Neobanks assess their role in the future of banking

  • By Christine St Anne

The year saw a number of neobanks shelve their plans for full product rollouts as COVID-19 unfolded but the sector remains vibrant as three neobanks address a number misconceptions over the outlook for the sector. 

Volt Bank CEO Steve Weston; Judo Bank CRO Jacqui Colwell and Up co-founder Dom Pym joined a panel discussion with Backbase regional vice president Malcolm Macnaughtan at the RFi Group Australian Banking and Innovation Summit. 

The key misconception remains around the viability of these budding banks and it was a concern that Volt’s Weston had to confront when he embarked on a round of capital raising. 

“When you are in capital raising mode, you often get asked by potential investors about how you are going to compete against the majors with their millions of customers and their very deep pockets,” Weston said.

“Surely they will gobble you up,”

Weston addresses that question with investors by highlighting the low operating cost models of the newer players and their ability to provide a competitive pricing,

“The misconception is that you need to become the biggest player in Australia to be successful.” 

However, Weston emphasises that in five years’ time even if each neobank had one per cent of the market share, they would be a very successful and highly valuable businesses.

“You don't need to be the fifth biggest player in Australia. That is the most common misconception, and it is something I often hear discussed by potential investors”. 

Judo Bank’s Colwell also gets asked similar questions by potential investors. 

“There is this view that the neobanks will be prone to naturally fail". 

There will be some that fail along the way but that is not necessarily a bad thing because we can learn from that, Jacqui Colwell, Judo Bank 

Echoing Weston’s view, Colwell said that a neobank does not have to be the fifth biggest bank to be successful. 

“The market is expanding that people don't want the traditional offering of having all their needs met by a major bank.

“I think that there is actually room for more neobanks. Yes. There will be some that fail along the way but that is not necessarily a bad thing because we can learn from that,” Colwell added. 

“I suspect, however, that the failure rate will be actually be very, very low, because the passion involved, not just from the neobanks but from the customers who come to us for a reason”. 

Up’s Pym is already seeing neobanks shape the way the big banks are rolling out products.

The most notable example was in the launch of zero interest rate credit cards by the Commonwealth Bank and National Australia Bank.

“For us it is about helping people feel empowered, and feel in control of their money. Helping them reconnect with their money to be able to do the things they want to do in in life. That is our approach”.

 

Now we have seen three of the four major banks in Australia copy the neobanks, the buy now, pay later providers, all these challengers, Dom Pym, Up

“Now we have seen three of the four major banks in Australia copy the neobanks, the buy now, pay later providers, all these challengers”. 

“The Commonwealth Bank actually went and launched a product Neo. You couldn’t really get more obvious than that,” Pym said.

“National Australia Bank launched a product that looks just like Up, sounds and smells a bit like Afterpay called StraightUp. 

 “I mean, it's just it's crazy.” 

He also highlighted that Westpac’s new 3 per cent savings account which was “pretty much the same interest rate when Up first launched but with more complexity around conditions”. 

“What we can do as neos is to continue to innovate. Be honest and be transparent”. 

“We will absolutely get to one to two percent over time.” 

He added that Up was the first bank in Australia to run on a number of initiatives including instant issuance with Apple Pay, Google Pay and was also the first retail cloud hosted bank in Australia. 

“There are a lot more firsts, but I won’t bore you all any further. But this just shows that the neobanks are having a material impact on the market and I don’t think it is a sector that can be ignored”.

“We will deliver a competitive outcome for customers and better customer experience. Our customers say that Up is not bank it is a party, It can be fun, it can be exciting. Banking does not have to be boring.”