Neobanks are competing for a revenue pool in the range of approximately $60 billion, with a focus on the consumer space. But of course, fintechs aim to disrupt the sector, which could lead to the creation of new revenue streams and the disappearance of old ones.
Open banking is expected to be the catalyst for change in Australia once it applies to all ADIs. But now big banks are expected to make data for all credit and debit cards as well as deposit and transaction accounts available. By 2020, all banks will have to make data available on their products, with the target being 2021 for all products.
The neobank market still has incredible room for growth, but nine banks are already fighting for market share, each with a focus on the customer and the latest innovative technologies.
Volt bank
Volt was the first neobank to obtain an unrestricted banking license, although it is not yet operational. Volt chief executive Steve Weston, a former head of mortgages at Barclays and NAB, said when the company begins trading it will start with retail products. The bank expects this to happen in 2019 and plans to expand into small business banking next year. With lower fixed costs, Volt said it would be able to offer better interest rates on savings accounts, which in a low interest rate environment will be welcomed by consumers.
The company is currently valued at $185 million thanks to investments from Collection House and Paypal, but it also held a Series C investment round last year, with the funds earmarked for regulatory requirements. Its debt funding will come from institutional deposits, including super funds, but with plans for a major bank mortgage-backed securities warehouse. Volt plans to eventually list on the ASX and is expected to have a market value of $400 million.
86,400
There are eighty-six thousand four hundred seconds in a day and 86,400 are building a business that claims to deliver value in every one of them. The bank comes from end-to-end provider Cuscal, which provides financing. 86 400 is taking a different route than some other competitors and has stated that it will not get RADI and will instead opt for an unrestricted license with a full product offering at launch. The bank has expressed its desire to compete with the majors once it is fully licensed and has already signed a distribution deal with mortgage broker aggregator Vow Financial. The deal will allow its home loans to be distributed through a network of 1,200 brokers once it obtains its license.
Judo bank
The second neobank to obtain an unrestricted APRA license was Judo, which is not aimed at consumers but at SMEs. It will launch deposit products aimed at businesses, consumers, SMSFs and wholesale depositors. The company’s five-to-ten-year goal is to capture 3% of the SME banking market through its own analysis report, indicating that there is an $80 billion financing gap for SMEs that she can fill.
Judo has raised $340 million in equity capital from investors and aims to raise $400 million, which would represent $500 million in new capital raised over a year.
Xinja Bank
Having obtained its RADI in December 2018, Xinja still has two years to obtain its unrestricted banking license from APRA. Currently, the bank offers prepaid cards and has a personal finance app to allow customers to instantly track their spending. She plans to offer retail bank accounts and home loans once she is fully licensed. Co-founder and CEO Eric Wilson said the goal was to make banking easy and seamless, with a business plan that predicts it will be profitable within three years with a turnover of 10 at $12 million.
Revolution
The UK’s largest neobank by customers has launched in Australia, offering Australians a stripped-down version of its UK offering. Revolut already has almost 5 million customers in the UK, followed by N26, which has just 2 million. The bank offers a tiered account structure and is licensed via an ASIC e-money license and does not currently apply for a banking license. The app allows customers to directly hold and trade 15 currencies and will launch additional products as they expand into the Australian market.
Bank up
Perhaps the best known consumer-centric neobank is Up Bank, which unlike the others does not have or require an ADI as it uses the license of Bendigo and Adelaide Bank. Up has already launched and was Australia’s first fully licensed, fully in-app platform.
The partnership with Bendigo and Adelaide allowed Up to focus on technology, which is how it was already able to operate and offer products. Since its launch in October 2018, it has already gained 30,000 customers, 90% of whom are new customers with an average age of 28.55 years.
Dough
Douough is not here to be a bank, according to founder Andy Taylor, but will instead remain a true fintech dealing directly with a consumer to issue them a bank account and card. Douough will also not apply for a banking license because, like Up, it will partner with banks to offer these deposits under a white label arrangement. Customer deposits will be held by the partner banks, but Douough will own the customer. Mr Taylor wants to scale quickly, with 100 million customers by 2030 as many as possible. The bank is ready to launch in America and is preparing to list on the ASX later this year.
Archa
Archa is another bank that is not considering obtaining an ADI, with its website indicating that it will work with a partner that holds an ADI. The bank said it would link other accounts to its platform, allowing customers to have a holistic view of their finances. It said it would use technology to offer its customers better ways to manage their money and pay their debts. However, it is currently only an advertisement for a banking app connected to a prepaid credit card.
Novice
Tyro was granted a license in August 2015, making it the first new retail license granted since that of Me Bank in the early 2000s. It has kept a relatively low profile by being a business-only bank, but offers payment solutions and EFTPOS terminals. It recently launched lending and deposit products and, since its launch, has processed more than $42 billion in transactions. Its revenue comes primarily from fees and commissions, which amounted to $63.7 million in fiscal 2018.
Read the first part: What are our institutions doing in the technological game?
