Photo: 123rf.com
New Zealand's banking system is facing a more diverse, difficult and competitive trading environment as regulation and technology evolve to give consumers more power and choice over the next decade.
A banking industry report by law firm Chapman Tripp indicated the sector would face structural changes which would result in wins and losses for the biggest and smaller players.
"The recent global turmoil illustrates the economic factors that are currently weighing on the banking sector, offer insights into how catastrophic events can unfurl, and provide lessons for New Zealand," Chapman Tripp partner Luke Ford said.
"In particular, the 'bank runs' that have been associated with each failure have been turbocharged by modern technology."
To illustrate, about US$42 billion was recently withdrawn from the US-based Silicon Valley Bank in just 24 hours, compared with 10 days to withdraw US$16.7b from the Washington Mutual Bank in 2008, which was previously the largest bank run in modern US history.
NZ behind the curve
Ford said the speed of change was brought about by technological changes, which would not be unique to New Zealand.
"But New Zealand is facing these changes head on, all at once, at a time when technology is advancing into unknown territory and accepted 'truths' of modern banking are being re-examined," he said.
"In fact in many cases, New Zealand is behind the curve."
New Zealand's relatively slow uptake of cryptocurrencies was expected to rapidly grow in line with the rest of the Asian Pacific region, alongside the fintech sector.
The report suggested bipartisan political support for long-promised consumer data right legislation would perhaps take another couple of years to put in place, but would eventually make it much easier for consumers to shop and compare for best banking deals on loans and deposits.
"New bank products that can keep deposits within the bank ecosystem will become vital," it said.
Consumers to demand more from banks
"The current inflationary environment will incentivise customers to seek out higher returns just as new technologies and regulations make it easier for them to switch funds among banks, or to exit the banking system entirely," the report said.
"And younger generations, accustomed to making and changing investments at the push of a button, are unlikely to bring much loyalty to their banking relationships."
Social licence to operate, which was about meeting public expectations of reasonable corporate behaviour, would become increasingly difficult for the banking sector to manage.
Banking conduct included management of environmental, social and governance issues, and extended to how well banks assisted customers during periods of distress, whether it be related to fraud or economic shocks.
More regulation expected
Changes were 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," Ford said.
"Unintended consequences - and complaints - arise regardless of approach. And where there are depositor/investor losses, litigation will follow."
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 programme which will require substantial adjustment and will change the dynamics of the market, encouraging technological innovation and creating opportunities for new entrants," it said.
"A long-term consolidation may occur as scale and breadth of product offering widen beyond traditional banking services to attract customers."