In its final report on banking competition, the commission is also recommending that advisers should be required to submit multiple mortgage applications and that banks should stop using conversion rates for advisers.
“What we heard from consumers is that price really matters when it coms to shopping for a home loan,” commission chair John Small told an online media conference.
“Our investigation has also shown that often when using the adviser channel, only one offer is submitted,” Small said.
Advices have said they consider “a matching process between borrower and bank to be one of their primary roles.
“We definitely agree that mortgage advisers can add considerable value. What we're asking, though, is that they do more to promote price competition,” Small said.
“We recognise that requires some investment from banks as well.”
TMM asked whether submitting multiple applications and making banks stop using conversion rates would add costs to the process that consumers would ultimately have to pay.
“The reason why we're going down this route with mortgage advisers and banks is driven by things in Australia,” Small said.
The Australian industry is structured very differently from New Zealand, he said.
“We heard very clearly that it's possible with common data standards and technology platforms for banks to more efficiently consider home loan applications so that their costs of consideration fall and can enable better competition as a result,” he said.
“This is not something that we just invented. We learnt about it from the Australian experience.”
The commission still thinks the NZ banking market is a stable two-tier oligopoly and that competition isn't working as it should.
“What we see in NZ is that the major banks have little strategic differentiation and their growth targets focus on maintaining market share and protecting margins and profitability,” and the major banks are more profitable than in other countries.
“In a well-functioning market with strong competition, we'd expect to see more aggressive strategies to win customers from other banks,” Small said.
The commission has retained its major recommendations from its draft report published in May that the government should “consider what is necessary to make Kiwibank a disruptive competitor,” and that it accelerate and co-ordinate progress on open banking.
The government should provide Kiwibank with access to more capital.
“In the shorter term, capitalising Kiwibank appears to have the greatest potential to constrain the major banks and disrupt a market that is otherwise stable due to lack of competition,” the commission says.
It wants the government and the industry to commit to ensuring open banking is fully operational by June 2026 because “in the medium to long term, open banking has the greatest potential to promote ongoing disruptive competition for personal banking services,” it says.
It also recommends that the government itself should be an early adopter of open banking services such as supporting new payment methods for taxes, welfare and vehicle licensing.
The commission also recommends that the government should lessen barriers to switching home loan providers as part of its reforms of the Credit Contracts and Consumer Finance Act and that existing and future legislation should not unintentionally favour banks, particularly the larger banks, over other providers.
