The pandemic rise of the neobanks in Australia turned into a colossal fall this week after the third and final ?true? neobank, Volt Bank, called it quits after almost 5-years in operation.
A neobank is a digital bank that operates under a banking licence, but runs through a smartphone without physical branches.
They specialise in offering cheque and savings services, and most don?t offer loan services.
While 86400 was the first neobank in Australia to offer home loans, the company?s deposit-taking licence was revoked by APRA in 2019 before NAB acquired the company mid-2021.
Neobanks were collectively worth US$34.77 billion globally in 2020 according to grand view research, as they offered higher rates to customers thanks to lower operational and overhead costs.
So why has the end of the pandemic spelled the end of neobank success in Australia?
Well, for a number of reasons.
Firstly, big banks including NAB and Bendigo and Adelaide Bank swooped in to acquire 86400 and Up neobanks respectively in a move to expand their digital offerings into the neo space.
Secondly, traditional banks are funded by customers' loans, whereas neobanks are funded by investors.
And finding investors to back technology companies post-pandemic is not an easy task (refer to Grafa?s insight piece Tech..Tech..BOOM turned BUST in 2022).
Holding a banking licence also means neobanks have regulatory capital requirements that are much higher than that of fintech companies that don?t have a banking licence.
In Volt?s case, despite having around $100m in deposits and a mortgage book around the same size, the company needed $200 million in additional capital this year in order to scale, which didn?t happen.
While investors in 86400 were fortunate to earn their investment back after NAB purchased the neobank, Volt investors won?t be so lucky.
But it?s not all sad news as fintech companies around Australia including Monoova and Wpay, rally around staff and clients of collapsed neobanks, offering employment for their abandoned workforce and other services for their clients.
The one-line takeaway: Australian neobanks are collapsing in 2022 due to investors backing away from investing in technology companies on top of high capital requirements associated with holding a banking licence.