'You need a mortgage back book. You need a back office. You need ME!'
This was the pitch from Kim Cannon, the resilient (if aggravated) CEO of non-bank pioneer Firstmac in Brisbane. Plenty around finance have heard similar from Cannon, a near 40-year veteran of fact and fiction around banking disruption in Australia.
Many a fintech and neobank in Australia has downloaded with or pitched to Cannon, especially recently amid the shocks and shortfalls in capital and strategic sense that are the hallmarks of the breakdown in the conviction fintech story in this country.
Banking is a sector in which the oligopoly always expect to prevail, and one certain, with reason, the prudential regulator will defend their interests.
This bias is the main reason the fintech set, and now a neo or two, as well as Cannon and Firstmac, have found breaking into the banking industry – via an APRA and Treasurer-approved banking authority - pretty much beyond them.
Cannon took Firstmac oh so close in recent years, but (with the APRA all-clear) he was unable to seduce the board and rival major shareholders of the modern day Perth BNK Banking Corporation (now with a tiddler market cap of A$65 million and a loan book of $300 million).
MCU Ltd, the credit union serving the cooperative-mad town of Maleny proved too elusive at Cannon’s more recent bravado second run at leaping the high-cost prudential hurdles. (Instead, Queensland Country Bank, a mutual bank, will soon take control of MCU).
“Here we were trying to compete in APRA’s Got Talent and we just got jammed out if it,” Kim Cannon told Banking Day yesterday.
“You need a back book to survive in this day and age (of super low rates and margins),” he said.
“If you wanted a competitor, pick me - but their (APRA’s) rules are just too anti-competitive.
“I tried to get a banking licence - I just wanted to compete, but the competition killers APRA found a way of saying no
“Since Paul Keating deregulated the banks in 1985 foreign banks, came and went, no new licences; then the neo banks,” Cannon concluded.
Australia’s slender number of neobanks have, this summer, begun folding their tent in dramatic fashion.
Xinja Bank, a misguided startup that never had a hope effectively left the industry last month (palming off the rats and mice deposits to NAB). Watch for the final surrender by Xinja of their value-destroying banking licence any day now.
In the case of 86 400 Banking Day is reserving its cynicism on the sweetheart deal between Cuscal, 86 400 and NAB announced on Friday. But surely this left-field exit of the one of the best little banks in the business writes the obituary for neobank licensing and what remains of the dinkum version of the fintech fad.
The prudential regulator will soon be shunning fintech auditions.
How many more neobank or RADI or other licence wannabes will receive a green-light from Australia’s banking regulator in the wake of the recent Xinja exit and 86 400’s planned sale to NAB, a big bank whose profits and franchise it planned to eat?
None, or close to none is our guess - leaving the likes of Hay to pursue their disruptor dreams in more conventional (even value creating) non-bank clothing, and more on Hay below.
86 400 and its founder and owner Cuscal may have confounded the market (and delighted the ABA and the four pillars banking oligopoly) with their clean and clear-headed sale to NAB. This is a neat scheme that not only recovers the mutual ADI capital Cuscal placed at risk in 86 400, but doubles their money.
Clean only, that is, if the ACCC bends once more to the will of the first-order financial regulators and ignores the anti-competitive undertone of 86 400’s strategic pivot.
“NAB approached us,” Robert Bell, the CEO of 86 400 told Banking Day, dismissing the notion that NAB were in the box seat from early on.
“They participated in the series B capital raise (late last year).”
And the series C capital raise (now redundant, with NAB in the frame), that was going to plan, Bell says.
“It’s a massive endorsement of what we have been able to do in a short space of time. I believe we will continue to flourish,” Bell said.
It was all ‘true believer’ rhetoric in the bank’s customer communications on Friday.
86 400 told depositors and mortgage holders: “From day one, our mission has been to strip the waste out of banking and give back to customers, and while we've already achieved so much, we're still just getting started.
“With the backing of NAB, we'll be able to invest even more into developing smart products, experiences and customer service that will help you own your home faster and reach your goals sooner with smarter spending and saving.
“You can also expect the same rapid rollout of smart products and features that you'll be used to as an 86 400 customer,” - which to be fair is a point of difference in the short history of 86 400.
Over at Volt Bank, “in the coming weeks, we'll be announcing new features including BPay and NPP Payments” and so too Google Pay and Apple Pay, or so they told their much smaller client base a week ago.
Yeah, you read that right: Volt still, today, lacks critical, basic banking and payments functionality, so don’t switch to Volt straight up.
At least real time payments will be embedded in the Volt app soon.
Xinja Bank never engineered these basics into place, and Xinja – for reasons known only to APRA – had a long headstart over 86 400 and Volt.
One fintech staying the course, and so far open-minded on its regulatory and licencing options, is Hay.
Hay may have been a front-runner for a banking licence in early 2020 (and told the market this was so), but it’s ambitious capital raise stalled. And then in April APRA said it was “temporarily suspending issuing new licenses” a blow to the legion of fintechs with banking dreams.
Hay shared an outline of their progress and plans with Banking Day.
Over the last year, Hay said its growing its digital transaction accounts “at a rate of up to 120 a day, and are on track to add another 30,000 accounts in 2021.
“This growth has come from word of mouth with little to no media spend since launch.”
Following the contours of many offshore and local fintech startups, Hay relied on ASIC approvals and, running on Visa rails, pushed what they now label “Hay retail” into the market in February 2020.
Hay launched a B2B offering, “our embedded financial solutions platform Hay as a Service (HaaS) in July, which we believe is the next generation of banking as a service platforms,” a proposition that may overlap with that of Volt and Westpac and soon also NAB/86 400.
“We’re currently working with a wide range of Australian financial service providers as well as non-financial brands,” Hay executive Alex Lloyd said.
Hay even has mortgage product, soucred from a third-party, which debuted in October 2020.
The Hay product set looks pretty complete listed their way and includes “Accounts & Core-banking, Card Issuance, Visa scheme access (with Hay as a principle member), NPP, Direct Entry, Direct Debit, BPay, Tokenisation, Apple Pay & Google Pay digital wallets.” Pretty much the only thing missing is bragging rights for Hay as a genuine bank.
“Our platform and products speak for themselves. With both sides of the business generating revenue we have a pathway to profitability within the next 12 months,” Hay’s CEO Andrew Laycock said.
Hay is believed to be back in the market raising capital, an unknown amount that might fulfil APRA’s requirements. But will they persist with this course, or build on what they have and disrupt in the tradition of Firstmac? The latter seems more likely.
And finally, back to Firstmac…
“Why not just push on with an IPO?”, Cannon posed the question pitched to him often by investment banks, and which may bore him.
“Leave it to the next generation,” he said, thinking of his daughter Marie Mortimer, managing director of loans.com.au which accounts for half the $13 billion loan portfolio of the Cannon family business.
Leave it to Mortimer to drag Firstmac into the golden plains of being a fully-fledged bank, if that’s what her board wants in the years ahead. She’s more likely to succeed than any Aussie fintechs lingering around APRA’s “financial stability”, cartel-protecting doors.