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•  governor Adrian Orr says  should consider cutting  and compete more vigorously for customers.
• The Reserve Bank is considering  among other steps to shake up banking sector.
•  chief executive Jon Duffy highlighted a lack of investment in , creating high costs for consumers.

Governor of the Reserve Bank Adrian Orr says retail banks need to consider cutting their profit margins and “do better” - and a consumer group says he is on the money.

Orr told the Mike Hosking Breakfast show on ��һ�ǿ�����talk ZB the Reserve Bank was considering disrupting banks’ revenue streams with a digital currency and open access to payment and settlement systems.

Consumer NZ, a non-profit consumer affairs organisation, said “a lack of investment in technology and innovation in the banking sector means New Zealanders are paying the price”.

Orr’s comments come after the Reserve Bank yesterday cut the Official Cash Rate (OCR) by 50 basis points. The OCR is the interest rate retail banks pay on funds they borrow to on-lend to their customers.

Reserve Bank Governor Adrian Orr said the OCR was challenging banks' costs, but it was only one part of the puzzle. Photo / Mark Mitchell

The move takes the OCR from 4.25% to 3.75%. Retail banks moved quickly to cut some home loans and other rates after the announcement.

But this morning, Orr said banks “need to do better” and “look at their own margins and chase and compete for customers much more vigorously”.

Orr said the OCR was challenging banks' costs, but it was only one part of the puzzle.

“Their funding costs are being challenged because the official cash rate is only one of the variables that go into what they have to pay to borrow money to on-lend.

“But the margin is also sitting there at a very healthy level.

• Watch: Reserve Bank Governor speaks after OCR cut, major banks lower lending rates
• Official Cash Rate cut: Reserve Bank says more cuts to come in February
• Adrian Orr hits back at U-turn criticism

“The biggest challenge is income streams don’t disrupt themselves, but they need disrupting,” he said.

The Reserve Bank was looking into a central bank digital currency and opening access to “all our plumbing in the background”, payment and settlement systems, to allow people to compete in “the simple transaction world”, Orr said.

“We would be multiples more expensive than many countries just to do basic transactional banking,” he said.

Consumer NZ chief executive Jon Duffy. Photo / Alex Burton

Consumer NZ chief executive Jon Duffy said the country was behind the rest of the world in terms of modern payments infrastructure.

“It is the only OECD [country] that has not implemented or committed to implement a real-time payments network,” Duffy told the Herald.

"While we have seen the rapid rollout of confirmation of payee since November 2024, the government should take note - it’s not that the banking industry cannot move fast, it’s that it won’t unless pressure is applied."

He said the Commerce Commission, New Zealand’s consumer watchdog, had noted in a market study into personal banking that “it would expect to see a greater investment in innovation so competitors could stay ahead of their rivals”.

Raphael Franks is an Auckland-based reporter who covers breaking news. He joined the Herald as a Te Rito cadet in 2022.