Reserve Bank study charts a shift toward more digital, modular banking
New Zealand's banking sector could look markedly different within a decade, according to a new Reserve Bank of New Zealand study that maps three plausible scenarios for how the industry might evolve by 2035 – ranging from incumbent banks successfully adapting, through to a more fragmented, platform-based ecosystem.
A sector that's been insulated, but not for much longer
New Zealand's banking market has so far avoided the disruption seen overseas, largely due to its small size, high concentration, and historically low rates of customer switching. But the Reserve Bank's research points to seven drivers – including changing consumer expectations, disruptive business models, and growth in banking activity outside the regulatory perimeter – that could bring global trends home over the next decade.
By 2035, digital natives are expected to make up two-thirds of the population, a shift the study says will push demand toward faster, more personalised and digitally integrated banking.
Three scenarios, from incremental change to full disruption
The first scenario, "better banks," sees incumbents successfully digitalising and modernising while largely retaining their dominant position. The second, a "digital banking revolution," has fintechs and digital banks gaining meaningful market share as incumbents struggle to keep pace. The third and most disruptive, "banking ecosystems," envisions banking delivered through interconnected platforms and embedded finance, with traditional banks becoming just one of many players competing for the customer relationship.
The Reserve Bank stresses it does not favour any one outcome, noting the real world may ultimately contain elements of all three.
Angus McGregor (pictured), assistant governor financial stability, said the study exists to sharpen the bank's judgement rather than predict outcomes.
"The purpose of looking ahead is not to provide certainty about the future," McGregor said. "It is to improve the quality of the decisions we make today and tomorrow in a dynamically changing environment."
Risks rise alongside the benefits
Each scenario carries a different risk profile, the study notes, with greater digitalisation and interconnection potentially increasing exposure to operational failures, AI-related risks, and activity migrating outside the regulatory perimeter. The report singles out artificial intelligence as a particular challenge, warning that autonomous AI agents "may further amplify some of these risks through greater speed and scale."
The Reserve Bank points to its own implementation of the Deposit Takers Act 2023 as a live example of this kind of regulatory stewardship, having launched consultations this year on a crisis preparedness package and new prudential standards.
For advisers, the study is an early signal rather than an immediate operational shift – but it flags that non-bank lenders, fintech partnerships, and platform-based distribution models could play a far larger role in how New Zealanders access credit and mortgage products over the coming decade, reshaping the competitive landscape brokers currently operate within.
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