Following recent regulatory changes, Australia is ready to see a shakeup of the current market. Along comes Volt Bank, the first new bank in Australia for 40 years. Is the start of a new wave of challengers in the country? Patrick Brusnahan speaks to the founders of the start-up
Four banks dominate Australia. These are NAB, ANZ, Commonwealth Bank and Westpac, which together control close to 80% of the market.
However, new regulation from the Australian government is letting new entrants to the market. Start-ups with $3m in capital can quality for a restricted banking licence. This is designed to increase competition and put some pressure on the big four.
According to the Australian Prudential Regulation Authority (APRA), this is a fast track to becoming a proper bank if the firm passes the tests. Directors and senior managers need to meet a “fit and proper” test and the business needs to prove its record-keeping systems are reliable.
Businesses with the restricted licence cannot take total deposits of more than $2m or individual deposits of more than $250,000.
Markets that have encouraged competition have seen floods of new entrants. The UK alone saw 12 banking applications approved in 2017 alone. Fintechs such as Monzo, Starling, Atom, and Tandem are arriving nearly every week.
Will we see the same in Australia? So far, we only have one: volt bank.
Co-founded by Steven Weston and Luke Bunbury, Volt is the first to receive this new restricted banking licence. They claim that it is the first new bank in Australia for 40 years and only the second in a century.
The pair had worked together at St George Bank in the 1990s. Weston was in the lending side of the firm, while Bunbury ran deposit portfolios, customer service, and marketing.
Both eventually ended up at one of Australia’s largest non-bank financial institutions, Challenger. They were part of the mortgage arm that was eventually sold to NAB for $385m in 2009.
Weston moved with the business before moving to UK heavyweight Barclays. Speaking to RBI, he says that’s where he “got a really good appreciation of the power of data and digital”.
He returned to Australia in 2016 and thought that there were a lot of parallels between it and the UK. In fact, he began to wonder if they were heading down the same path. As it turns out, he was not the only one thinking this.
He explains: “In early 2017, Luke and I ran into each other and we agreed to catch up over a pizza and a bottle of red wine. We reminisced and found we had remarkably similar views over the direction of travel of banking based on changing consumer behaviour.
“We foresaw that Australia would follow other markets in the Northern hemisphere and there would be government intervention to bring more competition into the Australian banking market.”
On 30 June 2017, they both decided to proceed with a digital bank. Then, in May 2018, they received Australia’s restricted banking licence at that point and staff numbers had increased from nine to over 80.
“Our next milestone is to be granted a full banking licence at which time we will look to launch to the public market. We anticipate that this will happen by the end of this calendar year,” Weston adds.
Weston believes that what Volt offers “hasn’t been done anywhere else in the world, never mind Australia”.
A digital bank may be new to Australia, but it is not new in the global market. How is it set to differentiate itself?
Bunbury says: “The digital part is just the active channel. If you look at the way banking has evolved over the last couple of centuries, it’s all been centred on distribution. Effectively, the advent of the mobile phone and digital banking platforms has upended that structure.
“Distribution is now the mobile phone and differentiation comes from the way the product and the proposition is packaged and delivered to the consumer. We take our customers on journeys. Volt is a journey manager, not a product manager. We look to build all the tools and education the customer needs to get where they need to get rather than just offer a mortgage.”
Bunbury notes that launches in the UK, the US and Europe have has a much more “monolined approach” than what Volt is planning. Rather than offering one revolutionary product, it intends to be a full product proposition.
It plans to start with deposits before moving into retail footings to be able to lend. Transaction products will follow.
However, the big four banks in Australia are fully entrench and it will take some effort to dislodge them. Bunbury is well aware.
“We’re a new brand and need to build scale, trust, and awareness in the market,” he explains. “We also need to overcome inertia, which is significant in retail banking.”
“Where we are fortunate is we do have that clean piece of paper. No legacy cost or thinking. We’ve all come together with an enthusiasm to reimagine banking in its entirety.
“We are also able to access the newer technologies at cheaper prices than they would be 10 years ago. We’ve definitely got a cost advantage. We’re also launching at a time in Australia when there’s a real desire for competition. We’re riding on that wave and, as the first bank to be licensed, that’s given us a prominence in the market.
“We definitely think that our experience, drive and vision will create a major force in banking, but we’re taking it one step at a time.”
Why Volt Bank?
While this can be very exciting for a consumer, if the product or the value isn’t there, inertia will not be overcome. Weston is confident that they have what consumers need.
Due to the low cost of maintaining Volt, Weston plans to pass those savings to the consumer in the form of “very competitive pricing”.
Moreover, it will have credibility. The $250,000 per customer financial claims scheme guarantee is already in place.
Weston says: “Most importantly, our experience will be transformationally better than anything in Australia today. Just like the Monzos, the Revoluts, and the Starlings, our experience will provide viral advocacy and we’ll open an account quicker than anyone is Australia today. We will let people switch their standing orders and direct debits instantly.
“We’ll let them see all of their bank accounts, credit cards, mortgages, whoever they’re with, all through the Volt banking app. We can help them find out if they can get a better deal on gas, electricity, or telco. These are things they don’t do today, so it’s vital.”
Another arm of the firm will look to work with other companies. It aims to target companies with large customer bases, but shallow customer relationships. Therefore, Volt can aid their customer relations, but without them becoming a bank themselves.
Other attractive factions will be a nice looking debit card and functionality for travellers.
More new players
With the new regulation making it easier for a bank to enter the market, will Volt be by itself? There have already been fintechs announcing their plans in Australia. These include Pelikin, Xinja, and 86 400, which is led by Anthony Thompson who co-founded both Metro Bank and Atom Bank in the UK.
On new entrants, Bunbury says: “We won’t see a flood come in, but a number of new entrants will and we support that. Having a handful of new entrants is important in building credibility and awareness of new banking as a theme in the marketplace.
“The reality is the regulator here is proud of the stability and security of the current system. They welcome new entrants, but the bar to get over is incredibly high. There are other applicants but no one yet has been given a license apart from Volt. There will be those that follow, but they won’t be a threat.”
What are Volt’s targets? How many customers will they need to be considered a success?
On if Volt has a target, Weston explains: “We’ve learned not to lead with the chin. Speed is important for us, but the only thing more important is quality. We will be very careful with quality before public launch.”
“The main for banks have over 80% of the market share here,” Bunbury concludes. “There is a very profitable market there.”
He adds: “Over our 10 year projection, we’re saying we’ll get to 1% market share from the deposit and mortgage side of the balance sheet. A very modest expectation we’ve established for the regulator and government. Both Steve and I believe we can achieve that very well. We’re cognitive of the complexity and we just want to make sure we get it right.”