Regulatory initiatives

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

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

The Australian Prudential Regulation Authority has brought in new rules in 2018 which has simplified the process to enter the deposit market. However, the bank still needs an AUD $100 million to start. The start-up must convince APRA that it is safe and worthy of a license to become an Authorised Deposit-Taking Institution (ADI) before it can begin to operate. 

The ADI license process is incredibly thorough — and for very good reason. We had every element of our business stress-tested to confirm we were as robust, secure, and safe as any bricks-and-mortar bank. We were assessed on our risk capability, our people, our technology, and our capital. – Mr. Robert Bell, CEO of 86400  

Australian Financial Services License 

Australian Financial Services License (AFSL) is a license normally required to be held by an Australian business involved in the provision of financial services. An AFSL can be issued to an individual, to a director or employee of an AFSL holder, or an authorised representative of a person who holds an AFSL.

Banks and their license type:

1. Neobanks with an ADI license:
   • 86400
   • Judo Bank
   • Volt Bank
   • Tyro Payments
2. Neobanks with an AFSL license:
   • Hay Bank
   • Revolut Australia
3. Intends to apply for an AFSL license:
   • Parpera
   • Archa
4. Digital platform:
   • Douugh: Operating on the license of Regional Australia Bank
5. Digital Spin-offs:
   • Up Bank: Owned by Bendigo and Adelaide Bank  
   • ME bank: Owned by Bank of Queensland
   • Ubank: Owned by National Australia Bank
   • Easy street: Owned by Community First Credit Union
   • ING bank: Owned by ING
   • Rabodirect: Owned by RaboBank

Snapshot of Australia’s neobanks

Table 1: Profile for Australia’s neobanks 

Table 2: Learning list of Australia’s neobanks funding capital

In-depth neobank analysis on the 5-building block framework 

Customer Centricity

• All neobanks in Australia showcase a mobile-first approach and have user-friendly UI-UX design.
• 60% of the neobanks indulge in hyper-personalisation to make the experience better for their customer

Figure 1: Australia represents a mobile-first hyper personalised neo banking market

Customer Reach

• Out of the 12 banks catering to millennials, ME Bank and Revolut cater to both SME and millennial segments, while 67% of the banks cater exclusively to the millennial segment.
• Judo Bank, RaboDirect, and Tyro cater exclusively to the SME segment.
• Judo bank has SME lending and deposit products, including business loans, lines of credit, and term deposits options.

Figure 2: Representation of each virtual bank’s product stack

Product Stack

1. Australian neobanks have 50% or more products catering to the customer journey.
2. 33% of the Australian neobanks offer unique payments and account services.
3. 53% of the neobanks offer lending services.
4. Up Bank, Revolut, and 86 400 offer account aggregation.
5. Douugh offers a Personal AI Assistant Sophie who can be asked to help users with, and eventually perform, many in-app functions
6. Tyro is the only bank in Australia that allows its customers to do transactions through Siri

Methodology

Each neobank product stack is representation of 4 key parameters across 9 product types

• 1. Unavailable: Does not have a product type in their stack
• 2. Testing: The product is currently in pilot-testing phase, not live to all customers
• 3. Established: The product is a part of their stack and fully available for customers
• 4. Unique: A unique offering within a product type which is exclusively provided by the neobank

Figure 3: Representation of each neobank’s product stack

Partnership Ecosystem

1. Australia’s neo banking partnership focusses on:
   • Technology providers for biometric security
   • AI infrastructure
   • Financial services infrastructure
2. Other types of partnerships include insurance partners, network partner and e-wallet partner.

Figure 4: Representation of each neobank’s partnership ecosystem

Open banking

Open banking initiatives in Australia were introduced on July 1, 2020. In the first phase, The introduction of the Australian Competition and Consumer Commissionhttps (ACCC) introduced the Consumer Data Right (CDR). Under the CDR system, consumers’ consent is mandatory for a data holder (e.g a bank) to transfer their data to an accredited data recipient. This initiative aims to give customers greater control over their data. Moreover, customers will be able to compare and switch between products offered by different banks. This fosters competition among neobanks.

Table 3: API Developers for Australia’s neobanks

Australia’s neobanks’ outlook  

There are 9 million Australians who are banking via smartphones, and that is a big market opportunity, and that number is growing every year. Therefore, there is a huge market potential there:

• The extremely low costs of neobanks
• Neobanks put the customers at the center of their operations and provide additional services than just depositing money.
• The neobanks are more flexible in providing services Australia having 9 independent online banks is too much of a competition for a small market. Thus, it won’t be surprising to see a lot of these banks closing down due to severe competition.

Annexure

Table 4: List of investors in Australian neobanks

End notes 

We have sourced information pertaining to the funding value, round, customer base, revenue, and product information from Crunchbase, Owler, respective company’s annual reports, and their websites.

Aman Jindal, Business Research Analyst Intern, contributed to this research by assisting in writing, conducting preliminary analysis, and conceptualising the topic.