Digital-only neobanks, offering no-fee accounts, high-speed sign-ups and intuitive user interfaces, are hoping to disrupt the way Australians save and spend their money – by making products people actually like.
With names that sound like tech startups (or children’s toys), optimistic branding palettes of aqua, violet and millennial pink, and websites that promise banking experiences that are “easy as … and fun”, these financial upstarts have no interest in looking like their legacy peers, even when they’re owned by them.
Last week, two digital-only banks launched in Australia. On 9 September, Xinja was granted an authorised deposit-taking institution licence by the Australian Prudential Regulation Authority and immediately offered transactional accounts to some customers on its waiting list.
Meanwhile 86 400 (the all-digits moniker comes from the number of seconds in a day), a new bank backed by transactional banking company Cuscal, launched its everyday and savings accounts to the public. Gaining a deposit-taking institution licence means that a new bank adheres to the same regulations and security checks as any other Australian bank, including the government-backed protection of customers’ savings, up to a value of $250,000.
These banks join Up, an app from Bendigo and Adelaide Banks that launched late last year; Judo, an SME-focused neobank; and Revolut, a British neobank with permission to operate in Australia on the digital banking landscape. There are more to come. Volt was granted a full banking licence in January and promises a spring launch on its website.
While neobanks are new to Australia, they’re a fast-growing category abroad. “I was really sweating setting up a bank account in the UK,” says Australian Jonno Seidler, 32, who currently lives in London. “I’d read all about the horror stories of high street banks that only let you open an account if you had a proof of address and utilities bills, which is obviously impossible for a newcomer.” Instead, he signed up for a neobank, Monzo, and found the process “stupendously simple. I set it up in under five minutes”. From October 2018 to June this year, Monzo doubled its valuation to £2bn, making it the second most valuable fin-tech startup in the UK. With a rapidly growing customer base of 2.5 million, the company has earned a cult fan following. Seidler is among them.
“I spend a lot more time looking at my banking app now ... it can do a lot more. I used to work on a big bank in my old job in Sydney and they used to trumpet features in their app that were clunky versions of what comes standard for Monzo.” He cites “the real-time updates on spending, transfers and incoming money; the ability to send between friends instantly using just their name; the way you can use it in every European country with no fees” and “the manner in which they speak to their customers” (think: lots of emojis) as significant improvements on his Australian banking experiences.
“It is almost like a little blessing amidst a world of difficulties,” says Lexie Bucholtz, a 27-year-old Australian living in France, of her neobank N26. The German company has 3.5 million customers and a $3.5bn valuation. “It’s an app that has noticed our generation are starting to become fatigued by detailed technology with all the bells and whistles. We just want the simple stuff, and we want it now. Please.”
‘We’ve lost connectivity with our money’
“One of the big shifts in the last 10 years is we’ve gone from having 30 transactions a month to 300 plus,” says Travis Tyler, chief product and marketing manager of 86 400. “The way that we used to understand how much we’ve spent is ‘What do I have in my wallet at the end of the week?’ But with everyone paying through tapping, paying with their phone or having money taken out through subscriptions, we’ve lost connectivity with our money and what’s going in and out.”
One of the key features of both Australian and international digital banks are notifications whenever you spend. While this feature is available on some traditional banks’ apps too, it’s not standard. It is, however, something users cite as important to their financial wellbeing. “I have set up the notification feature, so I trust that everything is going to plan,” says Bucholtz. “Each time a transaction occurs, my phone buzzes. If there is no buzz, I assume everything is good to go.”
These notifications, alongside other seemingly small design features, such as brightly coloured debit cards, tally up to a banking experience that is engineered towards user enjoyment. The other key feature of neobanks is financial visibility – for instance, quickly viewing spending by category – and the ability to save in ways that make sense emotionally, rather than economically.
With many neobanks you can partition your savings into multiple, separate buckets with labels such as “holiday” and “new bike”.
Behind the scenes, neobanks are depending upon a lack of brick-and-mortar infrastructure as well as no cumbersome legacy technology to deliver banking cheaply. “Our costs are very low and we’re able to pass that on to customers,” says Xinja CEO Eric Wilson. Before founding Xinja, Wilson worked for one of the big four banks. However, when Xinja starts offering loan products, probably early next year, he says their profit model will be different from the one Australians are used to and, after the banking royal commission, increasingly uncomfortable with. “The actual model of banking is sort of similar to the old Egyptians in that we take money in and we lend it out, and the difference between those two things is our margin.”
Xinja’s viability is also dependent on virality. “It’s fairly obvious, but if you look after your customers well, you treat them well and help them look after their money, they’re more likely to stay with you,” adds Xinja’s Camilla Cooke. “They’re more likely to take out more products with you and they’re more likely to recommend you to their friends. Certainly we’ve seen that with neobanks in the UK.”
If users’ in-app experience is good enough, it might work for some people, but not everyone is prepared to go digital only. “We have research that shows that about 30% of consumers would switch to a neobank,” says Alison Banney, banking and finance editor at finder.com.au. “But 40% wouldn’t. The main reason for that is the lack of a full product set, and a lack of bank managers. People really like to be able to walk into a branch and chat with someone if they need help. You can’t do that with a neobank.”
While Bucholtz says her neobank works for her “simple youth needs” she is less certain about using them for more complex financial products like loans. “If my life rapidly changes and I need to take out a loan, or buy a house, I might stick with my traditional bank. I have an image of them being what is socially acceptable, or at least approved by my parents for that type of major investment. My parents would be suspicious of dealing with a neobank long term.”
Both 86 400 and Xinja intend to roll out home loan products soon – it’s how they’re planning to make money. But Xinja insists it will never offer a credit card. “The only way you make money on those is when customers stuff up. That’s not ethical,” says Wilson. “We will make less money per customer probably than any other bank in this country. And I am absolutely fine with that … We want to make a bank that actually builds things alongside our customers. Which is what we do. We’ve crowdfunded, we have them in the office every day. We want to make sure that the people who own us are actually the people who are going to use us.”
Sally Tindall, research director of Rate City, says it is too soon to tell whether neobanks can give Australians a better deal. “Neobanks don’t have many products... Until last week we really hadn’t seen many rates being put on the table.”
“In terms of savings, Up and 86 400 are very competitive in terms of this low rate environment. However, when it comes to transaction accounts, it’s very hard to compete with the likes of ING, Macquarie and Me bank, who refund ATM fees domestically. ING even refund internationally. In that regard, they don’t quite hit the high note.”
Even if slick design, smooth sign-up processes and competitive rates do lure customers to neobanks, it is too soon to tell whether their largely millennial customer base will be able to buy into their margin-making products. “Perhaps the neobank is the bank of the future, moving away from the traditional, much like a lot of other aspects of life,” Bucholtz muses. “My parents can stay with their traditional bank and I can move online. Why not?” She laughs. “It’s unlikely that I will be able to afford a house anyway.”
Know your neobank
There are several new personal banking players on the market in Australia. All offer speedy sign-up (usually under two minutes) and no-fee accounts. Here’s what sets each apart.
Up
Launched: October 2018
The details: Up offers transactional and savings accounts, with a bonus rate of 2.5%, provided you make five transactions a month through your account. Owned by Bendigo and Adelaide Bank, Up is not a neobank, but it offers a mobile banking app with neobank-style features, like the ability to partition your savings and easily view spend-by-category in app. Up will also round up your purchases to the nearest dollar and put the remaining change in your savings account. They do not charge a fee for foreign currency conversions but do charge a $5 fee for overseas ATM use. Unlike some traditional banks, they do not refund ATM fees.
Revolut
Launched: June 2019
The details: A UK-based neobank with permission to trade in Australia, Revolut offers transaction accounts and a slick, intuitive mobile banking app. Like Up, they offer customers the ability to round up their spare change and partition savings into several buckets. They do not offer interest on savings. Revolut’s primary selling point is its no-fee ATM withdrawals (up to A$350), no-fee currency exchanges up to $9,000 and the ability to spend in foreign currencies at the interbank exchange rate. Revolut also offer a premium account, with a $10.99-a-month fee that offers no-fee international ATM withdrawals up to $700, unlimited no-fee currency exchanges and premium credit card-style perks like airport lounge access and a fancy-looking debit card.
86 400
Launched: September 2019
The details: Backed by Cuscal, a transactional banking and asset management company, 86 400’s primary biggest selling point is visibility over your finances. Their app predicts future recurring payments and connects with other financial institutions to offer a read-only view of all your finances in one place. 86 400 offer a bonus interest rate of 2.5% if you deposit at least $1,000 per month and charge a currency conversion fee of 1.5%.
Xinja
Launched: September 2019, to wait-list customers only
The details: Xinja is Australia’s first independent neobank focusing on personal banking, and they’re partially financed through equity crowdfunding. At present they only offer transactional accounts. They charge no ATM fees, including for international ATM withdrawals, and no currency conversion fees.
Volt
Launched: Launch date TBC
The details: Volt was the first independent Australian neobank to be awarded an authorised deposit-taking institution licence, in January of 2019. Their first products are slated to launch in spring of 2019.
The Australian Banking Association was contacted for comment for this article.