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Challenger banks look to ‘a new era in banking’

by Annie Kane12 minute read
Josh Frydenberg

Following the news that Volt Bank has become the first Australian bank to transition from a restricted licence to a full licence, Treasurer Josh Frydenberg said that these new banks will “provide Australians with more choice”.

On Tuesday (22 January), the Australian Prudential Regulation Authority (APRA) granted an Authorised Deposit-Taking Institution (ADI) licence to Volt Bank, the first such licence granted to a challenger bank this decade. The last retail bank to be given an ADI licence from APRA was Members Equity Bank in 2001.

The neo-lender had previously been the first organisation to receive a restricted banking licence, after its RADI was granted in May 2018.

Speaking following the announcement, federal Treasurer Josh Frydenberg commented: “The Coalition government’s reforms to increase competition in the banking sector are working, with Volt Bank becoming the first bank to transition from a restricted licence to a full licence.”


He noted that the digital Australian bank was the first to be granted a restricted licence and has now become the first bank to transition from a restricted licence to a full licence.

The restricted licensing framework was introduced last year “to make it easier for new banks to get started and help foster competition in the sector”.

It allows licence holders to carry out limited banking services for up to two years while they develop their capabilities and resources. Xinja Bank is the only other lender to be granted a RADI.

According to Mr Frydenberg, the government has been actively working to “reduce barriers for innovative new entrants into the banking sector, including permitting all ADIs to use the term ‘bank’, providing new businesses with access to crowd-sourced equity funding and mandating ASIC to consider competition as part of its decision-making process”.

He continued: “Further, our introduction of the Consumer Data Right, with the banking sector being the first to roll out the initiative through open banking, will be a game changer when it comes to how consumers leverage their data to obtain more tailored products and services and have more information to make better choices.

“Increasing competition in the banking sector to give consumers more choice, lower prices and better service is part of the government’s plan for a stronger economy.”

More challenger banks eye full ADI licences

Representatives from other challenger and digital banks have welcomed the news that Australia has marked its first RADI becoming a full bank, with the CEO of neo-lender 86 400, Robert Bell, congratulating Volt for receiving a full ADI licence and outlining that he expects to secure a similar licence later this year.

“It’s an exciting time in Australia and the start of a new era in banking. Australians deserve alternatives to the big four banks, and having new entrants such as 86 400 and Volt is positive.

“86 400’s full licence application is progressing as expected and we look forward to making our own announcement in early 2019,” he said.

Likewise, challenger bank Xinja – which also recently launched a capital raising – also welcomed the APRA announcement.

Eric Wilson, Xinja founder and CEO, told The Adviser: “We are very excited by the fact that these licences are being granted to neobanks. 
“The emergence of new players and the granting of licences by the government indicates that the appetite is there in the market, coupled with the political will to really increase competition in banking in Australia for the benefit of Australian people. 
“2019 is going to be a big year for shaking up the banking industry. People are looking for an alternative to the big four oligopoly, particularly after the royal commission, and by the end of 2019, we expect the big banks to be looking over their shoulders with a bit of concern,” he said.

The neo-lender is currently fully funded by independent payments company Cuscal, but the CEO said that it would be soon seeking additional investors that “want to play a crucial role in delivering a new era of Australian banking”.

“It’s an exciting time not just for us, but more importantly for Australians that have long deserved better products and services than those the big four banks have offered them,” Mr Bell concluded.

The sentiment was echoed by Volt Bank co-founder and CEO Steve Weston, who noted the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, saying: “Against the backdrop of systematic failures and breaches of trust by incumbent banks, our mission is simple: to empower people and make financial services easier.

“It’s about giving Australians a fundamentally different banking experience; one that is honest and fair.”

“To have received our ADI licence before any other new entrant gives Volt Bank a competitive advantage over challenger banks looking to follow in our footsteps. We also acknowledge that this is a huge responsibility, as we will set the tone for a new era of banking,” he continued.

[Related: Challenger banks back ‘critical’ broker channel]

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