John Small: The 'faster, safer, cheaper' banking experience of the future

The process of growth will be the main benefit from a scaled up Kiwibank, while public acclaim will be a key measure of open banking's success, Commerce Commission Chairman John Small says.

Small spoke to interest.co.nz for the latest episode of the Of Interest podcast, which will be published later on Wednesday. The interview came after the Commission released the final report from its market study into personal banking services. The Government says it'll act on all 14 recommendations from the report.

Speaking in a previous Of Interest podcast episode, after the Commission's interim report was issued in March, Small said the most important of that report's 16 recommendations was; "The Reserve Bank should review its prudential capital settings to ensure they are competitively neutral and smaller players are better able to compete."

So why is that recommendation gone from the final report?

"We still feel that there's aspects of the regulatory regime that could be improved to promote competition. We've just, I suppose, got a bit more refined about how we're suggesting that that happens. And we've keyed in, particularly to a number of programmes of work that the Reserve Bank already has underway. So we've made a fairly broad overall suggestion about how the bank thinks about competition, which is essentially that we would like them to put a bit more focus on barriers to entry and expansion, so that it's more easily able for small players to get into the market, particularly the kind of players that we expect to be able to disrupt this industry who don't look like the traditional banks," Small says.

"Another one that applies more to the traditional banks is to think about the way that risk weights are calculated for reasonably standardised loans and make that more granular...so there's less averaging involved. It's a better, it's a more accurate, representation of risk and it gives them the ability to price loans differently depending on just how risky they are."

A helping hand for community housing

The Commission's also calling for the Reserve Bank to reduce the risk rating of lending to housing co-operatives and community housing providers to lower, and more accurate, levels. This is currently treated as commercial lending rather than housing lending.

Risk weightings are used to link the minimum amount of capital banks must hold, with the risk profile of the bank's lending activities.

"The work around mortgage advisors is also more nuanced, I should say, [is] probably the way to put it. We found out quite a bit about the mortgage advisor sector after the draft report and we had some of them around at our consultation conference... We [also] took some soundings in Australia about how their mortgage advisor sector works," Small says.

'The process of growth'

On the recommendation to scale up Kiwibank by getting it access to more capital, Small says the main competitive benefit "is about the process of growth rather than what happens once they're big."

"So we want them to be taking chunks of market share out of the big four on their way up, and for that to provoke a competitive reaction from the larger banks."

"What will really matter will be them [ANZ, ASB, BNZ an