The Government will require banks to share customer data with competitors if consumers want to shop around for better deals or compare packages.
Customers will also be able to instruct banks to share their information with some third-party services, like financial advisors, in order to get more personalised advice.
This is what is referred to as open banking and is commonplace overseas.
Consumer NZ uses the example of someone looking to get a new credit card. The customer could ask their bank to send their transaction history and other data to a financial advisor who could then make more informed recommendations for them.
"The key point is that open banking allows customers to shop around for better deals," said Commerce and Consumer Affairs Minister David Clark. "That means banks will also have to work harder to retain their customers, leading to savings for consumers."
"At a moment in time where cost of living is high around the world, consumers should have the power to shop around for better deals, and make sure they’re getting the best bang for buck out of their investments."
Newshub first revealed on Tuesday night that the Government was poised to announce open banking for New Zealand.
Clark confirmed on Thursday morning banks would be the first sector to implement the Government's consumer data right framework, which was announced last year. It requires data holders to safely and securely share information following consent from customers.
The Government is working on legislation and there will be a period of consultation. That means open banking could still be at least two years away.
"Under open banking if somebody wanted to re-fix their mortgage at a lower interest rate, they could ask their bank to securely share transaction information, with a competitor.
"They could also instruct their bank to share specific data with a financial adviser of their choice – meaning more tailored and timely advice."
The businesses receiving the data would have to ensure safeguards are in place to handle the information safely and securely.
Clark said banks have already made "significant progress" towards open banking themselves.
"Open banking is a requirement on the Australian-owned banks’ parent companies across the ditch and is a fixture of the banking system in the UK. It’s a commonplace tool used overseas to increase competition and make it easier for customers to get better deals."
Banks have been in the spotlight this week after Prime Minister Jacinda Ardern questioned whether they were "demonstrating social licence" off the back of some reporting record profits
"Are they demonstrating a commitment to the communities that they’re serving by taking profits such as those in these current times?"
Ardern said she didn't believe it was justifiable during the current cost of living crisis.
However, the Government's confirmed it isn't currently looking at ordering an inquiry into bank profits.
"What we do have is a Reserve Bank that plays a regulatory and supervisory role with our banks," Finance Minister Grant Robertson said on Tuesday.
"As I said before, their job there is to both make sure that it's a fair, level playing field and that they are stable. That's the focus of the work that we've done."
