Startup In1Bank still eyeing full APRA licence

George Lekakis

Sydney-based banking aspirant In1Bank Ltd is pushing ahead with plans to secure a full banking licence by the end of the year, despite the collapse last week of investor support for rival digital startup, Volt Bank.

In1Bank founder and chief executive James Tong confirmed on Monday that his bank  launched a pilot of its digital platform for staff and some customers on a waiting list and that the company was continuing to seek a full banking licence from APRA.

In1Bank was granted a restricted banking licence in December 2019 but the original roadmap for the rollout of its platform was disrupted by the Covid-19 pandemic.

“We have launched a pilot of our service for staff and customers,” Tong told Banking Day.

“Our plan at this stage is to continue doing the work for a full licence.”

The bank is poised to commence lending after it won approval from the Australian Securities and Investment Commission at the end of May to sell credit products.

Tong and other directors of In1Bank – including former BNP Investment Partners executive, Alnoor Premji – are under pressure to boost the paid-up capital base of the company before the restricted licence period expires in December.

According to ASIC records, In1Bank LTD currently has paid-up capital of almost A$20 million.

Much of that funding has already been sunk into the business to pay for technology, staff salaries and other start-up costs.

Under APRA’s new capital rules that take effect in January, the bank will need to be holding more Tier One capital to be eligible for a full banking authority.

That means the company will need to raise more capital from investors – a task that the Volt experience demonstrates could be challenging in the current investment environment.

If the capital cannot be sourced from investors before December, the bank might seek another extension to its restricted licence period to preserve its banking status.

APRA last year extended In1Bank’s standard two-year restricted period for 12 months citing the unusual disruption caused by the pandemic.

If such an extension cannot be granted again then Tong and his fellow directors might be forced to remove deposit-taking from the business model.

Tong has positioned In1Bank as a provider of banking products to retail and business customers with a particular focus on Australia’s under-serviced Chinese communities.

The bank will operate as a “bilingual bank”, with digital interfaces and customer service staff providing product information in English and Mandarin.

While In1Bank appears to be under the most pressure to garner fresh capital from investors, Australia’s two other banks with restricted licences are also facing critical challenges in the next year.

Brisbane-based personal lending specialist, Alex Bank, appears to be the best placed to secure a full licence after sealing $20 million in a fresh funding round in April.

According to ASIC filings, Alex Bank’s holding company has total paid up capital of $60 million, which probably puts the business in a favourable spot to migrate to a full authority when its restricted period expires next July.

SME lending specialist Avenue Bank, which has until September 2023 to secure a full licence, had planned to tap institutional investors this year to boost the company’s capital base.

That program appears to have been shelved following the slide in global valuations of fintech businesses since January.