Xinja is shutting up shop for good today, raising big questions over the future of neobanks in Australia

Xinja’s failure raises the question of whether or not neobanks still have a crack in Australia. (Daniel Karmann, picture alliance via Getty Images)
  • Xinja will close its remaining accounts on Wednesday and return its banking licence.
  • Its collapse in Australia raises questions over whether other neobanks can succeed where Xinja failed.
  • While some have stumbled rolling out lending products, others are making stronger inroads on their promise to challenge the big four.
  • Visit Business Insider Australia’s homepage for more stories.

After raising nearly $500 million in deposits, Xinja will today shut its accounts and hand back its banking licence for good.

It closes a chapter that began with a bang and ultimately ended with a whimper.

Among the first to bring a product to market, Xinja offered one of the best interest rates in the country for a time, attracting the lion’s share of deposits for neobanks promising to shake up the big four banking oligopoly.

The idea certainly found support, with two subsequent equity crowdfunding rounds breaking local records and raising around $5 million in early capital.

Later, a pandemic and a series of interest rate cuts – combined with frivolous spending on new headquarters – would push it to the brink.

Ensuing delays affecting the launch of a revenue products as well as realising new capital was eventually enough to push it over the edge.

The failure of Xinja raises questions not only over whether neobanks can live up to their own hype, but whether the model can even succeed in Australia.

There’s an opportunity for those who can execute

There are some lessons on what not to do from the Xinja story.

Not getting over your head chasing market share for example. Xinja was bleeding more than $7 million a year just to pay interest on the $484 million on its books at its peak.

Its predicament was exaceberated by some poor decision making. Electing to move into the former headquarters of Facebook Australia, costing $1.6 million a year in rent, was but one.

The fact that it came at a time when the bank’s revenue was non-existent, is perhaps the largest takeaway.

Rival 86 400 has managed to skirt this pitfall, launching a home loan product months after going public. It’s currently balancing around $370 million in deposits with $175 million in settled and another $75 million in unsettled home loans. It is now wisely, albeit ambitiously, looking to grow its loan book to $2 billion by the end of the year.

Volt, still in beta testing, is like Xinja, paying out interest on deposits without making revenue. It plans on launching a lending product by the end of this quarter to right the imbalance.

While some question the economics of the business model altogether, there is one shining example among the lot.

Judo Bank, which exclusively offers business loans, has managed to turn itself into a unicorn in roughly the same time it took Xinja to crash and burn.

While the business focus keeps it outside of the typical neobank cohort, its success so far is undeniable.

It is directly challenging the big banks with almost $3 billion in loans, it is well-funded and, most importantly, it is profitable.

While consumer bank dynamics are a little different, Judo has forged a path worth emulating.

There’s appetite for a new type of banking

All of this comes amid demand for neobanks and their services. Nearly one in five respondents to a Finder survey of 3,000 said they already had an account with one.

More than one in four said they would be open to getting onboard, naming high interest rates as a particularly strong incentive.

While neobanks have touted innovation as one main driver of growth, the average Australian might just be happy with a good digital alternative to the big four.

A lack of monthly fees, an easy to use app and some budgeting tools ranked highly in terms of what customers want.

The research highlighted that the key demographic for neobanks is those aged 40 and under, and that men are significantly more interested than women.

While neobanks will need to eventually broaden their appeal, they look like they still have an opportunity to capitalise – should they be willing and able to do so.