seek out higher returns just as new technologies and regulations make it easier for them to switch funds among banks or exit the banking system entirely.
The report also predicted that social licence to operate, which is about meeting public expectations of reasonable corporate behavior, would become increasingly difficult for the banking sector to manage. Banking conduct will include management of environmental, social, and governance issues, and will extend to how well banks assist customers during periods of distress, whether related to fraud or economic shocks.
Changes are also likely to result from an anticipated Commerce Commission investigation into the retail banking sector along the lines of its recent market reports into the retail fuel, supermarkets, and building industries. Finding the right balance of financial regulation, market discipline, and investor protection is a hard problem to solve, and unintended consequences and complaints arise regardless of approach. Chapman Tripp’s report estimated some changes would take place over the next 12 months, with more significant changes in the years ahead. The banking sector is facing a multi-faceted regulatory reform program that will require substantial adjustment and change the dynamics of the market, encouraging technological innovation and creating opportunities for new entrants. A long-term consolidation may occur as scale and breadth of product offering widen beyond traditional banking services to attract customers.
