Bank switching: are the banks holding back progress?

According to the Commerce Commission's 2024 market study into personal banking services, New Zealand’s banks are sustaining high levels of profitability with stable market shares, reducing their incentive to innovate in a fight for market share.

The study’s report identified a lack of customer switching as one of the main factors limiting competition in the banking sector.

This is backed up by Consumer NZ research.

In our 2025 banking survey:

• just 3% of respondents said they had switched their bank in the last year
• 85% of respondents reported they had been with the same bank for 5 years or more
• over two-thirds of consumers (69%) said they were unlikely to switch their bank in the next year.

That’s not good for competition.

To increase switching, the commission recommended that Payments NZ improve and boost consumer awareness of the switching service. It also told Payments NZ to monitor and be more transparent about the effectiveness and performance of the service.

This was not the first time Payments NZ had been urged to improve the switching service. In 2014, the New Zealand Productivity Commission recommended the service be better publicised and more transparent. But Payments NZ did not follow through.

We checked in with the organisation on its progress with the switching service since the release of the commission’s market study in August 2024.

From what we’ve seen, Payments NZ has not done enough to improve the service’s functionality or consumers’ awareness of the service.

Payments NZ has been given enough chances to develop an effective switching service to boost competition in the banking industry, and we think change is needed.

New Zealand needs a switching service that is independent of the banks.

We do not believe Payments NZ should oversee this service. If it is to continue to do so, measures of performance should be set and monitored by government, with penalties for failure to meet those measures.

New Zealand’s bank-switching service

A switching service’s goal is to make it easy for consumers to change banks. In New Zealand, the switching service arranges the movement of customers’ recurring payments, such as automatic payments and direct debits.

New Zealand’s switching service was established in 2010, and its framework and standards are governed by Payments NZ.

Payments NZ says that the switching experience itself is delivered by the banks, and that its role “is to coordinate and improve this process with participants, not to mandate or control every aspect of execution.”

To make it easy to switch, the service is built around the following standards and protocols.

• A time frame of 5 business days to complete a switch
• A standardised switching form
• A dedicated team for processing switching requests at each bank.

So, what’s wrong with our switching service?

The Commerce Commission reports issues with the functionality and visibility of the switching service.

• The service cannot redirect payments made into your previous bank account. This means that regular incoming payments like your salary, won’t be switched to your new account. It also means that payments accidentally made into your old account will not be forwarded to your new account.
• The service can’t transfer overdrafts or negative balances. If you have an overdraft, you can still switch bank, but you can’t use the switching service. This means consumers with a negative balance have more work to do to switch.
  
• The commission also reported that, while there is a 5-working-day time frame to complete switches, in practice, a switch can take up to 9 working days to complete.
  
• Awareness and take-up of the service were reported as low.
  
• There has been no record of the number of consumers using the service each year or the number of switches taking place without incident.
  

The commission compares New Zealand’s switching service unfavourably with the United Kingdom’s Current Account Switching Service (CASS). CASS will carry over incoming payments, like salaries, and will re-direct other payments made into old accounts. It can also switch customers who have overdrafts.

CASS publishes monthly statistics on the number of switches and quarterly data showing which banks have gained and lost customers through switching. Currently, 77% of United Kingdom consumers are aware of the service.

The commission concluded that the service falls short of offering a meaningful contribution to the competitive process and New Zealand lacks a switching champion like in the United Kingdom.

Payments NZ told us the switching service is comparable with the United Kingdom’s model in several key areas, such as the ability to switch individual, joint and business accounts, similar set-up requirements and the ability for customers to choose the date of their switch. It also told us that core functionality has been delivered at a fraction of the cost of the United Kingdom service.

The commission’s recommendations for the switching service

To improve the bank switching process, the commission recommended Payments NZ the switching service by:

• improving functionality: by enabling switching of incoming payments and recurring outgoing payments or with an overdraft
  
• improving visibility: through much more active promotion of the service by banks and Payments NZ
• improving transparency and accountability: by collecting and publishing statistics on how often the service is used and meets quality measures and by setting, monitoring and reporting on key performance indicators
• ensuring the service is appropriately funded: by encouraging Payments NZ’s owners (the banks) to ensure the organisation has the resources to improve the switching service.
  

In addition, the commission recommended the service include guaranteed minimum standards for the timeliness and quality of switches. This would include compensation in the event of a loss should the service fail to meet its guarantee of providing a smooth and timely switch.

Little progress has been made to improve the service

We asked Payments NZ what progress it had made with the switching service since the market study’s release in August 2024.

The organisation told us it had established a switching working group in early 2025. The group’s first meeting took place on 12 February, 5½ months after the market study came out.

Improving functionality

We asked Payments NZ whether any functional improvements had been made to the switching service.

The organisation did not name any functional improvements that had been made but told us such improvements are a key focus of the working group.

It also told us that while re-direction of incoming payments was a feature of the United Kingdom’s switching service, the risk of fraud and scams and the benefits of innovation in payments meant that redirection can be counterproductive.

Improving visibility

Payments NZ told us it had been working with the banks since late 2024 to create an informative, consumer-facing website.

Ready to Switch was launched last week. While the website is informative, it is basic, and its release has not been widely publicised.

We asked Payments NZ if it planned to publicise the website further.

It told us it is currently working with the banks to determine the best timing, length and frequency of a marketing campaign for the website. It said it is aiming to publicise the website soon.

Improving transparency and accountability

Payments NZ told us it has received early reports on the number of customers using the switching service and is sharing this data with the commission. The data appears to cover April and May of this year, suggesting that this round of data gathering did not start until almost 8 months after the market study’s publication.

In addition, the organisation said it has shared a 15-month backdated dataset with the commission. We asked what dates this dataset covered, but Payments NZ said that this information was not publicly available.

We asked how many switches were being processed by the service in an average month.

Despite the commission’s call for transparency, Payments NZ would not provide this information.

Ensuring the service is appropriately funded

We asked if Payments NZ’s owners – the banks – had taken steps to ensure the organisation is appropriately funded to improve the functionality and awareness of the switching service.

Payments NZ did not answer this question directly. It said it was reviewing further activity to boost awareness and is considering the costs of that process. It told us any additional budget decisions would be made in partnership with the banks.

Banks appear to be undermining efforts to increase competition

Competition is good for consumers, but we’re not so sure it’s in the banks’ best interests.

And that’s why we’re concerned that the banks have been left to manage and run the switching service through Payments NZ.

We have already seen how this has played out with open banking.

Open banking was supposed to be a game-changer for competition in the sector, but the banks have been allowed too much control over its implementation and its costs. This could undermine any positive impacts on competition in the longer term.

And it’s the same with the bank switching service.

For a decade, Payments NZ has failed to implement basic measures that would encourage more people to switch banks and improve understanding of switching behaviour.

And we’re not sure that the switching service’s progress over the last 10 months is a promising indicator for future developments.

Allowing the banks to control the service has not worked, and we don’t think they can be trusted to voluntarily drive improvements to the service.

Payments NZ’s progress on switching is disappointing, but the lack of investment in the switching service creates an opportunity to take stock and change course.

In its market study report, the commission invited the government to intervene if industry progress on switching appeared to slow or stall.

We believe that’s exactly what’s happening.

It’s time for the government to step in and ensure we have a switching service that works for New Zealanders.

Payments NZ told us it is committed to improving the switching experience for consumers and to providing transparent, accurate information about its work.

“The suggestion that industry ownership prevents progress overlooks significant improvements already made and ignores the complexity of switching systems internationally. Effective governance, not structure alone, determines outcomes, and Payments NZ remains accountable to its participants, regulators and the wider public interest,” its spokesperson said.