If the events of 2021 have taught us anything, it’s that disruption can happen overnight, and businesses felt that impact keenly during the year. From the infamous ‘pivot’, to raising capital and liquidators, some companies flourished and others hit the end of their road.
I’ve written and spoken about neobanks a number of times in the past, including a great chat with Up Bank on The Australian Finance Podcast last year.
At the start of 2020, I wrote the following in an article on How to Money, which is prophetic to read now in hindsight (and probably the closest I’ve come to accurately predicting anything in my life).
As interest rates are slashed across Australia, our up and coming neobanks are offering competitive rates to win over the hearts (and cash) of Australians. It’s certainly a great way to round up media coverage, but I really wonder how sustainable it is.
Many of these neobanks that are operating without another banking institution behind them don’t offer any lending products such as mortgages, credit cards and personal loans, so these higher interest rates are funded from investor capital raised. In the next year, you’ll see lending products launched across the board because running a bank is mighty hard to do otherwise.
So what does that mean for you? Just because it’s a flashy new product with a great interest rate, it’s important to read the fine print and make sure you’re getting the product you wanted.
Quick refresher: what is a neobank?
As a fairly new term, a quick Google search will bring up many different descriptions of what constitutes a ‘neobank’. However, there are a few common ideas. Neobanks are generally independent, fully digital and built from the ground up – away from legacy banking infrastructure.
They present a modern brand and encourage consumers to interact and build the company with them. The tech is usually on point, and they come with features and tools not traditionally found in your regular banking apps, including spending insights and instant low-cost currency exchange. The most important part – they keep costs low!
Neobanks currently operating in Australia
Here are some of the neobanks currently open for business in Australia.
- Volt Bank
- 86 400 (undergoing acquisition by National Australia Bank Ltd (ASX: NAB))
- Up Bank (a subsidiary of Bendigo and Adelaide Bank Ltd (ASX: BEN))
How have neobanks evolved during the last year?
In a world where consumers are becoming increasingly price sensitive about their banking products, Australian neobanks have been quickly improving their product offerings, and adding new features and revenue streams.
A good example of this is Revolut (who I spoke to last week and are presenting at Pause Fest this year), who introduced the ability to buy cryptocurrencies, gold and silver within your account, alongside the standard banking features. For a company that was well known for being traveller friendly through their great FX features, this meant that they were able to build other revenue sources during a year without travel, and avoid relying on the traditional lending model.
Have any neobanks closed down?
When I saw the announcement a few months ago that Xinja (a company that had its hat in the ring for a few years) had decided to withdraw its transaction and savings account products and return its ADI licence, I was disappointed but not surprised.
Given the massive amounts of capital and manpower required to get a new bank off the ground and the number of existing competitors in Australia, any new player has their work cut out for them.
The future of neobanks in Australia
I don’t deign to predict the year ahead this time, but I’m highly supportive of *regulated* competition in our banking industry and I’m really excited to see the new features rolling out across Aussie neobanks.
If anything, I think the major players in the banking industry will either imitate the features of popular neobanks, or acquire them and their customer base, like the NAB 86 400 acquisition earlier this year (once approved by the ACCC).
Just remember to read the fine print and make sure you’re getting the product you wanted!