The board and management of Volt Bank, in their bombshell decision yesterday to hand back their banking license, have underscored the fragility in so many fintech business models in Australia.
Banking is an incredibly heavy consumer of capital and even in the best run organisations it chews through mountains of pricey executive and consultant time.
From the outside, it seemed Volt - which weathered the storm of Xinja Bank’s chaotic demise in 2020 - was passing milestones and finding its footing, even the outline of a sustainable niche, in the crowded banking market in Australia.
The hard-working Volt board, fed up with the shrinking pools of capital worldwide for the briefly fashionable fintech and neobank sectors, have resorted to retrieving whatever owner value they can, and carrying on with the remnants of its tech (via Volt Limited) that may challenge banks, without the unaffordable luxury of a banking licence.
As unbelievable as it sounds, there was a period - let’s say around 2019 - when all manner of schemers and dreamers and their clueless advisers sat around devising banking business models that were never intended to be a business.
The poorly-founded belief was that, once and if licensed - the plan was to cash in.
Just flip the license pronto.
Proponents of this madness, of which there may have been dozens, must have thought the process was mainly a case of ticking 2000 APRA boxes, then cutting and pasting the absolute minimum risk, prudential, operational and governance documents to creep over the line.
With no more than vapourware, these schemers intended to rustle up the minimum capital to get the APRA green light. Then, these hopefuls believed, they’d pocket the profits from the sale of their non-existent bank via a trade sale.
Only equally desperate and even less well capitalised fintechs could possibly have been in the target market.
Of course, none of these operators got anywhere near the starting line.
Volt’s management and board were never part of such ill-informed antics.
A defining difference at Volt was the depth and experience among the top management team and on the board.
Only half a dozen or so neobanks ever secured a license from APRA during this strange era. And there won’t be any more.
Xinja self-destructed 18 months ago.
Soon after Xinja tanked Cuscal – the owner of 86 400 – astounded the industry with the well-considered (and highly profitable) sale of the bank to NAB, in January 2021.
Now Volt, less dramatically, is staging a strategic withdrawal.
Judo Bank is kicking on, even flourishing.
Two licenced RADIs doing not much are Alex Bank and Avenue Bank.
Alex is up and running, or dawdling. The Alex balance sheet is constrained by the low ball cap on deposits. It has until July next year to progress to a full licence.
Avenue, 20 per cent owned by Liberty Financial, has no deposits, no loans and no known plans to make its debut.