Banks will need to make customer information more simple to access in order to make it easier for the public to shop around and create greater competition.
The Government says it will lead to more savings. But there's a catch, as proposed changes won't be in place for another two years.
From buying your daily coffee to paying your rent or mortgage, banking is a part of daily life.
But the Commerce and Consumer Affairs Minister David Clark said only 4% of us actually shop around.
"This will with certainty bring a more competitive market as we introduce open banking and customers will save," he said.
So, how would it work?
If you want to shop around with other banks then details like your transactions, interest rates, charges, and salary would all have to be provided in a standardised format.
One mortgage company Squirrel said it would ease the process for customers and third parties.
"If I'm getting a loan it makes it easier because normally a bank will want bank statements. With consumer data right and open banking you can get that. You can permission the broker, like Squirrel, to go and get that information directly from the bank," Squirrel chief executive David Cunningham said.
Clark said at the moment banks hold most of the power.
"Currently banks are much more in control of what data gets shared and I've heard stories about how it's hard to get information out of banks that people want particularly for would-be competitors or innovators in the market."
Roger Beaumont of the NZ Bankers Association has argued the opposite is true.
"New Zealanders have plenty of choice already, we don't actually need open banking for there to be competition and choice for New Zealanders," he said.
Asked if he believed banks were holding on to information in order to prevent competition, he said the major concern was protecting customer data.
"Banks have an obligation to protect customer data and ensure that it is secure.
"You can imagine if you're banking data leaked that's a whole lot more concerning than if your power usage data leaked," Beaumont said.
Security has been identified as a critical component of the proposed changes.
"ICT systems have to be built, security needs to be baked in, we need to make sure which form the data's going to be shared in, we need to understand the nature of the interface, we need to have an accreditation regime in place," he said.
Cunningham agreed with the timeline.
"You know if it was a year it would be fantastic, it would make the bank CEO's sweat a bit I think so the sooner the better. But I think realistically…it probably is that 18 months to two-year window."
Open banking is already underway in Australia and Britain, now New Zealand is simply joining the fold.
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