Wasted "Minutes": Newstalk ZBs Mike Hosking should stick to being a DJ. When he does economics, its empty status-quo stuff.

Mike Hosking has unhelpfully entered the "how-to-get-more-competition-in-banking" debate, but gets it all wrong in his "Mike's Minute" commentary. The low point of his argument is when he says, "Here's your trouble: we have a lot of banks, we just don't use them. We can switch banks, we chose not to". No, no, no. It is costly and time-consuming to switch banks. I challenge Mike to spend the next couple of months changing his bank. He will have to start off by telling Newstalk ZB to deposit his wage into another account. Then he better contact the outfits that manage his (no doubt quite substantial) share portfolio (or maybe a bunch of the companies direct) telling them to direct credit his dividends into another account. Then do the same for any rental properties he owns. Oh, and then call his electricity supplier, water company, telecoms company, gas company & probably Auckland Council for his rates, notifying them his Bank account has changed. I bet you he won't do it in a million years. His time is way more valuable than messing about with such mundane chores, I expect. It might even cost him time on the relative's superyacht, eh Mike? So don't give us this nonsense that its easy for folks to change banks but they willingly choose not to. (We didn't even mention changing a mortgage to another bank. Do you have a mortgage, Mike?) Oh, and we forgot about the issue of getting new credit & debit cards issued. Today this blog has, unlike Mr Hosking, provided a solution to bust the Big Bank Monopoly in one swoop, in a way that doesn't require legislation. It's to get young Kiwis banking with Kiwi Bank when they're still at school which will mean they'll most likely then retain that account when they get older. In a few years, a million Kiwi school children could thereby switch away from the Big Banking Oligopoly - and capitalize their accounts with wages as they grow up. Call them Kiwibank Squirrel accounts, to invoke the Post Office Bank "Squirrel School a/c's" we all had in the old days, before ANZ bought Postbank after it was privatized, which is where the trouble began. The government could put $100 in each one to give the children a start. Mike's Big Bank Mates would fall out of their trees.

Sources:

https://breakingviewsnz.blogspot.com/2024/08/mikes-minute-there-wont-be-any-action.html

How to Break NZ's Big Bank Oligopoly right here, right now, in one line, at no cost to tax-payers (and forget the Commerce Commission).

Every day Kiwis are ripped off by the Big Banks. Every day you use Pay Wave the Banks pinch money out of your account. That's how banks make their dough these days. They hire a team of lawyers from one of NZ's big firms and ask, "How can we legally steal money from our customers?", and the lawyers duly oblige. Anything for the work, of course. Now the Commerce Commission comes up with a report telling us what we already knew - they're a big fat oligopoly. It says NZ needs to better "capitalize" State-owned Kiwi Bank. "A well-capitalized Kiwi bank is seen as pivotal to introduce disruptive competition," says Commission Chair John Small (in between writing Gaza Tweets). Minister Willis has asked Treasury to engage with Kiwi Bank's parent, Kiwi Group Capital, on options for raising capital, including from Kiwi Saver funds & NZ investment funds .." Bad idea.

So what's the best solution? The problem that has cemented the private bank's monopoly positions is "switching costs" - once you're locked into the bank that you open an account with as a child, you're unlikely to ever switch throughout your life-time. The hassle & cost of changing direct debits, direct credits, telling your employer - the whole thing's a nightmare. The banks use these switching costs against you. They're why the Big Supermarkets and Big Airlines have "Loyalty Programs" (like Airpoints). They're not loyal to you at all. What they're doing is making it harder for you to leave them. They're creating "switching costs". If you dump Air NZ as your chosen carrier, then you lose your Airpoints "privileges". That's how they lock you in. Then they hike their ticket prices on you, using your "loyalty" against you. Bastards. The Big Banks play this game the best, preying on children.

So is the solution to better capitalize Kiwi Bank through use of "Kiwi Saver" and "Kiwi investment funds", like Willis said? No. Here's the way to do it. Get the thousands of folks who work at the Ministry of Education to actually do some productive work for once - go around Year 8 students at schools in NZ and simply open a Kiwi Bank account for each and every one of them. Make it so easy, so much fun and so cool that they're all proud to have their Kiwi Bank account. They're all virus immunized for goodness sakes - now financially immunize them & protect them from the vampire squid of big banking trying to infect them with a fee virus at a young age. There are way less than 100,000 students in Year 8. Its not a big job. Do it for the next ten years. That's a cohort of 1 million, growing up banking with Kiwi Bank. Once they get jobs they will "capitalize" Kiwi Bank automatically by virtue of their pay going into their account. The Big Banks will throw a fit, complaining of foul play. That means you must be doing something right. It will break the Big Bank Monopoly within just a few years. It will also come at almost no cost to the taxpayer, unlike finding endless billions to "recapitalize" Kiwi Bank using some hair-brained Willis / Treasury scheme.

In hindsight, by the way, me old mate Richard Prebble, who reads this Blog, may have a bit to answer for in this regard. His Labour Government famously privatized Post Office Savings Bank, which they called "Post Bank", as part of the 1980s "free market reforms". School kids like me used to have accounts there, since we all went to the Post Office. Who bought Post Bank? Big Bad ANZ Bank. That's probably how they became NZ's largest bank in the first place. They knew about switching costs even back in 1989. What do you have to say about that, eh Richard? Did you enable this banking monopoly? Let's bust it for good.

Sources:

https://www.rnz.co.nz/news/business/525671/comcom-report-willis-adamant-she-wants-action-on-banking-sector-reforms

https://evrimagaci.org/tpg/new-zealand-unveils-major-banking-reforms-amid-competition-crisis-31855

https://comcom.govt.nz/__data/assets/pdf_file/0019/362035/Final-report-Personal-banking-services-market-study-20-August-2024.pdf