New Zealand's Instant Payments Debate: Speed Versus Security in Banking Reform

New Zealand stands at a crossroads in its payments infrastructure as banks, fintech companies, and policymakers debate whether to adopt instant payment systems that would allow money to move between accounts in seconds rather than the current 30-minute intervals. The debate, unfolding in parliamentary hearings, has exposed tensions between technological advancement and fraud prevention, with banking executives warning that speed without proper safeguards could expose consumers to increased risk.

The discussion comes as countries like the UK and Singapore have already implemented faster payment systems, while critics in New Zealand argue the banking sector has been slow to modernize, instead shipping "huge dividends to its largely Australian shareholders." At the heart of the controversy is whether New Zealand can achieve payment speed without replicating the fraud problems experienced elsewhere.

Background and Context

New Zealand's current payment processing system operates on 30-minute intervals, significantly slower than the instant payment frameworks adopted by the UK's Faster Payments Service and Singapore's PayNow. These international systems allow for real-time transfer of funds between bank accounts, providing convenience for consumers and businesses but creating new challenges for fraud detection.

The parliamentary Finance and Expenditure Select Committee is examining whether New Zealand should transition to real-time payments as part of a broader inquiry into banking competition and fraud prevention. The hearings continue a review initiated last year, with MPs pressing both established banks and emerging fintech companies on their approaches to technological innovation and consumer protection.

Key Figures and Entities

Catherine McGrath, chief executive of Westpac New Zealand, has emerged as a cautious voice regarding instant payments, drawing on international experience to warn of potential risks. "When you see all of them being routed into one particular jurisdiction because of the speed at which that money can bounce out and never be caught, it makes you quite thoughtful about the 10-minute pause versus the instant," McGrath told the committee, citing how criminals target jurisdictions with extremely fast settlement times.

On the other side of the debate, Daniel Karehana, chief executive of fintech payments company BlinkPay, argues that instant payments can be implemented safely. "As New Zealand moves toward real-time payments, it is important that fraud and scam settings are designed with equal priority alongside speed and convenience," Karehana stated, suggesting his company is developing real-time transaction scoring as a defensive measure against suspicious activity.

Roy Chowdhury, founder of Homely, an online loan shopping service, highlighted broader concerns about banks' engagement with fintech companies. "After many months of prolonged discussions, we are still awaiting meaningful participation from banks in our lender panel," Chowdhury testified, describing a pattern of "slow, uncertain, and often stalled engagement" that he said was common across New Zealand's fintech sector.

Legal and Financial Mechanisms

The technical and regulatory challenges of implementing instant payments extend beyond mere speed. McGrath explained that Westpac processes payments every 30 minutes, providing "a pause [in each payment], both for consumers, and for banks to make sure that we can catch transactions that aren't intended to go." This window allows banks' anti-fraud systems to detect and block potentially fraudulent transactions.

Information sharing limitations present another hurdle. During the hearing, NZ First MP David Wilson questioned McGrath about whether banks were fully utilizing existing legal provisions to share information about suspected money mules—accounts used to move illicit funds. McGrath acknowledged that while banks were beginning to share account details, privacy restrictions sometimes prevented sharing names, even when individuals had accounts at multiple banks. "There is plenty more that could be done," she admitted.

Westpac's written submission to the committee noted that overseas experiences in the US, UK, and Brazil showed "a strong relationship between the introduction of fast payment systems and an increase in fraud and scams." The bank also warned that moving to real-time payments would require "changes to core banking capabilities, not just payments infrastructure," necessitating significant investment and coordination.

International Implications and Policy Response

The New Zealand government has largely favored a partnership and oversight model rather than direct regulation in the fraud and open banking arena. This approach involves government and MPs engaging with the sector, setting expectations, and monitoring progress rather than imposing strict requirements.

However, this may prove insufficient as New Zealand considers real-time payments. Karehana warned that "in a real-time network, fraud will also occur in real time, which increases the need for clear liability settings, effective prevention controls, and well-defined dispute and recovery processes." Under current banking policies, victims of authorized push payment scams—where individuals are tricked into transferring money—receive no compensation unless banks failed to detect obvious red flags.

Westpac itself appeared concerned about current settings, stating that "as New Zealand considers the transition to real-time payments we need to ensure we do not give up our ability to keep customers safe without putting appropriate safeguards in place first." The bank's submission suggested that existing payment rails might simply be accelerated rather than replaced entirely, asking what "business case" existed for full instant payments and whether similar results could be achieved by "speeding up" current systems.

The international experience offers mixed lessons. While faster payments have increased convenience in markets like the UK, they have also created new vulnerabilities. McGrath noted that criminals routinely route transactions through jurisdictions with rapid settlement times to avoid detection, complicating recovery efforts. This has led some experts to suggest that the optimal solution may lie not in pure instant payments but in intelligently designed systems that balance speed with security.

Sources

This report draws on testimony from New Zealand's Parliamentary Finance and Expenditure Select Committee hearings, written submissions from Westpac New Zealand, and public statements from BlinkPay and Homely. The parliamentary inquiry into banking competition and fraud prevention continues with additional testimony scheduled from ANZ and ASB executives.