Australia’s virtual banking market

Regulation

The Australian regulatory authority namely, Australian Prudential Regulation Authority (APRA) has been bullish to promote the establishment of a virtual banking environment in the oceanic region. The authority grants authorized deposit-taking institution (ADI) license to conduct any business (including fully digital, online-only) under the ‘Banking Act 1959’. It classifies the license in two ways: the direct route and the restricted route.   

  1. The direct route allows the institution to conduct all banking operations and meets the requisite resources and capabilities for commencing the business.  
  2. The restricted route allows the institution to conduct limited banking operations for a period of two years, while it develops the requisite resources and capabilities to become a fully operational bank

APRA has granted five direct ADI licenses since January 2019. It continues to evaluate the potential of new players to enter the market by granting restricted ADI licenses.  

“The trust between many Australians and their banks has been broken and the path to repair starts with new market entrants who are willing to do things differently,” – Steve Weston, Chief Executive, Volt Bank

Current scenario  

With a full license granted in January 2019 becoming the first virtual bank of Australia, Volt has raised A$70 million (US$48.1 million) in an oversubscribed series C equity funding round from undisclosed investors. It has launched its first savings accounts via partnerships, including with Paypal and ASX-listed Collection House.

In September 2019, 86 400 (Representing the number of seconds in each day) launches its services to the general public, expanding its product suite to become the first virtual bank to launch home loans.

Up Bank is a mobile-only, app-based bank, partnering with Apple Pay, Google Pay, Samsung Pay, Garmin Pay, and Fitbit Pay to expand service segment.

Judo bank focuses on providing products and services to SMEs instead of individuals. It offers a variety of banking services such as business loans, term deposits, and home loans.

Xinja is Australia’s first independent virtual bank focusing on personal banking, and partially raising its finances through equity crowdfunding. In January 2020, Xinja also launched the Xinja Stash savings account.

An upcoming virtual bank  

IN1 Bank, formerly named BDB corporation received a restricted ADI license to form a virtual bank in December 2019. While the current bank offerings and operating model are unknown, the incorporation of another virtual bank indicates the opportunity to capture banking market share through innovative propositions. 

Topic:

The Future of Banking

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