The Australian Prudential Regulation Authority has conceded that not all the neobanks it is licensing will survive. They will fail because their innovative ideas do not attract enough customers to be sufficiently profitable or enough investors to fund their capital needs.APRA's general manager, regulatory affairs and licensing, Melisande Waterford, said: "APRA's observation is that for a challenger bank the single biggest impediment to raising capital is non-operation. Good ideas alone have not proven to be persuasive. Investors want to see proof of concept."Speaking at the Future Banking Forum in Sydney yesterday, Waterford offered aspiring neobanks and challenger banks some advice. In order to be successful, new entrants to the Australian banking industry need to grow, and grow quickly. "We believe that launching products should be a top priority for applicants. We believe that an applicant must have sufficient capital to get itself to product launch date, which in turn will provide the best prospects for raising the additional capital necessary for medium-term success."Companies that have recently been granted full ADI licences include Volt, Xinja, Judo and 86 400. Volt, which received its licence in January, is the only one of the four not have launched any product.Waterford cautioned that neobanks faced a difficult task. "Rapid growth is a challenge. The experience of new bank entrants in Australia over the last 40 years has shown that it's very difficult to build scale rapidly, even with an innovative idea, and the capital question never goes away."She said APRA's position was that it wants to encourage innovation, to welcome new entrants into the industry and to support competition."But we don't want to lower our standards and create risks for deposit-holders. The community expects all banks to be very safe," she said.In the case of ADIs, the main financial promise that APRA focuses on is the one made to depositors: that they will get their money back when they are contractually entitled to ask for it."It's worth reminding ourselves that the statutory obligation to obtain a licence before commencing banking business is intended by design to act as a barrier to entry."Waterford said APRA has challenged itself to be more open minded towards unprecedented or unorthodox proposals that push outside the usual comfort zone. "There are core prudential issues on which we will not compromise but on the whole APRA is now more actively open to innovative approaches."APRA's mission is not to licence as many new banks as it can. Rather our mission is to facilitate the launch of viable entities."She said APRA had no plans to ration new banking licences or to set minimum capital requirements, as occurs in some other markets, such as Singapore.Other advice she offered neobanks seeking a licence is that it is not enough to know what they want to do; they must have a clear idea about how it will work in practice.They need to hire people with relevant experience. They should not underestimate the task of getting the technology to work in a secure and reliable way.