New Zealand banks unable to catch all mistaken transfers through human error

RNZ News

14-05-2025

Sit Bong (Andrew) Che
Photo:
Supplied
Finance experts warn consumers to double-check account details when making international bank transfers after an Auckland pensioner almost lost his life savings in error.
The heterogeneous nature of the international banking system prevented domestic banks from introducing effective protocols to catch errors, they say.
Mt Roskill resident Sit Bong (Andrew) Che, 78, mistakenly transferred $158,643 from the UK early last year to the wrong account after missing a digit when entering payment instructions for his own Westpac account.
Following the bank's own internal protocols, Westpac added a zero to the suffix, which ended up being another person's account.
After the recipient refused to return the money, Che lodged complaints with the police, the banks in New Zealand and the UK as well as the banking ombudsman in both jurisdictions.
Earlier this month, Barclays Bank refunded Che's money.
Overjoyed at receiving the refund, Che told RNZ that New Zealand banks should unify the number of digits on their accounts and introduce payee confirmation protocols when receiving international transfers to prevent payments made in error in future.
However, finance experts expressed skepticism that banks could do much to prevent this from happening.
Claire Matthews, an associate professor at Massey Business School, said New Zealand bank account numbers could be traced back to the banking system's computerisation in the 1960s.
The first two digits of an account number identified the bank, while the next four digits specified the branch, Matthews said.
The subsequent seven digits represented a customer's unique account number, with the last two digits - the suffix - representing the type of account, she said.
Decades later, banks realised that more suffixes were needed and so added a third digit, she said.
However, many bank users continued to treat suffixes as two digits, she said.
"[Banks] have kind of standardised on 16, but they have to allow flexibility because their systems still facilitate that and people still work on the 15 digits," Matthews said.
Having the flexibility of 15 or 16 digits wasn't an issue that caused major problems, she said.
"If this was the sort of thing that was happening all the time, the banks would be doing something about it," Matthews said.
"The fact that they haven't done anything suggests that [the error that occurred in Che's case] is a very rare occurrence."
Matthews said banks were unlikely to tighten the checks they had in place for international transfers because the process could be time-consuming and lead to delays.
"It's not something that can be automated ... so it's going to have to be done manually," she said.
People making bank transfers sometimes make errors when inputting names, she said, adding an extra layer of complication onto any checking process.
"The complications of trying to do it as an electronic automatic system would be extremely challenging because ... the payments can be coming from any other country and all sorts of different banks," she said.
"It's a huge job and ... the costs would outweigh the benefits."
Janine Starks, a financial columnist, said New Zealand banks had yet to adopt a more secure system called ISO 20022 run by the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which was used by many other countries.
The country's wholesale banking sector did use this system, but it was not available to everyday users, she said.
"Nearly all of the OECD runs off this ISO 20022 system," Starks said. "In Asia Pacific, there's only New Zealand, Papua New Guinea, North Korea and Laos which have failed to invest and make the switch to instant payments.
"We now lag the UK by 15 years and Australia by five to six," she said.
She said New Zealand's retail banking sector had a delay on payments that hindered the efficiency of the economy.
"It's also unfortunate that another side-effect is our consumer payment rail can't talk to international banks, and we can't develop cross-border confirmation of payee to protect consumers like Andrew from making errors and being told his money is lost," Starks said.
Roger Beaumont, chief executive of the New Zealand Banking Association, which represents the country's banking industry, said the confirmation of payee services that had been adopted by domestic banks weren't applied to international payments.
"We could only do that if other countries had a compatible service in place and if those markets chose to have a cross-border relationship with us," he said.
A spokesperson from Payments NZ, which sets out rules governing how payments are made between banks and financial institutions, said it was important to check account details had been entered correctly when transferring money between accounts.
"When making a bank transfer it's important to check that you're entering the right account number for the person you want to pay to," the spokesperson said.
"Confirmation of payee can help with this for payments within Aotearoa, but it's still a good idea to double check with the recipient, especially if you're sending a large amount," the spokesperson said.
"International transfers don't use confirmation of payee, so double-checking account details is particularly important."