Neobanks are targeting Australians who are after a competitive savings rate and personalised banking products.
Last week neobanks 86 400 and the newly licensed Xinja launched their product offerings and, unlike traditional banks, they operate solely from smartphone apps.
86 400 launched two accounts available to the public, Pay (with a Visa debit card) and Save with no monthly fees. The bank hopes to gain a competitive edge with a personal financial management tool that will track all accounts.
The Australian Prudential Regulation Authority (APRA) granted a full authorised deposit-taking institution (ADI) licence to Xinja, which began rolling out transaction accounts to waitlisted customers.
Xinja chief executive and founder, Eric Wilson says: “We are 100 per cent digital, and we want people to have a real alternative to the incumbent banks. We want to give customers a real choice to be able to be with a bank that looks after them.”
Neobanks do not need physical branches which in turn significantly reduces costs compared to traditional banks so they can afford to offer a higher savings rate.
86 400’s savings account has a 2.5 per cent interest rate, made up of a 40 basis point base rate and a bonus rate of 2.1 per cent. The full rate is credited if the customer deposits $1000 per month.
Similarly, Up, the neobank subsidiary of Bendigo and Adelaide bank, has a 2.50 per cent interest rate when five transactions are made per month.
Bank of Queensland and My State also have 2.50 per cent bonus savings rates. BOQ requires a monthly deposit of $1000 and My State a $20 deposit and 5 transactions per month.
Compared to the big four, the neobank rates are competitive. NAB’s savings account rate is 1.86 per cent, Westpac and ANZ are 1.95 per cent and CBA is up to 1.85 per cent.
Chair of 86 400, Anthony Thomson says: “From early on, we’ve been incredibly confident that what we’re building will offer Australians a smarter alternative to the Big Four banks.”
86 400’s technology allows users to connect and view their existing bank accounts, credit cards and home loans within the app so they can track savings and spending across all accounts.
The 86 400 app provides customers with actions to take control of their money such as bill and subscription reminders and then predicts ongoing bills to reduce the risk of unnecessary late fees.
86 400 chief executive, Robert Bell says: “Managing your money shouldn’t be so hard, but the simple fact is that staying on top of your finances has become too complex, leaving many Australians feeling anxious, stressed and frustrated.”
Xinja’s transaction account comes with a debit Mastercard and the bank will soon launch a savings accounts called Stash. It plans to add lending products in the first quarter of 2020.
The bank account and debit card have no account, card or ATM fees but Xinja says it may have plans for additional premium features that customers can pay for month to month if they choose to.
To date, neobanks Volt and Judo have entered the market and received full banking licenses.
Judo is targeting small to medium businesses and offers business loans, equipment loans, a line of credit, finance lease and home loans and will soon offer term deposits and notice accounts.
Volt was granted its ADI licence in January and has a savings account launching in the next couple of months.
Xinja’s technology will lower costs for customers and give them tools for managing their finances more effectively.
Wilson says: “But it’s not just about technology: our purpose is to help people make more out of their money and get out of debt faster. And if we stick to that, we will succeed. We’ll use technology and data to prompt money mindfulness; nudging people toward better every day behaviour that can improve their finances.”
Xinja launched its app and a prepaid card to its customers early last year and received a restricted ADI licence from APRA which allowed it to conduct limited banking business while developing capabilities and resources.
It currently has 12,000 prepaid cards in circulation and launched home loans to a limited number of people last year and will be rolling this out by the beginning out next year.
Whether the neobanks will take significant share from established banks is in question. According to RateCity, more than three-quarters of Australians’ savings are with the big four banks and their subsidiaries.
RateCity’s Tindall says: “In order to be successful, neobanks will have to patiently chip away at the market. But the big banks won’t go quietly into the night.”