Neobanks talk up their new tech advantage

Bernard Kellerman
L-R: James Lloyd,  EY's Asia-Pacific fintech leader, with challenger bank execs: Robert Bell, CEO of 86400; Steve Weston, co-founder Volt Bank; and Van Le, Xinja co-founder.
In a wide-ranging panel discussion last week at Sibos - the major annual financial services networking event organised by SWIFT - the leaders of three emerging Australian "neobanks" outlined their aspirations and guiding philosophies.

The moderator, Ernst & Young partner James Lloyd, the firm's Asia-Pacific fintech leader in its corporate finance strategy practice, started by asking them what success might look like in terms of market share.

Steve Weston, co-founder and CEO of Volt Bank, which was granted Australia's first (and at this stage, only) restricted banking licence by APRA in May, was quick to respond: "We're saying that in ten years, on our financial model, we'll have one per cent of the mortgage and deposit market."

And Weston was unfazed by Lloyd's next point: the major banks will respond by building their own challenger bank, citing the recent announcement from Standard Chartered that it's building a separate digital bank in Hong Kong, in a market which the EY partner called "the most profitable, globally, to begin with".

Weston: "I've talked to banks all around the world and [big banks] would love to build their own digital challenger bank, but the truth is that their operating model doesn't allow it."

Robert Bell, chief executive officer of 86 400, another digital-only bank launched this year with ambitions to seek a full banking licence early in 2019, chipped in.

"The only major change in banking that has happened in the last 20 years has been [the emergence of] ING Direct. And even with its success, the four major banks in Australia have gotten bigger," Bell said.

"We are looking to genuinely bring some different customer experiences, different values to customer customers that haven't seen been seen in the marketplace."

This thread was picked up by Van Le, co-founder and chief strategy and innovation officer for Xinja, another digital only bank setting itself up for a RADI licence.

"One thing that new banking entrants will bring to the sector are new ways to address long-standing challenges to the sector, especially around risk management, and to demonstrate that these methods work," she said.

Recognition that the next phase of banking will be based around how to please the millennials, long predicted as the next important cohort of bank customers, is at the centre of their respective strategies - as indeed it is for more traditional banks.

Except that Van Le was unwilling to agree.

She said surveys of Xinja's potential new customers indicated "they want to spend their time and their money doing the things they love, as opposed to the transactional relationship of banking".

And the trio were not in any mood to concede much more ground to any other banks, even to the smaller banks' efforts at moving into the digital arena - the latest being Up from Bendigo and Adelaide Bank.

"There have been a number of new brands brought to market but these are still working off the existing technology of the big banks," was Le's response.

Bell, from 86 400 summarised the argument as: "We have no legacy systems, no legacy branch network and no legacy cost structure. It's a huge advantage for us," he asserted.

He then conceded there are a number of smaller banks in Australia "that have done well", among them Teachers Mutual Bank.

"It's very specific, very targeted on their customer base. There are a lot of these small banks which have done well in Australia, but collectively as a group the stats say that they are not [making an impact]," Bell said.

EY's Lloyd countered that the one reason challenger banks are emerging in force now is the introduction of a restricted banking licence from APRA as in other overseas jurisdictions, effectively creating a stepping stone towards a full license - but these new banks still need to acquire customers.

As they have none, doing so can be both expensive and short-lived.

Weston agreed with the general proposition, pointing out it was already part of Volt's plan.

"We have to take on partners in order to de-risk our customer acquisition strategy. Two weeks ago we announced a partnership with PayPal that has 7 million customers in Australia on its books and around 300 million worldwide.

"We will announce a number of partnerships, progressively," he said.

Bell said 86 400 has "over 40 technology partners", and a payments partner, Cuscal, which will give the emerging bank access to all payment options, such as Apple Pay and Google Pay.

The New Payments Platform will be used from "day one" of operation by his bank, as just one of the payment options that will be offered to his customers.

"NPP has some really exciting advancements [on the way] in terms of request for pay," Bell said.

"It shows that digital Challenger banks can do things much faster than the major banks."