Lessons throughout the closure of Xinja Bank

The best that can be said about Xinja’s 16-month existence as an authorized depository institution is that no depositor has been harmed and no borrower has defaulted.

Difficult questions

Nonetheless, there are difficult questions to ask APRA. He doesn’t want to comment until Xinja surrenders his banking license.

Two questions for APRA officials are: Was due diligence performed on Xinja’s funding profile? Has the regulator understood the implications of Xinja’s deposit-only business model?

Asked about the lack of a loan product, a spokesperson for Xinja said, “The loan product was mainly blocked by the lack of capital. Lack of capital to build it and lack of capital to launch it when it is launched. would be ready. “

Xinja’s disappearance raises the broader industry question of the potential impact on community confidence in start-ups authorized to access the federal government’s $ 250,000 deposit guarantee, which applies to each bank account.

To be fair to APRA, she warned that there would inevitably be neobanks failures. In addition, it has tried to distinguish between fulfilling its mandate to encourage competition and not losing sight of its mandate to protect depositors.

It is clear that APRA was convinced by Xinja that it would have sufficient funding to cover the cost of financing the deposits until it launched a loan product. Great Xinja’s promise in March was that Dubai’s World Investments would provide $ 433 million in capital over 24 months.

The money never came through and the reason is still unclear.

Xinja CEO and founder Eric Wilson went to the ground and a letter he sent to Xinja shareholders on December 31st essentially said that Xinja’s dream was completely shattered.

He says Xinja’s board has failed “to find a way forward” and that the company’s future will now depend on the availability of new capital.

“If the business is able to do these things, it may be possible to retain some value and slowly rebuild the business outside of the bank,” the letter said.

“Otherwise, the likely value of our shares will be close to zero.”

It is not known exactly how much fresh capital was committed following the disclosure of World Investments’ commitment. But shareholders who poured in money after March must be wondering when the board knew it had turned into a mirage.

Challenge needed

Chanticleer believes Australia needs more neobanks and fintechs to challenge the banking oligopoly by using the latest technology to provide a better offer to depositors, borrowers and consumers of a wide range of financial products.

But at this point, Judo Bank is the only neobank in Australia that makes money and able to challenge the Big Four banks in business lending.

It is ranked among the 20 best neobanks in the world by the research house WhiteSight. Judo ranked 10th in value and second in funding base according to a ranking released last week.

Judo, which was founded by former National Australia Bank executives Joseph Healy and David Hornery, is set to provide $ 3 billion in loans to small and medium-sized businesses.

She was careful not to take deposits until she launched her lending products and established wholesale funding sources. It has around $ 2 billion in deposits, according to the latest data from APRA.

The other major neobanks in Australia are Volt, which has $ 70 million in deposits and no loans, and 86,400, which has about $ 342 million in deposits and about $ 100 million in loans according to APRA data from November. .

A spokesperson for 86400 said the latest figures were $ 370 million in deposits and more than $ 250 million in home loans settled or pending.

Volt, which will launch its first loan product (mortgages) in the first quarter of this year, has deliberately not caused a stir with deposits beating the market.

Instead, it capped deposits at $ 70 million and its first mortgage products will be capped at a total of $ 50 million. The makeup of Volt’s deposits includes a high proportion of people over the age of 55, a fact that jeopardizes the idea that neobanks are the preserve of Millennials.

Volt has raised $ 135 million in equity and is confident on the path to profitability. There is no doubt that APRA will closely monitor its progress.

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