A competitive neobank sector is emerging, with 86 400 and newly licensed Xinja launching their product offerings. They join Volt and Judo in the growing sector.
Yesterday, 86 400 launched its two accounts available to the public, Pay (with a Visa debit card) and Save with no monthly fees. The bank hopes to gain a competitive edge with a personal financial management tool that will track all accounts.
On Monday, the Australian Prudential Regulation Authority (APRA) granted a full authorised deposit-taking institution (ADI) licence to Xinja, which began rolling out transaction accounts to waitlisted customers.
Unlike traditional banks, 86 400 and Xinja operate solely from smartphone apps and do not have any physical branches, significantly reducing costs compared to traditional banks.
Xinja chief executive and founder, Eric Wilson, says: “We are 100 per cent digital, and we want people to have a real alternative to the incumbent banks. We want to give customers a real choice to be able to be with a bank that looks after them.”
86 400’s technology allows users to connect and view their existing bank accounts, credit cards and home loans within the app, so they can track savings and spending across all accounts.
The 86 400 app provides customers with actions to take control of their money, such as bill and subscription reminders and then predicts ongoing bills to reduce the risk of unnecessary late fees.
86 400 chief executive, Robert Bell, says: “Managing your money shouldn’t be so hard, but the simple fact is that staying on top of your finances has become too complex, leaving many Australians feeling anxious, stressed and frustrated.”
86 400’s savings account has a 2.50 per cent interest rate, made up of a 0.40 per cent base rate and a bonus rate of 2.10 per cent. The full rate is credited if the customer deposits $1000 per month.
Xinja’s transaction account comes with a debit Mastercard and the bank will soon launch its savings accounts called Stash. It plans to add lending products in the first quarter of 2020.
The bank account and debit card have no account, card or ATM fees but Xinja says it may have plans for additional premium features that customers can pay for month to month if they choose to.
Chair of 86 400, Anthony Thomson, says: “From early on, we’ve been incredibly confident that what we’re building will offer Australians a smarter alternative to the Big Four banks.”
RateCity’s research director, Sally Tindall agrees: “The neo banks also differentiate themselves in their marketing. They’re presenting themselves as the Uber of the banking world in the hope this will resonate with customers fed up with the incumbents.”
To date, neobanks Volt and Judo have entered the market and received full banking licenses.
Judo is targeting small to medium businesses and offers business loans, equipment loans, a line of credit, finance lease and home loans and will soon offer term deposits and notice accounts.
Volt was granted its ADI licence in January and has a savings account launching in the next couple of months.
Xinja’s technology will lower costs for customers and give them tools for managing their finances more effectively.
Wilson says: “But it’s not just about technology: our purpose is to help people make more out of their money and get out of debt faster. And if we stick to that, we will succeed. We’ll use technology and data to prompt money mindfulness; nudging people toward better everyday behaviour that can improve their finances.”
Xinja launched its app and a prepaid card to its customers early last year and received a restricted ADI licence from APRA which allowed it to conduct limited banking business while developing capabilities and resources.
It currently has 12,000 prepaid cards in circulation and launched home loans to a limited number of people last year. It will be rolling this out to the general market by the beginning of next year.
Whether the neobanks will take significant share from established banks is in question. According to RateCity, more than three-quarters of Australians’ savings are with the big four banks and their subsidiaries.
RateCity’s Tindall says: “In order to be successful, neobanks will have to patiently chip away at the market. But the big banks won’t go quietly into the night.”