A flurry of neo banks in Australia are threatening to make inroads into the dominance of the country’s established lenders.
Sydney-based digital bank Volt promises to offer a faster more personalised service than the country’s big four incumbents – National Australia Bank, Commonwealth Bank, Australia and New Zealand Banking Group and Westpac.
Volt, led by founder and chief executive Steve Weston, launched in 2017, received its banking licence in January and plans a consumer launch later this year.
The move follows the release of last month’s Royal Commission on banking by High Court Judge Kenneth Hayne, which details a cut-throat sales culture at many of the country’s biggest banks at the expense of the consumer.
Weston said: “This is the perfect time for challenger banks to enter the market. Through the use of technology and data we can provide our customers with greater control and transparency, and competitive rates.”
Volt’s Weston talks about the potential impact of neobanks on Australian banking at the AltFi Australasia Summit next month.
Melbourne-based small business bank Judo launched last June lends between A$250,000 to A$5,000,000, and is process of applying for a banking license from the Australian Prudential Regulation Authority.
It says it plans to become a challenger bank in the country’s “underserviced business market”.
The platform says it is taking its lead from the “highly successful model delivered by UK challenger banks such as Aldermore, Shawbrook, and OakNorth”.
The bank, run by chief executive and co-founder Joseph Healy, has already raised A$100m from international investors, and has announced plans to raise a further A$250m.
However, recent lessons from the older UK digital banking market highlight the problems of chasing customer growth in a bid to satisfy venture capitalist backers who target an early exit.
Business lender OakNorth has lent over £3bn to businesses across the UK without a single default to date, creating 13,000 new jobs and helping to build 10,000 homes since it was founded in September 2015.
Earlier this month, OakNorth tripled pre-tax profits to £33.9m last year, while reporting its total loan facilities jumped 160 per cent to £2.2bn. This was the firm’s second year of profit, and is virtually the only banking platform to make it into the black in the UK.
It makes its cash from lending to small and medium sized businesses and licensing its underwriting programme, OakNorth Analytical Intelligence, to rival banks.
The platform, led by co-founder and chief executive Rishi Khosla, is valued at around $2.8bn, following $440m investment led by Japanese conglomerate SoftBank in February.
OakNorth has now lent over £3bn since its launch, and its a loan book currently at around £2.5bn. Its lending is partly supported through its 40,000 savings customers.
However, another London-based rival Revolut, valued at $1.7bn with over 4 million customers across Europe, illustrates the tyroubled waters online banks can hit as the chase growth in a bid to show their venture capital backers that profits are around the corner. It has raised around $340m in venture capital and has amassed 80,000 business customers.
But earlier this month, it emerged that the bank, founded in July 2015 by Nikolay Storonsky, is being probed by regulator the UK regulator the Financial Conduct Authority, over whether it has flouted anti-money laundering controls.
Reports of a toxic company culture, plagued by high staff turnover, where job applicants are asked to work for free, also surfaced about the bank a few days prior to this news.
Giles Andrews, co-founder of the world’s first peer-to-peer lending platform Zopa, said at this month’s AltFi London Summit: “In some cases across fintech, the focus on the customer is being potentially lost. I am worried that there is a slight shift in focus from the customer towards aggressive expansion.”
Digital banks in the UK and abroad will want make sure they are demonstrably stand apart from the longstanding image of uncaring bricks-and-mortar banks.