Neobanks are becoming increasingly popular in Australia as people look for different avenues to manage their money.
With the recent Royal Commission into the big four banks, Australians seem to be looking for solutions outside the big banks for financial products.
But what is a neobank and how does it differ from the major banking corporations?
What is a neobank?
Neobanks are digital banks. They don’t have any bricks and mortar branches, and you interact with the bank almost entirely on your smartphone through the neobank’s app.
The presence of neobanks has grown rapidly in Australia since 2018 when the government passed legislation allowing neobanks to obtain a restricted authorised deposit-taking institution (ADI) licence for two years as they build up their business.
As primarily app-based banks, neobanks offer additional in-app features that you may not see in your traditional banking apps.
What neobanks are available in Australia?
Many digital banks have established themselves in Australia since 2018. Some of the big names include:
- Xinja (pronounced zin-ja): Offers products including ‘Stash’, a high-interest savings account and a transaction account. It will launch loans and mortgages next year.
- 86400 (pronounced 86-400): Offers high-interest savings accounts and it’s the only neobank that directly provides home loans.
- Volt: Currently in the beta stage, but everyone on the waiting list has access to a savings account.
- Up: Operates on Bendigo and Adelaide Bank’s licence. Offers savings and transaction accounts.
- Judo: Specialised in business lending.
What are the pros and cons of banking with a neobank?
One of the biggest advantages of banking with a neobank is reduced costs. With no branches and lower demand for resources than traditional banks, you can expect your fees to be lower.
This also feeds into the ability to offer customers higher interest rates on deposits and competitive mortgage rates.
With a neobank, there’s no need for paperwork or physical forms as everything is done through the app. The tech-focused nature of neobanks also provides customers with data-driven insights, such as identifying higher than normal bills and charges for forgotten subscriptions.
As a relatively new entrant to the industry, the major downside is that there are no branches to visit.
Further, if you like to have a range of banking products in one place, a neobank may not be for you as most in Australia only offer savings accounts, transaction accounts and limited financing facilities.
Is my money safe in a neobank?
All neobanks need to pass APRA’s lengthy regulatory process to secure an ADI. Just like traditional banks, customer deposits up to $250,000 are guaranteed by the government.
How to invest in a neobank?
Investing in a neobank can take place during a capital raise period. Xinja, for example, launched its first retail crowdfunding campaign in 2017, allowing people to invest from just $1,000.
Neobanks represent the changing face of banking and financial services in Australia and people are now more open to banking outside traditional banks. Before you switch to a neobank, make sure you do your research to decide if it’s the best option for you.
The opinions and recommendations provided are not intended to be relied upon as personal advice as they do not take into account your personal circumstances.
Before making the switch to a neobank, speak to a financial advisor from our team.
General Advice Disclaimer:
This information has been provided as general advice. We have not considered your financial circumstances, needs or objectives. You should consider the appropriateness of the advice. You should obtain and consider the relevant Product Disclosure Statement (PDS) and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication.
