Building on the fruits of four year’s work, Novatti Limited aspires to achieve a full banking licence in 12 months for International Bank of Australia.
Peter Cook, CEO of Novatti, told Banking Day IBA aimed to succeed as a “global payments bank” in the model of ClearBank in the UK, or even Cuscal in Australia.
Officially licenced, by APRA, as a Restricted Authorised Deposit-Taking Institution two weeks ago, International Bank of Australia is the eighth neobank to be authorised in Australia in recent years.
RADI’s like IBA have two years to progress to a full licence.
“We aim to be licenced in under a year,” Cook said.
If IBA thrives, it will be an exception in a sector that has seen two voluntary returns of licences (Xinja and Volt), the sale of 86 400 to NAB and has several more RADIs meandering towards a full banking authority.
A completely different business model for IBA may define its viability in a congested industry.
IBA will be a “regulatory capital-light model,” Cook said.
“As a payments bank, we should use less capital over time.
“With IBA, we see ourselves building on the heritage of Novatti,” Cook said.
His business has laboured for more than a decade to worm its way into a payments domain dominated by long-established domestic and global names (some of them now partners).
“We have the experience in cross-border payments, issuing and acquiring.”
Over time IBA will develop a more conventional transaction banking business and a selective lending arm, one aimed at the migrant market, once again with an emphasis on cross-border payments.
Servicing the payments needs of fintechs will be IBA’s and Novatti’s core business as the bank ramps up late next year.
What sort of revenue pool does this imply?
“Our own budget, for banking services, for Novatti is around $1 million a year,” Cook said, answering the question by way of illustration.
While there aren’t too many Australian banks enthusiastic about ‘banking as a service’ there may be plenty of pricing tension as IBA builds its client base.
“Fintechs want to own the entire banking relationship,” Guy Carvalho, IBA’s CEO emphasised at the recent briefing.
This implies IBA’s fintech clients will want to absorb most, even all, of these costs - given basic banking services and close substitutes are perceived as being ‘free’. Which they are at practically every bank and credit union in Australia.
“Nothing is free. In a modern world, these fintechs want access to an API service,” Cook said.
“They want a banking service from a bank that has the expertise in providing these services.”
How many credible fintechs there are around for IBA to target, just in Australia, is anyone’s guess. But scores, even hundreds over time.
And Novatti is seeking to be a global disruptor.
IBA in the last week or so engaged Mambu as provider of its underlying banking system.
“Mambu will supply the general ledger,” Cook said.
Carvalho takes issue with the notion of contracting for a “core banking system”, preferring the label “A banking system”.
This is because core systems are overwhelmingly tailor-made, in-house, for IBA.
“IBA spent the last four years building extensive technology that sits on top of [Mambu],” Cook said.
“So we will be ready to go to market on technology we built.”
Of the 230 staff on the Novatti payroll, at present 15 are assigned to IBA.
Cook said they planned to hire around 60 for the bank and that he was “focussed on a couple of senior hires.”
Since the launch of International Bank of Australia to the market two weeks ago, shares in Novatti have rallied almost 50 per cent, to 28 cents from 19 cents, giving it a market capitalisation of A$91 million.
This is a multiple of 1.5 times the market cap of the (vastly different, and underwhelming) BNK Banking Corp, which has been listed for a decade. And Novatti is yet to hold even a dollar in deposits.
Cuscal achieved an enterprise value of $270 million when they sold 86 400 (at a handsome profit) to NAB in early 2021, though 86 400 was a conventional digital banking disruptor.