Bank sector transformation will come with open banking, competition: Xinja

Australian neobank Xinja said transformation of the financial services sector, described by Royal Commissioner Kenneth Hayne as often driven by greed, will only happen when consumers have clear choice, and can move easily and quickly between banks and other providers within the banking sector.

The final report from the financial services Royal Commission paints a damning picture of the culture that drives Australia’s banks, with Commissioner Hayne imploring those who run Australia’s biggest and most profitable financial institutions to ‘obey the law’, ‘act fairly’ and offer services that are ‘fit for purpose’.

“The reality is, the reason we’ve reached this low is that the sector has been controlled by a powerful oligopoly; Australians have had no alternative. But the report is a line in the sand and marks a real opportunity to shake up the industry and redesign it in the interests of customers,” said Eric Wilson, chief executive and founder of Xinja.

“Competition is the silver bullet. The emergence of neobanks like Xinja, which offer a different model, means that people poorly treated by their banks will be able to shop around. It will also become much easier to switch, with the roll out of Open Banking.”

The introduction in Australia later this year of Open Banking, which will hand consumers their data allowing them to aggregate information and shift banks or financial services providers more easily, will go a long way to easing the legwork around switching.

And a global trend towards neobanks, which are entirely new, and built for digital, will also offer people better options for their money. Neobanks are well established in the US and the UK.

“It’s a movement that is not just about technology, although that’s part of it, it’s about doing the right thing by people because we should and because that’s the best business model – good will makes for good business,” Mr Wilson said. “You can see that very clearly from the Royal Commission. It’s perfectly possible to run a profitable business without resorting to the kind of tactics we’ve seen.

“We can deliver that because we have new technology, not costly layers of old-style banking IT systems, no bricks-and-mortar bank branches to maintain, and a much smaller, nimble workforce.”

The final report from the Royal Commission made clear that maintaining a good culture is key to banks’ economic and social sustainability. “Failings of organisational culture, governance arrangements and remuneration systems lie at the heart of much of the misconduct examined in this Commission,” Commissioner Hayne’s report said.

But Mr Wilson questioned whether large institutions, carrying the freight of ingrained culture, can make those changes. Xinja is starting from a different place; Xinja has no legacy IT systems, no legacy businesses, and no legacy culture.

Xinja has a restricted banking licence, granted by APRA in December 2018, and is applying for a full banking licence. It already has 25,000 people signed up for Xinja and 10,000 prepaid cards in the market; it also has a wealth of feedback from customers around how they want to bank.

Advisor to the Xinja Board and management, Brett King, who is a former banking adviser to the Obama White House, said: “The Royal Commission identified a range of problems and inadequacies in the current system, addressing them requires more than just putting a new face on old banks.

“The emergence of challenger banks, like Xinja, enable us to design, from the ground up ethical, modern and inclusive financial services, without the baggage of the traditional players.” Mr King, who is based in the US, founded neobank Moven, and is regarded as a global authority in banking.

Mr Wilson said Xinja has been built from scratch, with help from customers.

“We know not many people want to walk into a bank branch anymore,” Mr Wilson said. “What we have learnt from building a bank from ground zero is that people want better ways to manage their money.”

He said Australia’s neo sector is already gaining headway. Research from Nielsen (Jan 2019) found 2.1 million Australians want new banking providers and 67% of those bank with one of Australia’s big four banks. “We want critical mass, we want more neobanks in this market,” he said. “We won’t be the fifth pillar instantly but we are going to make a change.”