“Challenger banks do not need to become a ‘fifth pillar’ to serve the Australian community,” Ms Waterford said.
“Their existence alone may force incumbents to up their game.”
The speech comes after APRA granted neobank Xinja an approved deposit-taking institution (ADI) license in September.
Xinja has joined Volt and 86,400 as the first neobanks to benefit from unrestricted ADI licenses in Australia.
The popularity of neobanks exploded following the Hayne royal commission, with startups promising a more transparent process and lower costs due to their lack of physical branches.
But popularity does not necessarily translate into profitability. As neobanks grow, it remains to be seen whether they will be able to take a significant market share from the big four.
“It’s easy to get lured in by a new website, heavy marketing, discounts on new accounts and the promise of offering something different,” Morningstar analyst Nathan Zaia wrote in a September report. .
“But history has shown that it can be extremely difficult to build sufficient size to run a profitable and sustainable bank. »
Although the prospect of large-scale disruption remains low, Ms Waterford was optimistic that neobanks will maintain a strong presence in the Australian financial landscape.
“APRA would like to see a steady stream of serious ADI license applicants entering the market and who, ten years later, are still there, in sufficient numbers to be significant, competing hard and providing innovative solutions to the financial needs of Australia,” she said.
Ms Waterford also warned that emerging neobanks should not underestimate the unique challenges presented by the banking sector, from technology and expertise requirements to the need for a clear financing strategy, saying that “optimism is not a capital management plan”.
“Take a pragmatic approach and raise what you can, when you can, at a price that investors will accept,” she said.
She also spoke of the need to bring products to market as quickly as possible.
“If that means scaling back your product range ambitions, so be it,” Ms Waterford said.
