Australia, a cut-throat market for neobanks

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Regulatory鈥痠nitiatives

The Australian regulatory authority namely, the鈥疉ustralian Prudential Regulation Authority鈥(APRA) has been bullish to promote the establishment of鈥痭eobanks鈥痠n the oceanic region. The authority grants authorized鈥痙eposit-taking institution鈥(ADI) license to conduct any business (including fully digital, online-only), which is governed by the 鈥楤anking Act 1959鈥. It classifies the license in two ways: the direct route and the restricted route.鈥

  • 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鈥痓ecome a fully operational bank.鈥

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鈥痩icense鈥痶o become an鈥疉uthorised鈥疍eposit-Taking Institution (ADI) before it can begin to operate.鈥

The ADI鈥痩icense鈥痯rocess is incredibly thorough 鈥 and for very good鈥痳eason. We鈥痟ad 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. 鈥 Mr. Robert Bell, CEO of 86400鈥

Australian Financial Services License鈥

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 authorized 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
  1. Neobanks with an AFSL license:
  • Hay Bank
  • Revolut Australia
  1. Intends to apply for an AFSL license:
  • Parpera
  1. Digital Spin-offs:
  • Up Bank: On the license of Bendigo and Adelaide Bank鈥
  • Douugh: On the license of Australian Regional Australia Bank

Snapshot of Australia鈥檚 neobanks

Table 1: Profile for Australia鈥檚 neobanks鈥
NameFounding Year鈥CEOAnnual revenue
Up Bank 2018 Andrew Twaits (Executive Sponsor)Undisclosed amount
86400 2016 Robert Bell Undisclosed amount
Volt*2017 Steve Weston
Hay 2018 Theresa Hay Griffin Undisclosed amount
Judo 2016 David Hornery Undisclosed amount
Revolut Australia**2019 Matt Baxby Undisclosed amount
Douugh 2016 Andy Taylor Undisclosed amount
Parpera*2020 Daniel Cannizzaro
Tyro2001Robbie CookeUndisclosed amount
Source: Twimbit analysis
*The following banks haven鈥檛 been publically released yet
**Funded by parent company Revolut
Note: The annual revenue is an undisclosed amount as the banks are privately held
Table 2: Learning list of Australia鈥檚 neobanks funding capital
Name86400
Total funds raisedUS $24.08 Million (April 2020)
Series AUS $24.08 Million (April 2020)
NameVolt
Total funds raisedUS $77.61 Million
Corporate RoundUS $8.41 Million (Jan 2019)
Series C US $69.2 Million (Jan 2020)
NameJudo
Total funds raisedUS $1.48 Billion
Series AUS $99.13 Million (Aug 2018)
Debt Financing US $345.99 Million (Nov 2018)
Debt Financing US $98.86 Million (April 2019)
Series BUS $283.24 Million (July 2019)
Debt Financing US $494.28 Million (April 2020)
Series CUS $162.86 Million (May 2020)
NameDouugh
Total funds raisedUS $2.57 Million
Seed RoundUS $1.38 Million (April 2016)
Seed Round US $1.19 Million (Nov 2017)
Corporate Round(Jun 2019)
NameParpera
Total funds raisedUS $1 Million
CrowdfundingUS $800k (Aug 2020)
CrowdfundingUS $200k (Sept 2020)
NameTyro
Total funds raisedUS $95.63 Million
Angel RoundUS $5.8 Million (March 2006)
Angel RoundUS $280.7k (Jan 2017)
Angel RoundUS $3.5 Million (June 2007)
Angel RoundUS $2.1 Million (Nov 2007)
Angel RoundUS $1.1 Million (Jan 2008)
Angel RoundUS $3.9 Million (Oct 2008)
Angel RoundUS $3.7 Million (Dec 2009)
Angel RoundUS $2.7 Million (Dec 2011)
Venture RoundUS $72.55 Million (Nov 2015)
Secondary Market(June 2019)

In-depth neobank analysis鈥痮n the 5-building block framework鈥

Customer Centricity

  • 100% of the neobanks in Australia showcase a mobile-first approach
  • 60% of the neobanks indulge in hyper-personalization to make the experience better for their customer
  • 80% of the neobanks provide 24/7 in-app support to address the grievances of their customers
Figure 1: Australia represents a mobile-first hyper personalized neobanking market

Note: The de-highlighted customer-centricity parameters indicate these are not prevalent in any of the neobanks

Customer Reach

  • Hay Bank had a soft launch where it has extended its service to only 10,000 members
  • Up bank鈥檚 customer segment is 42% Millennials and 44% Gen Z
  • 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鈥檚 product stack

Note: Banks such as Volt and Parpera are not shown because they haven鈥檛 been released yet.

Product Stack

  • Revolut Australia offers different product packages for its users: standard accounts and two paid premium accounts
  • Douugh offers a Personal AI Assistant Sophie who can be asked to help users with, and eventually perform, many in-app functions
  • 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鈥檚 product stack

Partnership Ecosystem

1. Australia鈥檚 neobanking 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鈥檚 partnership ecosystem

Open banking

Open banking officially started in Australia on July1, 2020.

Table 3: API Developers for Australia鈥檚 neobanks
Name of bank Developer
86400 Open Bank Project

Open Bank Project is the API developer for 86400:

  • It is used by 11,000 fintechs and developers
  • Open Bank Project enhances digital offerings by leveraging a set of pre-built banking APIs and a global ecosystem of 3rd party applications and services

Australia鈥檚 neobanks鈥欌痮utlook鈥

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鈥檛 be surprising to see a lot of these banks closing down due to severe competition.

Annexure

Table 4: List of investors in Australian neobanks
Name of the Bank Investor
Up Bank Parent Company: Bendigo and Adelaide Bank鈥
86400 Morgan Stanley
Volt Collection House Group
Judo Australian Office of Financial Management, Goldman Sachs, Credit Suisse
Revolut AustraliaParent Company: Revolut
DouughMonex Group
TyroEllerston Capital, TDM Asset Management, Tiger Global Management

Note: The list is not exhaustive list and is based on the publicly available data

End notes鈥

We have sourced information pertaining to the funding value, round, customer base, revenue, and product information from Crunchbase, Owler, respective company鈥檚 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.

Topic:

Neo Banking

The best financial services are based on customer behaviour.

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