Start-up bank says drop $50m capital requirement
The prudential regulator’s insistence that banks have at least $50 million in Tier 1 capital has erected a substantial barrier to entry for new players, says Xinja, the start-up backed by former Macquarie executives which is working with the Australian Prudential Regulatory Authority’s newly established licensing unit to become a bank.
The federal government said in the May budget it would lift a prohibition on the use of the word “bank” by an authorised deposit-taking institution (ADIs) with less than $50 million in capital. The next day, APRA announced its new licensing unit. Xinja’s ambition to use the new law and unit to build Australia’s first “neobank” were revealed in The Australian Financial Review a few weeks after the budget.
Xinja has told Treasury in a submission on the proposed law the government’s move would “remove a significant commercial barrier to entry and enable the banking sector to enjoy the growth in technology and innovation already embraced by other sectors without such significant capital barriers to entry”.
“We look forward to continuing to work collaboratively and in partnership with regulators to ensure customer deposits are safe and secure whilst providing sufficient room to build, grow and scale in an appropriately customer centric, risk managed and commercially viable way.”
Xinja said the amount of capital required to be called a bank was way in excess of typical venture capital fundraising amounts, and a big multiple of the cost of setting up a core banking technology system. A Series A venture capital round in Australia would typically raise between $3 million and $7 million, meaning a start-up bank would need between eight times and 16 times the Series A raise to reach the $50 million capital requirement. It is also 10 times the estimated $5 million cost of a core banking platform.
Xinja’s founder, Eric Wilson, is the former head of National Australia Bank’s public trustee business. Its directors include Lindley Edwards and Craig Swanger, two former senior executives at Macquarie.
Source: Start-up bank says drop $50m capital requirement | afr.com
