It is not a nice feeling being ripped off.
That is how it feels compared to Australia on several fronts, especially because big Australian businesses control most of this country’s banking and a large slice of its retailing.
This Australian presence is important in our market. It adds variety and competition and pressures local companies. Sometimes, however, it does not feel fair.
The economies of scale and bigger markets are often cited when prices are cheaper in the big cities of Australia. Also, GST is 10% rather than 15% and excluded from non-processed food and a few other areas.
By contrast, alcohol is more heavily taxed, and cars are more expensive. Tens of thousands of dollars on stamp duty might also be payable when buying homes.
There are specific instances when price differences are unjustifiable and when New Zealand branches of Australian companies unfairly extract larger profits. New Zealand has suffered from higher retail card payment fees and bank interchange fees, for example.
The Commerce Commission last week released its initial review of banks and, to the surprise of no-one, found them more profitable than overseas counterparts.
It so happens the big four, ANZ, Westpac, BNZ and ASB, are all Australian-owned. They hold 86% of the $348 billion home loan market and rake in most retail deposits.
Each year they make huge profits. ASB (owned by Australia’s largest bank, the Commonwealth Bank of Australia) last week announced a 6% increase in profit to the year ended in June to $1.56 billion. It widened the gap between what it pays depositors and what it lends on mortgages.
The Government here has also insisted banks hold more capital, and a deposit guarantee scheme is coming.
The big Australian-owned banks, nevertheless, manage to out-perform in New Zealand.
That is even though an Australian banking inquiry found all sorts of suspect practices there to boost profits. Those banks also have the potential advantage of a larger market to operate in.
The Commerce Commission notes that excessive profits can indicate a lack of intense competition. So, too, can a lack of innovation, also apparent in New Zealand banking.
The inquiry is limited to retail deposits and home loans. There is plenty of scope there, although there has been criticism that the probe has not been extended to lending to small businesses. The study would take too long and be too complicated if everything was covered.
Telecommunications is a stark example of where competition shook up an industry. Broadband and phone plans became much more competitive once number portability arrived. A substantial new player, 2degrees, also helped.
The retail end of electricity supply has also become competitive because it is straightforward to change providers.
The hassle of changing banks, in contrast, is daunting, although it is less difficult than most imagine.
What would really kick-start competition is number portability and ‘‘open banking’’. That should lead to higher deposit rates and lower mortgages. Banks would have more incentive to keep customers happy.
New Zealand has been a laggard on ‘‘open banking’’. With your permission, the arrangements allow third parties to access all your banking information. The details are yours, and you will have ‘‘Consumer Data Rights’’. Paying person-to-person should become easier as well.
Customers could, as one example, use third-party budgeting apps to advise on how you control your money.
Of course, all this must be done securely.
The biggest banks will not have to be ready for Open Banking until November next year. While it is useful to learn from mistakes overseas, it is all happening too slowly. Open banking has been in place in the United Kingdom for a decade and operates in Australia.
Naturally, the banks themselves will be in no hurry. They must be pushed. Given the chance, banks as businesses will make money where and while they can. Why wouldn’t they?
