In the digital era, it seems that almost every part of daily life is being impacted by a shift to online delivery. Banking is no different with the rise of digital banks, also known as Neobanks, starting to impact the Australian market.
The questions we’re being asked: Is the traditional bank about to go the way of the dodo? Or is this simply just an alternative offer that gives consumers more choice?
What is a Neobank?
The first thing you need to know about Neobanks: They don’t have physical bricks and mortar branches. By taking advantage of technology, they allow their customers to interact with them through a completely online digital journey.
It’s easy to see why this is appealing to many people. As younger generations spend less time using cash and purchase more through cashless options such as Apple Pay, the traditional banking model is looking less attractive. Digital banking offers a much more cost-effective model to service clients.
The rise of banks without a branch isn’t an entirely new phenomenon in the Australian market; some banks are already delivering this service, ING Direct and Macquarie Bank are examples of businesses to latch on to this concept here. The change we’re seeing now is the rise in these banks, from both here and overseas, entering the market under a full banking licence.
At a time when the banking industry is under more scrutiny than ever, it’s not surprising that it’s become fertile ground for burgeoning Neobank businesses to enter the market.
The first Neobank to be granted an unrestricted deposit-taking institution licence by the Australian Prudential Regulation Authority (APRA) is Volt Bank. With board members such as former Foxtel CEO, Peter Tonagh, and former Tabcorp CIO, Kim Wenn, they have serious plans to shake up the local banking market, offering a product that promises to be easier to consume and in the best interests of consumers.
Volt CEO, Steven Weston, was recently quoted as saying, “Against the backdrop of systematic failures and breaches of trust by incumbent banks, our mission is simple; to empower people and make financial services easier. It’s about giving Australians a fundamentally different banking experience, one that is honest and fair.”
Tony Fehon, Executive Director at Volt, added: “Another core component is the digital processing that Volt will do. It allows us to process customer information more consistently, in real time, leading to a better customer experience.”
Volt Bank looks to be the first of what will be many Neobanks gaining full access to the banking market.
Is it a better alternative?
In some ways, it most certainly will be. I’ve seen it compared to the shake-up in the fitness industry: We now have a plethora of apps and online tools to help us improve our health in a way that works for each individual, in a format that suits. It’s the same with digital banking.
As an offering, there’s no doubt it provides a more user-friendly way of interacting with your bank. With the use of physical cash dropping at a rapid rate and more and more services moving online, it makes sense. It’s also likely to see a reduction in fees and wait times; that is, all things that annoy customers about banking today. Competition is always a good thing for the customer, so it certainly has the potential to improve services.
The biggest question, or stumbling block, some might say, is the perennial one that always comes up when we discuss our money: Is it safe?
First off, as with any business possessing a full banking licence in Australia, a Neobank is a government-authorised ‘deposit-taking institution’ and is guaranteed by the Australian government, up to $250,000.
Secondly, from a technology standpoint, it’s no different to using the online banking tools of any other financial institution. It doesn’t make me a Pulitzer Prize winner to suggest that all of us are already comfortable using online banking! So from that standpoint, it’s as safe as any other banking option.
Competition is good
Ultimately, competition in any market is a good thing. The move to digital service delivery is transforming so many industries, and banking will be no different. Governed by the same rules as the traditional banking sector, it makes using a Neobank a viable alternative.
Lower fees, easier to use services, and less bureaucracy all sound like a winner for consumers and could lead to some of the systemic culture shifts that many want to see in the industry: That is, a focus on providing better services to customers in a way that is easier and more cost effective to consume.
The end of the traditional bank? Not quite yet, but it’s certainly a window into the future.
General Advice warning
The information provided in this blog does not constitute ﬁnancial product advice. The information is of a general nature only and does not take into account your individual objectives, ﬁnancial situation or needs. It should not be used, relied upon, or treated as a substitute for speciﬁc professional advice. Apt Wealth Partners (AFSL 436121 ABN 49 159 583 847) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.