Neobank 86 400 raises $34m as it eyes mortgage growth

The Sydney Morning Herald

New investors have taken a combined stake of about 30 per cent in start-up bank 86 400 for $34 million, as the neobank sticks to its strategy despite the challenging backdrop created by coronavirus.

86 400, which is named after the number of seconds in a day, said the new investors buying into the business included a superannuation fund, a private equity firm, and other fund managers.

The raising is the first time 86 400, which has until now only had one shareholder in Cuscal, has brought on new equity investors as it seeks to dilute Cuscal’s interest in the company, as required under banking laws.

The raising, which implies a valuation of more than $113 million for the company, comes after rival neobank Xinja last month said it had secured $433 million in funding from a Dubai-based investor, with the funds to be paid over two years.

With coronavirus spooking investors, 86 400 chief executive Robert Bell said it had become “harder” to raise money in capital markets compared with a few months ago, but the investors backing the company supported its underlying strategy as a digital challenger bank.

“There are definitely challenges in a market like this, but having said that, I think the sort of people that we’re attracting as investors are taking a long-term view. They still understand the story around digital banks,” he said.

86 400 is one of a handful “neobanks” that aim to pinch a share of the retail banking market by offering digital-only services and competitive rates on deposits and loans.

While stressing that investors would make up their own minds on the bank’s valuation, Mr Bell said that if valuations climbed “too high too quickly” it could make it harder to raise more capital, which will be needed to fund its growth ambitions in mortgage lending, which is explained more here, in terms of inheritance of assets.

The raising means 86 400 now has $90 million in capital, which it will use to roll out products and fund growth in mortgage lending, where it hopes to have a $2 billion loan portfolio by the end of 2021. The bank said it had 170,000 accounts on its platform, and Mr Bell said it should have 500,000 accounts in the next year.

Mr Bell said the coronavirus crisis could “shine a real spotlight” on businesses operating digitally or remotely, and prompt banks to look closely at their digital operations.