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Citing a lack of momentum in payments innovation, the Commerce Commission is consulting on whether to recommend that the interbank payment network be designated under the Retail Payment System Act 2022 (RPS Act).
Designation would give the Commission enforcement powers and the ability to regulate fees and standards. The Commission considers that creating a “credible threat” of regulation may help drive industry progress towards the creation of a “thriving Application Programming Interface (API)-enabled ecosystem”.
We look at this proposal and at the potential interface with the Consumer Product and Data Bill.
Scope
The proposed designation would include all bank payment instruments between or with registered banks for the payment of goods or services initiated by either a consumer or a merchant as payee, as instructed directly to the payer’s bank.
The Commission recognises industry efforts to support the development of open banking initiatives through the API Centre’s Minimum Open Banking Implementation Plan but doesn’t consider that this alone will deliver the level of change needed.
Minimum requirements
New Zealand’s ‘big four’ banks (ANZ, BNZ, Westpac, and ASB) have committed, under the API Centre’s Minimum Open Banking Implementation Plan, to have the API Centre’s standardised payment initiation API ready for use by 30 May 2024, and the standardised account information API ready by 30 November 2024. Kiwibank has a further two years from each of these dates, for operational readiness.
The Commission recognises these industry efforts, but considers the minimum requirements for a thriving API enabled payment system cannot be met by these industry efforts alone. These minimum requirements include:
- Standard APIs for third parties to connect to banks to initiate consumer payments
- An ability for third parties to partner with banks to use the APIs
- Incentives for third parties to develop products and services for consumers and merchants using APIs
- Consumer and merchant confidence in, and demand for, these API enabled products and services
Interface with the Consumer Product and Data Bill
The CPD Bill will introduce a consumer data right (CDR) on a sector-by-sector basis, beginning with the banking industry. It will require designated data-holding businesses with the consent of the consumer to share certain personal data with trusted third parties.
The Ministry of Business, Innovation and Employment (MBIE) has signalled that much of the heavy-lifting will be done by industry-specific standards and that it will build on the work of the API Centre in developing these.
The Consultation seeks feedback on the proposal that designation would give the Commission powers to drive the uptake of the CDR regime, particularly by the big banks.
By encouraging banks (through designation of the interbank payment system under the RPS Act) towards developing the API’s necessary to meet their API Centre deadlines, the Commission sees a simultaneous advancement in developing the technology necessary to support an incoming CDR. The Commission says there is no regulatory duplication between the CDR regime and the potential regulation of the interbank payment network, but it is expected that they would be mutually reinforcing.
Barriers
The lack of transparent and consistent criteria for third parties to access banks’ APIs and the lack of standardised terms and conditions for that access are often cited as barriers to a thriving open banking regime in New Zealand.
This was part of the motivation behind Payments NZ’s recent application to the Commerce Commission for authorisation to develop a third party access accreditation scheme and default contractual terms and conditions to apply between banks, as API providers, and accredited third parties. A decision is expected in July.
The application, although not supported by all members of the payments industry, implies a growing awareness that delays in the delivery of open banking are becoming less acceptable and were also a catalyst for the Commission’s proposal to exercise of its powers under the RPS Act.
Our views
The Consultation Paper emphasises that the Commission’s preference is not to step in and regulate, but rather to use designation – and the spectre of regulation – to encourage the industry to increase its own efforts to deliver a competitive payments ecosystem.
We believe this approach is preferable given the existing initiatives already underway. Industry should be given the space to demonstrate progress on those initiatives without adding the additional complexity of substantive regulation by the Commission to a landscape that already includes regulatory involvement by the Reserve Bank of New Zealand and the Financial Markets Authority as well as proposed oversight by MBIE and the Privacy Commission under the CPD Bill.
A lack of clear regulatory goals and roles between regulators would be more likely to slow down, rather than escalate, the delivery of the innovative ecosystem the Commission is advocating for.
Next steps
Submissions close on Friday 10 May 2024.
Engagement in the consultation process would inform the Commerce Commission’s approach, should it decide to recommend designation to the Minister of Commerce and Consumer Affairs.
If you would like more information or assistance with preparing a submission, please get in touch with one of our experts.
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