Earlier this week banking history was made in Australia, with two new neobanks claiming a photo finish first to market. On Monday, within hours of each other, new banks Xinja and 86 400 both announced they were open for business.
The launch of both businesses marks a significant milestone for the fintech sector downunder, which so far has lacked an active neobank market, despite having a solid pipeline of contenders. The one exclusion to this has been the launch of Up Bank, which has built its offering on top of Bendigo and Adelaide Bank’s existing ADI licence, and has achieved a solid following so far. International challenger Revolut has also landed on Australia’s shores.
The next 12 – 24 months will be crucial to new entrants Xinja and 86 400, in proving to the naysayers that Australians are ready and willing to switch to a better banking offering, away from the major 4 banks. It’s something credit unions and community banks have been battling against for years, with limited success, pushing the sector towards mass consolidation and a steady retreat to regional areas, where they can imprint greater mindshare on the communities in which they operate.
Like their offshore counterparts, it’s anticipated that most neobanks will compete strongly on experience and data personalisation, with most neck and neck on interest rates, fee free transaction accounts and no fees on international transactions. On the experience front, that is still anyone’s race to win, and the incumbents to lose, hence their billion dollar war-chests.
Aside from experience, the other great void to fill by neobanks will be financial ‘know-how’. With nearly all major Australian banks divesting their wealth arms post royal commission, there is a good opportunity for a neobank to significantly differentiate their overall offering by making wealth a more integrated component of their product set.
Despite good intentions, many banks failed to execute on this strategy, with ‘bolt on’ wealth acquisitions that never fully latched on to the mother ship. This is where neobanks have an immense opportunity. It also could push many further up the value curve, given the race to the bottom on fees (which are virtually zero!) and pressure on net interest margins.
No neobank has made this play, yet.
Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.
I have no commercial relationship with the companies or people mentioned. I am not receiving compensation for this post.
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