Speech to Payments NZ Conference 26 June

Introduction

Thank you for the invitation to speak at The Point 2018. It’s exciting to have so many innovators and payment systems experts in one room. 
Today I will provide a view from the Government that emphasises the importance of a well-functioning payment system for the economy. 
I’ll cover progress made so far on initiatives to improve consumer outcomes as well as my expectations for future development. 
And I’ll also speak more broadly about how we plan to engage with broader changes taking place in the banking sector – particularly with regard to Open Banking opportunities. 

To start with, my priority is making an impact for everyday New Zealanders 
As Minister of Commerce and Consumer Affairs, my objective is for all sectors of the economy to operate efficiently and provide benefits to everyday New Zealanders.  
This requires businesses to have confidence in the environment in which they operate, but also for consumers to be protected and empowered. 
There are significant work streams in my portfolio of Commerce and Consumer Affairs that have a remarkable reach into everyday lives. Payments is one of them.  
It is this Government’s goal to deliver an inclusive and sustainable economy for all New Zealanders. 
We want to create an economic environment that encourages innovation, delivers competitive markets and supports honest business. 
I acknowledge that New Zealand’s retail payment systems are a vital part of the economy and will play a vital role in this Government’s vision. 
Efficient payment systems provide crucial infrastructure for commerce.  
They are a fundamental aspect of the economy that needs to work for everyone. 
They need to work for consumers so they are able to buy the goods and services they need. 
They need to work for retailers so that they can efficiently sell their offerings. 
They create opportunities for newer providers and innovators to offer services which can add value to business and consumers. 
We can be proud that New Zealand has been a world leader in payment systems. 
It is because of this success that electronic payments have become essential to almost all New Zealanders. 
It is therefore critical that we take steps to ensure that we continue to reap the benefits of a world-leading system, by encouraging ongoing innovation; and the costs associated with New Zealand’s payment systems are shared fairly between New Zealand businesses and consumers.

 
Innovation is key 
My interest is in encouraging competition and innovation, as new and innovative payment products can provide significant benefits to consumers, merchants, the financial sector, and the wider economy.  
There are some great developments that are taking place in the sector: 

  • Contactless cards are now ubiquitous and speeding up payments across the country; 
  • Apple Pay has rapidly increased its penetration since it launched in New Zealand, alongside a growing list of other mobile payment apps;
  • Innovative new local start-ups are making exciting progress in delivering new payment solutions for New Zealanders; and
  • the worldwide development of open access APIs will allow all sorts of products to plug into the banking system and provide more choice for a lower cost.  

I want to be clear that the government wants to help foster this innovation, not get in the way of it.  
But at the same time, I think New Zealand can do  better. We were among the first in the world to introduce EFTPOS in the ‘80s, and there’s no reason we can’t be at the front of the pack in introducing payments innovations going forward.  
My view that most effective progress will be achieved when all players in the payments ecosystem work together to achieve the best environment for innovation. 
And given the opportunities available in this sector, there is no excuse for standing still.  

Issues in retail payments systems  
There have been some issues identified within the retail payments systems that we are working through. 
Many of you will be familiar with the work that MBIE has undertaken in this area including the 2016 issues paper  that expressed some concerns about how merchant service fees and interchange fees are incentivising consumers to use certain forms of payment over other, potentially cheaper, ones.  
It outlined how the growth in credit card reward programmes could be increasing prices of goods and services for all consumers, while only benefiting the holders of these cards.  
It identified concerns about the level of fees that merchants, particularly small ones, face for accepting payment.  
The report also outlined that many merchants are confused by the payments landscape and the fees that they are charged.  

Steps taken to date 
Since then, we have continued to work constructively together on how we can make progress and I have personally met with many of you on this topic. 
I am grateful to everyone who has got involved.  
Since I became the Minister of Commerce and Consumer Affairs I have been looking for progress that shows me: 

  • further gains in respect on competition, innovation, and efficiency in the provision of retail payment systems; and  
  • fairness for retailers and consumers when using the principal payment products used every day by millions of New Zealanders. 

It is encouraging that progress has been made and that developments appear to be heading in the right direction. 
In particular, Visa and MasterCard have recognised that some of the fees fall unfairly on smaller retailers and lowered the caps for some interchange fees appropriately from April this year.   
Those companies have also made a commitment to provide more transparency going forward on trends in average interchange fees over time.

Expectations for existing payment systems 
I do have a few expectations regarding debit and credit products that I would like to make clear before talking about some of the more innovative work in the payments industry. 

Firstly, I do not want to see further increases in interchange fees or merchant service fees for credit cards and debit cards.  I acknowledge that interchange fees and merchant service fees have their place.  However, I do not think further increases are in the interests of consumers or the wider economy.  I have chosen not to go down the route of Australia or the European Union in respect of regulating interchange fees.  However that option remains very much on the table, particularly if I were to see fees increase again.  

Secondly, I want to see an ongoing commitment from banks and schemes to increase the transparency of costs associated with retail payments and continuing to educate merchants.  

Finally, I want to see a low-cost debit option remain, to ensure that merchants have a choice about what forms of payment they accept.

Payments Direction work and APIs  
I’m encouraged by the range of work taking place across the industry to introduce new methods of payment and improve the functionality of existing methods.  
For instance, Payments New Zealand’s Payments Direction work, to have 365 day service delivery, introducing proxy identifiers and fast payments and access to funds, is great to see.  
I have a keen interest in the work to develop a standardised API framework. As many of you are aware, this involves the development of an Account Information API, a Payment Initiation API and framework for managing issues such as security, liability, and access.  
I hope this is a significant first step towards enabling a viable entry point for alternative party payment options. 
I’m glad that pilot participants including TradeMe, Paymark, Datacom, Westpac, BNZ, and ASB are involved and I will be looking closely at how things develop. 
I particularly encourage Payments New Zealand and the participants to be as open as possible in sharing developments of the pilot with the wider industry and incorporating feedback from all stakeholders. 

 

So what about Open Banking? 
Discussions around developing API standardisation inevitably leads to discussion on the opportunities within Open Banking.  
Globally, there is an increased demand for access to banking data, and there is the potential for significant benefits from allowing a wider range of access to that data. 
I have previously noted my interest in how opening up aspects of the banking system could provide benefits to New Zealand consumers by providing them with increased choice and empowering them to pursue and achieve their financial goals.  
Benefits could exist in areas such as budgeting, banking competition, aggregating financial information, and, of course, payments. 
There are many approaches that could be taken in regard to Open Banking and we can be informed from the learnings of other jurisdictions who have taken various approaches, but we do not want to be left behind.

 

Getting to where we want to be  
In thinking about where I as Minister would like to see the industry get to, the principles set out in the Australian review into Open Banking are a good starting point. They talk about a system that: 

  • is customer-focused; 
  • promotes competition; 
  • encourages innovation; and  
  • is efficient and fair. 

However, how we get there is still very much up for debate.  
You, as an industry, have a clear opportunity to deliver real, positive outcomes for consumers, businesses, and the financial sector itself through implementing a set of standardised APIs.  
I know that there are more than enough creative minds in this room to successfully ‘open up’ payments and banking more generally. But you still need to convince me that you are willing and responsive enough to take a leap and embrace a new environment. 
Rather than just thinking about this as an obstacle, I would encourage everyone here to think broadly about how opening up payments and banking can deliver benefits to them, their customers, and the wider economy.  
The Payments New Zealand API standardisation pilot provides an initial building block on which Open Banking could develop in New Zealand.  
I want to see the progress that has been made so far under the pilot accelerated, with tangible examples of banking data being accessed and used by third-parties within the next year.  
In particular, in the next year I would like to see more opportunities for consumers to quickly and securely make payments without the need for a debit or credit card. 
While these opportunities may be easiest to realise for online goods and services, I would also like to see a real push made for introducing new payment options in the instore context. 
And I want to see all of this lead to benefits for merchants, particularly in respect of lower overall fees for accepting payment.  
Looking beyond the next year, my vision is one in which Open Banking: 

  • makes it easier to individuals to build their financial capability and access good quality financial advice; 
  • brings a raft of financial data together for consumers and businesses in one place, saving them time and hassle; 
  • ensures that consumers are able to access the best deals across the financial sector by making it easier to shop around and compare options; 
  • makes payments faster and more efficient; and 
  • adds value to payments, whether it be making it easier for consumers to save a little every time they spend, or donate to charity; or – most likely – some opportunity that hasn’t even crossed my mind. 

So far, government has mostly stood on the side-lines as an enthusiastic supporter of payment systems innovation.  
In the future, we will be testing whether there is more of a role for government in facilitating some form of Open Banking. 
But the role we play is, in part, up to you.   
I encourage you to all be proactive. 
Speed is of the essence. I do not want to see New Zealand left behind in respect of the outcomes that Open Banking could deliver in terms of economic development and benefits for consumers.  

Is the industry up for the task? 
Before I wrap up and take questions, I’d now like to set a challenge to you all. 
No-one is going to be successful standing still in this area. I do not consider the status quo to be an option. 
So I am hopeful that the industry will be receptive to the government joining the conversation about the future of payments and Open Banking.  

Concluding remarks 
Once again, thank you for the opportunity to speak at The Point 2018. 
I would like to reiterate that the Government wants to help foster New Zealand’s payments industry – not get in its way.  
We want consumers to benefit from new and innovative products that make it easier for them to manage their money. 
We want merchants of all sizes, scales and in all settings– to get a fair deal. 
We want to enable innovation and ensure that the benefits of progress are shared by all. 
I’m hopeful that the industry shares this vision. I am now happy to take questions. 
Thank you.