The prudential regulator has awarded Volt Bank an unrestricted banking licence, providing a green light for the startup to gather deposits and delivering it a leg-up among the group of new banks seeking to compete against the big four.
Volt is the first so-called “neobanks” to progress through a new startup banking licensing regime established by the Australian Prudential Regulation Authority in the wake of the federal budget in 2017. The government wants new banks to compete rigorously against the big four to improve customer experience.
Volt, co-founded by the former head of mortgages at UK bank Barclays Steve Weston and former St George and Challenger executive Luke Bunbury, was awarded a restricted license in May last year. This allowed it to test its systems with a small number of customers. The full-licence awarded on Tuesday allows it to hit the market broadly with savings and transactions accounts, which will become available to the public from March and April.
Volt plans to launch transaction cards in late May, personal loans from mid-year, and home loans towards the end of the year. There are plans to extend into small business banking in 2020.
Another local neobank, Xinja, was given a restricted licence in December and is hoping for a full licence mid-year.
Two other startup banks, 86400, backed by Cuscal, and Judo Capital, which will focus on business lending, have applied directly for full, unrestricted licenses, rather than via the new regime; these are also expected to be awarded by APRA this year.
Another new neobank brand – Up – has already launched. It is using the banking licence of Bendigo and Adelaide Bank, which will also hold regulatory capital against Up’s lending. Up has already opened 20,000 savings accounts after launching last year, is understood to be opening 1000 new accounts a week and is negotiating various partnerships to help it scale.
It is understood other applicants for new APRA licences include Pelikin, Wildcard, Douugh, Archa and Bene.
In a statement on its website on Tuesday, APRA said it has granted Volt “a licence to operate as an authorised deposit-taking institution (ADI) without restrictions under the Banking Act 1959”.
Customer deposits up to $250,000 will be guaranteed by the federal government like they are for other banks.
Mr Weston said getting approved by APRA was not an easy process and the standards applied to assess the fintech startup were just as rigorous as any other licensed lender, as they should be.
“Australians can take comfort in the robustness of APRA’s licensing process as it thoroughly examined every aspect of our business to ensure that we are prepared for the demands and challenges of running a bank,” he said.
“It is very, very difficult to get a full banking licence. If you’ve got six staff and want to take over the world, we will see people giving up because its not easy. We won’t see an influx of players because it’s very, very difficult, and we are glad that it is.”
Volt will rollout its first savings accounts via partnerships, including with Paypal and ASX-listed Collection House.
Collection House has invested $8.5 million into Volt on Tuesday, will work as its collection agency and under a strategic partnership help with acquiring new customers and analysing data to assess vulnerable borrowers.
Volt also plans to grow via internet marketing to target millennial customers to its digital-only offering – it will have no branches. It plans to offer better interest rates on savings than the majors due to its lower fixed costs. It will target institutional deposits and savings from retirees.
Volt plans to break even three years from now as it targets customers from the big four. It will need to continue to raise regulatory capital to back loan growth. Mr Weston said he remained confident that the bank will not be constrained by the supply of capital to support loan growth.
Volt said on Tuesday a $35 million Series C raising, first flagged in The Australian Financial Review’s Street Talk column, remains open; around 40 per cent of this has been filled. Part will be held as regulatory capital and part to support growth. This comes on top of $32 million already raised in earlier rounds.
“We are extremely pleased with the level of support we have received from early-stage investors. Now that we have been granted our full licence, we will look for further strategic investors to partner with us and support our future growth,” Mr Weston said.
Initial debt funding will come from institutional deposits, including from superannuation funds, that will be accepted from Tuesday. Once it starts to make loans, there are plans for a mortgage-backed securities warehouse facility, which could be supplied by one of the major banks.
Volt is also in discussions with ratings agencies to get a private rating to provide more funding options from wholesale debt capital markets.
The licence also provides it with access to RBA open market operations to manage liquidity.
Volt is running banking systems on technology supplied by Temenos and the Microsoft Azure cloud.
This is the first unrestricted new bank since Tyro was approved to conduct business banking in August 2015. It is the first new retail licence awarded since the early 2000s.
Robert Bell, CEO of 86 400, said its full licence application “is progressing as expected and we look forward to making our own announcement in early 2019”.
“While currently fully funded by Cuscal, Australia’s leading independent payments company, we are opening our doors to new investors in 2019,” he said.
UK sets the path
Volt is basing its strategy on Monzo and Revolut and similar neobanks in the UK. There are now 2.5 million customers using the five largest UK neobanks – Monzo, Revolut, Atom, Starling, Tandem – up from 600,000 a year earlier.
Neobanks are gathering momentum in other global markets. In the US, Chime has opened more than 2 million transaction accounts; in Asia, Kakao has 6 million sign-ups in less than a year.
One of the biggest UK players, Revolut, is planning plans to open in Australia this year; it is understood to be talking to APRA about a licence and potentially tagging onto the licence of an existing player like Up has done.
The arrival of neobanks is likely to force a response from incumbents. NAB is ramping up investment in UBank, its digital brand. Other majors may follow Bendigo and Adelaide Bank’s partnership with Up as a model to compete against the startups, or potentially acquire one.
Volt’s board comprises former Foxtel and News Corp CEO Peter Tonagh, former Tabcorp CIO Kim Wenn, former Macquarie banker Tony Fehon, Magellan Financial director Paul Lewis and ING Australia board director John Masters.
Mr Weston said: “Against the backdrop of systematic failures and breaches of trust by incumbent banks, our mission is simple; to empower people and make financial services easier. It’s about giving Australians a fundamentally different banking experience, one that is honest and fair.”
“We are building a bank that works tirelessly for our customers and their money. We can do this by being digital only and smartphone led, focusing on removing the ‘speed bumps’ too often experienced by Australians, like lengthy waiting times and excessive fees.”
“We will roll out cutting-edge technologies, embrace data and analytics and create a highly personalised offer that can be tailored to the specific needs of individuals.”
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