Digital-only banks launch in bid to lure Australian millennials away from traditional branches


Disruption in the banking sector is ramping up, with the launch of two new online-only, mobile platform banks promising to shake up the industry.

Earlier this week, Xinja and 86 400 launched to thousands of Australian banking customers, with the two 'neobanks' promising higher interest rates and a more personalised user experience.

But will the lack of a physical presence hold back mass adoption?

They're targeting millennials, who are comfortable with doing most things on their mobile phones.

Xinja received its full banking licence from the prudential regulator earlier this week, allowing it to launch transaction accounts to its 13,000 customers. There are 7,000 on a waiting list and savings accounts will follow soon.

A Westpac branch in Adelaide.
A Westpac branch in Adelaide.

CEO Eric Wilson said home loan products should be out next year.

"We anticipate people using it just like a normal bank account, have your salary paid into it, do your direct debits out of it, put some into savings, and use Xinja like you would now, except better, quicker and faster."

But said the only way to access the service is on a smartphone.

"We are different because we are 100 per cent digital. We are the only bank in Australia that has everything in the cloud. What that means is you don't pay for branches, you don't pay for old legacy technology."

The only way to access neobank services is on a smartphone.
The only way to access neobank services is on a smartphone.

Money expert at Mozo, Kirsty Lamont said that has its drawbacks.

"That won't suit customers who do like to have the ability to go in and interact with their bank face to face. On the other hand it will be a proposition which will be appealing to millennials who have little interest in interacting with bank branches anyway."

Ms Lamont said there were advantages, namely high bonus interest rates for deposits for some neobanks.

"The new wave of neobanks in Australia is really promising to revolutionise our banking experience with minimal fees, generous rates of interest and killer banking apps which promise you to better manage your money."

It's that personalised experience which attracted Shaun Murphy to rival neobank, 86 400, named after the number of seconds in a day, which also launched this week with transaction and savings accounts.

"I learned the promise it will give once it obtains more data about my lifestyle and spending, it'll recommend what subscriptions that I'm using and not using," Mr Murphy said.

He added that the app provides notifications on upcoming bills and merges data from his existing bank.

"It's bringing the information and data together and hopefully for my lifestyle and the way I live, will help with better decisions for that. My core home loan and personal things are with a major bank and I think it is complementing that at the moment, so I see it as a complimentary service at this point in time."

Ms Lamont said there is still a place for traditional players, which combined service 18 million customers.

"Australians are very loyal to the big four banks despite all the horrors of the royal commission and the trials and tribulations they've had over the years, the majority of Australians still bank with the big four banks and that stickiness will be a hard thing for the big four banks to dislodge."

Lincoln Indicators analyst Elio D'Amato said it's way too early to tell if neobanks will impact bank profits and dividends.

"They're only targeting at this minute a small part of the overall banking model, they're not as diverse as a traditional bank and therefore they won't make a big an inroad at the initial stage."

Mozo's Kirsty Lamont agreed.

"It has been a challenge overseas in areas like the UK where neobanks have found early adopters initially but found the ongoing race a little more difficult to win."

There are other licensed players in the market like small business lender Judo; Up which uses the licence of Bendigo and Adelaide Bank; and Volt Bank which is preparing to launch.

One of the biggest challenges for these new neobanks is trust, given the lack of brand awareness and no branches, how can customers feel secure about their money?

Elio D'Amato said consumers are protected.

"Well they received their full banking licence as approved by APRA which effectively means they've got the government's seal of approval plus they fall under the deposit guarantee of $250,000 which is what a traditional bank also receives."

It's disruption forcing the big players to jump on the front foot and enhance their own digital offering, and is being seen as a win for consumers across the board.

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