The Reserve Bank has set out three possible futures for New Zealand banking by 2035, ranging from today’s big banks simply getting better to a world where much of your banking happens inside apps run by companies that are not banks at all.
The Future of Banking Study, published on Thursday 17 September, finds banking here is likely to become “more digital, diverse and interconnected over the next decade”, bringing real benefits for customers but also more complex risks around cyber attacks, fraud and a growing reliance on outside technology providers.
The Reserve Bank is careful to say the study is not a forecast and is not a policy signal. “We are not seeking to predict the future, and we do not have a preferred scenario,” Assistant Governor Angus McGregor said in the bank’s release. “The value of this work is in understanding how banking may evolve, so we can be prepared and support a stable financial system, that is competitive, innovative and inclusive, no matter how the future unfolds.”
The first scenario, which the Reserve Bank calls better banks, has banking change step by step as the existing banks adapt well. In the version reported by interest.co.nz, the market becomes somewhat less concentrated but the major incumbents keep their dominance and disruption stays minimal.
The second, a digital banking revolution, sees fintech firms and local and global digital banks take a large share of the market while many traditional banks struggle to keep up.
The third imagines banking delivered through connected ecosystems and digital platforms, with products from many different providers assembled around each customer. That scenario brings the most competition, but also puts many of the providers outside the Reserve Bank’s current regulatory reach.
McGregor launched the study in a speech to members of the Institute of Financial Professionals in Auckland on Thursday evening. He was blunt about why New Zealand has so far avoided much of the upheaval seen overseas.
“We’re a small and highly concentrated market dominated by broadly similar business models, with relatively low levels of innovation and customer switching,” he said, according to interest.co.nz. “That gives major banks significant advantages of scale and scope, and makes it harder for new and smaller entrants to enter, to expand, and to compete.”
That description will be familiar to anyone who followed the Commerce Commission’s 2024 market study into personal banking, which found the four largest Australian-owned banks faced little pressure to compete hard for customers. McGregor said forces now building overseas are starting to show up here too.
He compared the shift to what happened to music. People used to buy albums one at a time and build a collection. Streaming turned that into a service built around each listener. “Banking could undergo a similar shift, from a standard set of products provided by one institution to a more personalised, on-demand set of services assembled around each customer’s needs, especially when by 2035, two-thirds of New Zealanders will be digital natives,” he said.
The upside, McGregor argued, could be large. “If we get this right, the benefits could be significant. Customers could have greater choice and benefit from faster services that are increasingly tailored to their individual needs and circumstances,” he said. He added that people and businesses who are currently underserved could find it easier to get finance, and that cheaper payments and better credit assessment could lift productivity across the economy.
The risks are the other side of the same coin. “Greater reliance on technology providers, cloud infrastructure and third-party services may create new dependencies and concentrations of risk. It also increases exposure to cyber risk, more sophisticated attacks, fraud attempts, and security challenges,” McGregor said.
For ordinary customers that is not an abstract point. A bank that runs its core systems on a handful of global cloud providers is only as reliable as those providers, and the study flags AI-driven fraud and scams among the new risks. The study says the benefits of change will only arrive if customers trust the new services, the system stays resilient and investment in the underlying infrastructure keeps up.
Kerry Watt, the Reserve Bank’s director of financial system assessment, told RNZ that “banking is changing and that change seems to be accelerating”, driven by artificial intelligence, cloud computing, new entrants and changing customer preferences. He said a key risk for regulators was that the rules might not be able to keep up.
“Banking is critical to most of our daily lives. It is how we spend, it’s how we save, and it’s how we borrow,” Watt said.
Watt also told RNZ that open banking, which lets customers securely share their bank data with other approved providers, could significantly increase competition, but only if customers trusted the new services and were willing to switch products and providers. That is the catch in all three scenarios. New Zealanders have historically been reluctant to change banks, and no amount of new technology changes the market if people stay put.
The Reserve Bank says the study drew on domestic and international research, analysis of the New Zealand banking market and consumer trends, case studies and consultation with the other agencies on the Council of Financial Regulators. It was written by Steven Bruce, Esther Bonaparte and Finn Cattaway and published as a Reserve Bank bulletin.
As for what happens next, the bank says it will use the findings to prepare for change, watch emerging developments more closely and guide how it looks after the regulatory system. It stresses that the study “does not signal new policy or supervisory settings”. McGregor’s summing up was simple. “Whatever path banking takes, it is important that we have a system that is resilient, trusted, efficient and adaptable,” he said.
For customers the practical question is whether the next decade brings genuinely cheaper, easier banking or simply new ways for things to go wrong. The Reserve Bank’s own answer is that it could be both, and that trust will decide which way it tips.
Would you move your banking to a digital-only provider or an app from a tech company, or are you sticking with your current bank? Tell us in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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