- This week has seen two new digital banks, or neobanks, 86 400 and Xinja begin rolling out transaction accounts in Australia.
- However, the rise of these neobanks has been marred somewhat over a disagreement about what constitutes one. As traditional banks launch digitised offerings such as Bendigo Bank’s Up or NAB’s uBank, others like Xinja have persistently underlined the need for a neobank to be a new independent wholly-digital challenger bank.
- To Xinja’s mind that means there are just two operating in the shape of Volt Bank and itself. 86 400, Wilson has said, doesn’t qualify given it is wholly owned by Cuscal, which is in turn, part-owned by Bendigo Bank and Mastercard.
- The resulting feud has helped diminish neobanks’ long-running message that to collectively take on Australia’s big four banks, they each need to suceed.
As neobanks began arriving in Australia, the message they brought with them was clear: we’re all in this together to take on the big four oligopoly.
That treaty, however, looks threatened as the personal banking newcomers — Xinja and 86 400 — start battling it out in the market.
When 86 400 received the green light to operate in Australia just seven weeks ago, Xinja’s public statement was icy. Xinja co-founder and CEO Eric Wilson cast aspersions on the fact that 86 400 is wholly-owned by payment provider Cuscal — owned in part by the likes of Bendigo Bank and Mastercard.
That fact, to Wilson’s mind, negates its independence from old financial companies.
“Obviously congratulations to the team at 86 400. However, whilst this is a new [banking licence], 86 400 is effectively owned by an existing bank, so we don’t necessarily expect as much disruption of the industry from 86 400 as we would from a truly independent neobank,” Eric Wilson said at the time, in a note issued to Business Insider Australia.
Contrast that to the reception received by Volt Bank, founded by one of Wilson’s former NAB colleagues Steve Weston, when it became the first of the three to receive partial approval.
“Hats off to Volt for getting the first restricted licence and we hope to follow suit soon so that we can extend the product suite to transaction accounts… we have always said we welcome this kind of competition,” he said back in May 2018.
The success of their UK counterparts, which all three are trying to emulate, demonstrated that in numbers neobanks can become ‘normal’ and then begin taking customers from incumbents rather than each other.
The idea is that the big four banks — Westpac, NAB, ANZ, and the Commonwealth Bank — have for so long dominated the Australian market, that more challengers are required to truly take them on. The line about team work was certainly peddled by Xinja, Volt and 86 400 in the earlier days.
“Once you get a critical mass of neobanks, the customer base for all of them starts to increase,” Xinja CEO Eric Wilson told SmartCompany, for example, back in January.
It comes down to what “kind of competition” Xinja welcomes. Certainly, the genial ‘more the merrier’ narrative consistently peddled by the Australian neobanks starts to fade when you begin drilling down into what exactly is a genuine neobank.
If you ask Wilson, in Australia there are only two true contenders — Xinja and Volt.
“A lot of the others spoken about in the media are digital distribution strategies for existing [institutions], meaning they are owned by banks that have been around for 30-plus years,” he has previously said.
Time and time again, ‘true neobanks’ have singled out other banks like Up (owned by Bendigo Bank) and uBank (owned by NAB) as pretenders.
In other words, the distinction lies between new wholly digital banks, and old ones that are simply becoming digitised.
That’s often why Australian neobanks are often counted as only numbering three — or four if you include business lender Judo.
It’s the same contention Xinja has with 86 400 as well, and one Wilson has been open about.
86 400’s ownership by Cuscal — and by virtue, Bengido and Mastercard — negates its independence and status as a true disrupter.
In other words, Wilson asked, how can you disrupt the status quo if you’re indirectly funded by it? Xinja, for the record, has raised approximately $5 million in two separate crowdfunding rounds as well as receiving money from several early private investors.
While 86 400 has also bit its tongue when it comes to Xinja’s criticisms, there does appear to be at least ample competitiveness between the two.
A spokesperson for the company was quick to dismiss the suggestion that Xinja had pipped it at the post to get to market, as a previous version of a Business Insider Australia article stated — a clarification by the bank, and subsequently by this website, discovered that there is, in fact, a two-month waitlist to set up a transaction account.
Certainly, there did seem to be at least a hint of weariness when Business Insider Australia put the feud in question to 86 400 ahead of its launch on Tuesday.
“From day one we’ve deliberately focused, and we’ll continue to focus, on the four big banks that have 80% of the market. If we turn our attention anywhere else, that’s a distraction,” CEO Robert Bell said.
“The only thing I would say is we are 100% funded by Cuscal which is our one and only shareholder, we have an independent board, we’re an independent company, we’re in separate premises, we have gone to all the effort of getting a separate full banking licence and now we’ve brought that product to market,” he said.
Then there’s the pedigree of 86 400’s chairman Anthony Thomson. Thomson has previously founded Metro Bank — the UK’s first new high-street bank in 150 years — as well as the country’s first digital bank Atom. Both challengers banks proved a shakeup to UK’s similarly well-entrenched incumbents.
Regardless of whether or not 86 400 satisfies the criteria, the launch of it and Xinja is enough to create some competition in a market that sorely needs it. Certainly, the mention of the feud to Bell draws a familiar line.
“We’re not worried about there being more than one player in the market. I think if there’s two or three that are sucesssful that’s got to be helpful for competition and for choice,” he said.
With each now shaping up against each other, we’ll see if the ceasefire lasts.
Xinja declined to comment for this article.