If all you’ve ever known is the big four, the idea of a neobank or digital bank may seem a bit intimidating to you. But the world of banking is increasingly turning online and towards apps, with new app features and handy online services rolled out every month. With that in mind, and as the reliability of online banking grows, neobanks, digital banks and other fintechs are starting to emerge.
So if you’re curious about the world of neobanks and digital banks, we’ve answered some frequently asked questions below.
Neobanks are just like normal banks - they are a place to put your money, a place to borrow from and a place to hesitantly hand over interest repayments to - the only catch is they’re 100% digital. They’re usually not associated with any traditional banks, and have no branches you can visit, instead they exist solely online and generally through a smartphone banking app.
While this may raise concerns about a lack of personal touch that you may only get in a branch, neobanks plan to lead the pack in personalised banking by using artificial intelligence to keep track of your data and customise your app experience. Plus they’re determined to make banking, and finances in general, less of a chore by creating products and rolling out features that are designed to help their customers.
These digital banks are still banks though. So if you’re concerned about the safety of your bank account funds with a provider you’ve never heard of, rest assured that they’re licenced and governed in the exact same way as the Australian banks you know well, meaning your money is just as safe in that respect. More on that below though.
A digital bank and a neobank are one and the same - they’re just different terms used to describe the same thing. In the UK and Europe ‘digital banks’ tends to be the more common term used, while in Australia it’s common to refer to these players as either neobanks or digital banks.
Neobanks and digital banks are completely digital, they’re almost all 100% app-based, they don’t have any bank branches and they generally all share a similar philosophy of wanting to reshape the way Australians do their banking and manage their finances.
Neobanks only hit Aussie shores last year, and many of these new banks and other money apps are still in their development stage or just starting to roll out. Here’s a list of the current Australian neobanks, digital banks, fintechs and money apps that you’ll want to know about:
Backed by Bendigo and Adelaide Bank, Up is a mobile-only, app-based bank. Up was the first of Australia’s ‘digital banks’ to launch to the public in October 2018, and since then it’s already released both a transaction account and savings account. In February 2020, Up was also named the 2020 Mozo Experts Choice Award Everyday & Savings Bank of the Year.
Representing the number of seconds in each day, 86 400 is one of Australia’s newest banks, having fully launched to the general public in September 2019 after receiving its full ADI licence in July 2019. As part of its launch, the Cuscal-backed neobank released an app-based transaction account and savings account, the latter of which took out a 2020 Mozo Experts Choice Award in the best Regular Saver category.
In November 2019, 86 400 expanded their product suite even further by becoming the first neobank in Australia to launch home loans.
Volt Bank was the first neobank in Australia to be granted a licence as a Restricted Authorised Deposit-taking Institution (RADI) in May 2018, and in January 2019 it was granted a full licence to operate as an Authorised Deposit-taking Institution (ADI).
In February 2020, Volt Bank launched its Volt savings account which is available to users through the Volt App, and they're likely to follow this with a transaction account and perhaps even other products like home loans down the track.
Sydney-based Xinja has full opened its doors as a fully-fledged digital bank! Originally offering users a prepaid spending card, Xinja obtained their full ADI licence in September 2019 and launched the Xinja Bank Account followed in January 2020 by the release of the Xinja Stash savings account.
Xinja's bank account and savings account were among the 2020 Mozo Experts Choice Awards winners in a number of categories including Exceptional Everyday Account, Best New Transaction Account, Best Regular Saver, Best No Strings Savings and Best New Transaction Account.
Founded in 2018 and launched in February 2020, Hay in one of Australia's newest fintech players currently offering a prepaid Hay card and Hay account which can both be accessed and managed via the Hay app. Hay very much has its eyes set on becoming Australia's next neobank though, so don't be surprised to see it make the transition in the near future once it obtains its RADI licence from APRA.
Unlike the neobanks above, Judo Bank is a little bit different. That's because they're a a challenger bank aimed at providing products and services mainly to Australian small and medium-sized businesses rather than everyday individuals.
Based in Sydney, Judo acquired their full ADI licence in April 2019 and are offering a variety of business loans, term deposits and even business home loans to their customers. In February 2020, Judo Bank was named a 2020 Mozo Experts Choice Award winner in the Best Term Deposit category.
Pelikin is a Melbourne-based travel money app aimed at providing young Aussies with a travel money companion with a point of difference. Pelikin is mobile-only and features a multi-currency account and prepaid Visa debit card which allows users to spend, transfer and split money in up to five different currencies. Pelikin also provide travel insurance for their users.
Launched in 2015, QPay is a mobile-based money app designed to deliver Australian students with a different way to pay. QPay users can make use of both the QPay App and reloadable QPay Debit Mastercard which offer features such as student-only discounts and spending insights (on the app).
With over three million customers in Europe already, Revolut is a UK-based digital money app which offers a range of traditional banking services as well as P2P payments and cryptocurrency exchange.
Revolut launched in Australia in June 2019, offering Aussie users an app and the choice of a number of linked debit cards which can be used for spending at home and abroad, as well as transferring money internationally. Just bear in mind that Revolut is not a bank, and your funds will be held by an undisclosed Australian bank.
Started by the co-founder of P2P lender SocietyOne, Douugh is positioning itself as a ‘smart app-based bank account’ featuring its very own AI assistant and a linked debit Mastercard. Reports are that Douugh could launch in Australia as early as late 2019.
Another of the Melbourne-based fintechs, archa are set to launch a travel-friendly ‘digital account’, prepaid debit card and the linked archa app sometime in late 2019. At the moment they don't have a full Australian banking license, but they certainly plan to get one in the near future.
Digital banks and neobanks are separating themselves from the pack by offering a range of features traditional banks don’t in order to help Aussies save and manage their finances. Here are just some of the neobank pros and cons:
It is, however, good to keep in mind that online banking won’t suit everyone. Here are a few features offered by traditional banks that you might not be able to get with a neobank:
As much as it may seem to be the case, neobanks and digital didn’t just show up out of nowhere. They’ve already been around in Europe and the UK for the past few years, and there are also a couple of unique reasons for their emergence in Australia:
In the last decade, artificial intelligence (AI) has made the leap from sci-fi movie plots to reality, with many fintech companies using the technology to improve their customer service.
AI is a computer system that can seemingly do things that you need human-like intelligence to do. It’s already used by the big four and other banks in implementing chatbots to answer basic questions or help with small tasks.
Neobanks build on these elements of AI in order to maintain the personal touch in-branch service offers and offer a more sophisticated virtual personal assistant experience. Through tracking behavioural patterns, it could also be able to validate transactions in real time and spot fraud quicker. This same system could also help proactively offer customers solutions to banking problems before they occur.
Online-only banks are exactly what they suggest, banks that operate online through a browser or app-based platform. This means they don’t offer in-branch service like traditional banks do, so you can do your banking at any hour of the day. They’re often either a division of a bigger bank or credit union, offering the added security of these bigger players.
Some of the main digital banks operating in Australia include:
While they certainly share large similarities with neobanks, there are a couple of crucial differences. One is the fact that online banks generally operate using a digitised version of a legacy banking system, while neobanks and other new digital banks have built their own brand new systems from scratch.
One of the differences is the way in which neobanks are approaching banking and their customers. Instead of largely focusing on products, neobanks are attempting to position themselves as providers of a more holistic approach to their customers finances - offering new insights, tools and features.
It can seem scary to put your trust in a bank that doesn’t have the traditional tools in place to operate, especially if you're unsure about their safety. A lot of trust in traditional banks comes from their reputation and customer service, and knowing you can go in branch or pick up the phone whenever you need to.
The good news is neobanks need to go through the same regulation processes as traditional banks. It’s not easy to break into the Australian banking market, and these new banks need to go through the process of obtaining a full Authorised Deposit-taking Institution (ADI) licence from the Australian Prudential Regulation Authority (APRA) before they’re allowed to call themselves a bank and take unlimited customer deposits.
The Australian government protects the investments of customers with money held by an ADI to the tune of $250,000 per person, per ADI in the case the institution stops operations or goes bust.
With a number of neobanks having already opened their doors, and with more set to do the same in the coming months, we don’t blame you if you’re starting to get excited about this digital banking revolution.
Otherwise, keep an eye on the Mozo neobank hub for the latest neobank launches and updates, as well as a whole range of comprehensive guides which can help answer any other neobank and digital bank questions you may have.