In the last few months, when asking Australians directly what they think a ‘neobank’ is, we get mostly blank looks. Whilst it’s common parlance overseas, it’s certainly not everyday lingo here, and as Xinja is building Australia’s first neobank, we thought we’d better give a quick guide to the term and the merry band we are joining
“Digital banking is only 1% done” – Jason Bates, Founder of Monzo
So how does a ‘neobank’ differ to a traditional bank?
Put simply, a ‘neobank’ is a bank sitting on a 100% digital and mobile platform (so no branches) but more than that, its systems are 100% new too (not legacy) so it is not simply a digital front end to a traditional (and mostly cumbersome from a technological perspective) bank. Furthermore, the digital front ends that HAVE been added to traditional banks, have largely been just a digital manifestation of the traditional banking experience. As they currently stand, banking apps are just digitised versions of analogue capabilities. As 11: FS founders David Brear and Jason Bates (a neobank pioneer and member of the Xinja board) say “Digital banking is only 1% done.” Brear proclaims the story of digital banking thus far has been “a passbook, turned into a statement, turned into web page, and eventually a view on an app. We’ve got digitised banking, but we haven’t seen digital banking yet.” As one of our Founding Xinjas said
“Everything we do as millennials is different to our parents, but banking is the same.” – Arthur
“Neobank” vs “challenger” bank?
Neobank” is sometimes used interchangeably with “challenger bank”, but this is misleading. A challenger bank (as the term suggests) is simply doing a David to a traditional bank’s Goliath. But that doesn’t say a lot about how. A neobank is a new kind of bank – an entirely different banking experience that completely changes how we think of banking. In either case, new front ends on old systems are NOT what we are talking about.
But haven’t we had digital banking for a while?
By no means are we saying innovation in digital banking has been non-existent. Dramatically driving down the costs of servicing customers through ‘digital channels’, has been phenomenal for the big banks, but not always entirely in the interests of those customers. Their greater focus has perhaps been more on been saving the costs of paper statements and inbound calls rather than increasing the amount of interest customers earn, or reducing the amount they pay, for example, by providing new digital manageability. Traditional banks have been arguably slow when it comes to solving some customer problems. What neobanks do is to use the kind of technology that has been available to people in many other spheres of life, to re-imagine the whole banking experience. One of the neobanks in the UK, Tandem, likened it to physical fitness: “Why can’t I manage my money the way I manage my fitness?” And what’s striking about this comparison is the constant monitoring, prompting and advice that a fitness app provides. Our financial fitness needs the same assistance to keep us on track and get results. It’s not about a monthly review of a boring and sometimes indecipherable ledger, but an ongoing adjustment and encouragement of everyday habits and behaviours for a longer term outcome. As another one of our wise Founding Xinjas put it
“Banks focus on maths, not behaviour, while most of money is behaviour, not maths.” – Andrew
Neobanks are about a win win between customers and banks
It’s perfectly possible for banks to make a very respectable profit by aligning their success to their customers’. In an interview with UK neobank Monzo CEO Tom Blomfield explains that “fixing that misalignment of incentives is crucial. The things that really matter to us are solving customer problems.” Said Blomfield: “We want to offer a financial control centre that makes things easy.” When you think about it it’s not hard to come up with a range of painful financial problems, that should easily be solved. It just hasn’t been done yet in this country. Partly because it’s very difficult for the big banks to shoe-horn their (in IT terms) old technology at scale into the extreme usability and dextrous data manipulation of a modern app. And partly because the existing big banks are very profitable as they are. So why change?
Banks have simply not been designed in customers interests. Until now……
Or have they? Actually, if you cast your mind back, the relationship between customer and bank WAS based more on mutual benefit. The motivation behind the creation of Xinja – you can read the Xinja Story here – was, in a way, the re-creation of the ‘trusted bank manager’ through digital technology.
Why now? Digital banking has been round for a while……
It is not just Xinja driving this movement! It is well underway as a global, inexorable trend. We are following the proliferation and popularity of neobanks abroad, like Monzo, Starling, Atom Bank and Tandem in the UK, N26 and Fidor in Germany. Furthermore, the government here has commissioned a review onto Open Banking – possibly the most radical global shift of control back to the customer – and is working to improve ‘regtech’ – the application of technology to reduce the burden of analogue bureaucracy on the customer and most recently, APRA has published a discussion paper on reducing the barriers and encouraging new entrants into the banking industry (by introducing a restrictive licence, reducing the $50million capital requirement, and lifting restrictions on use of the word ‘bank’). We are delighted to be working with the regulators on these initiatives. As Eric (Wilson – our CEO) said in an interview with The Australian, it’s time to innovate
“The [existing] regulations were developed for a different world.” – Eric Wilson, Xinja CEO
What is certain is that change is inevitable and, for the customer, a change for the better. Bring it on!!!
Please note: Xinja is not a ‘bank’ and cannot conduct ‘banking business’ yet, but is working with regulators to become a ‘bank’ and be able to conduct ‘banking business’.