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Neobanks and digital banks licences explained

The neobank revolution is well and truly underway in Australia with a number of players positioning themselves to be the next big alternatives to conventional banks. And with a range of innovative apps, products and features on offer, it’s safe to say neobanks are generating a fair bit of excitement. 

But with any new technology it’s not uncommon for people to question just how safe it is - especially when it comes to the safety of their hard earned money. So, how are neobanks and digital banks licenced and regulated and how safe is your money with one?

What are neobanks? 

Before we dive into the exciting world of financial licencing, here’s a quick refresher on what a neobank (or digital bank) actually is.    

Neobanks are often described as the next wave of banking - the fully-online, branchless alternatives to traditional banks which aim to offer their customers a banking experience which is fully contained within a mobile app. But aren’t these just online banks? Not quite, as neobanks are operated with both a digital front end and back end, whereas many online banks simply operate on a digitised version of existing banking infrastructure.

It’s more than just a difference in technology though, as these digital banks are also positioning themselves as ‘disruptors’ - both in terms of the kinds of features they’re offering and the way they engage with their customers. 

Finally, the major distinction between neobanks and other fintechs is down to the products they can offer and the licences they hold. Neobanks can only call themselves a ‘neobank’ if they are an actual bank with the requisite licence, whereas other fintechs like peer-to-peer lenders, micro investment apps, money management apps and other payment providers can’t. But more on that below.

How are they licenced? 

Ok, so let’s get down to licences. But why is this important? Because, in part, different licences dictate the kinds of products and services different financial providers can offer and they can determine how safe your money will be. 

1. Neobanks and Authorised Deposit-Taking Institutions (ADIs)  

As we mentioned above, to be considered a ‘neobank’ or ‘digital bank’ (and to call themselves that) a neobank has to have what’s known as an Australian Deposit-Taking Institution (ADI) licence which is issued by the Australian Prudential Regulation Authority (APRA). This means that they either have to: 

  • Go through the process of becoming an ADI themselves 
  • Operate under an existing ADI’s licence

“Businesses go down the path of applying to become an ADI with APRA if they want to hold money on behalf of retail depositors,” Mozo Banking Expert, Peter Marshall, explains. 

“In order to be authorised as an ADI a business will need to meet a whole heap of prudential requirements dictated by APRA, with the key factor among these being a capital adequacy requirement.” 

“This means that for every dollar held in deposits an ADI will have to hold a certain amount of capital in reserve. That’s so depositors, and the government, can be confident that depositors are going to get their money back should they want to withdraw it.”

As Marshall says, once a business has authorisation to operate as an ADI it can offer deposit accounts and hold money on behalf of customers, including transaction accounts, savings accounts, term deposits and mortgage offset accounts among many more.   

One of the major benefits of holding your money with an ADI is that it is guaranteed (well, a large portion for most people will be) under the Australian Government’s Financial Claims Scheme.

In essence, the scheme covers funds in a whole range of deposit accounts up to $250,000 per person, per ADI. That means that if the ADI which you’ve got your savings in goes bust, your funds will be covered up to that figure by the government. And this applies to all ADIs - from the big four banks and credit unions to (you guessed it) neobanks. 

So, with that in mind, who are the Australian players that can actually be considered neobanks?  

  • 86 40086 400 received their full ADI status in July 2019 
  • Judo Bank - Judo Bank received their full ADI status in April 2019, but they have since pivoted towards a 'challenger' business bank 
  • Volt Bank - Volt Bank received their full ADI status in January 2019
  • Xinja - Xinja received their full ADI status in September 2019, but as of December 2020 they are no longer operating as a bank
  • Up - As a partnership between software company Ferocia and Bendigo Bank, Up isn't an ADI itself, but it is covered by Bendigo and Adelaide Bank’s ADI licence

2. Australian Financial Services Licences 

One of the other major financial licensing processes required of a whole range of financial service providers (including ADI’s) is obtaining an Australian Financial Services Licence (AFSL) issued by the Australian Securities and Investments Commission (ASIC). 

“An AFSL allows businesses to do everything from providing product advice to issuing a specific type of product, but in order to get one they will have to have demonstrated competency and experience in working in the specific financial services area they’re applying in,” said Marshall. 

“There are several levels of AFSL’s and you don’t have to be an ADI to get one. In fact, there are plenty of AFSL’s out there that aren’t ADI’s such as financial advisors, insurance companies, and fund transfer operators. Basically anyone that gives you information or assists you in putting your money somewhere.” 

For certain emerging businesses like fintechs, ASIC also has what it calls it’s ‘regulatory sandbox’

This allows eligible fintech companies to test ‘certain products or services’ without needing an AFSL or credit licence for up to 12 months. That’s as long as companies are testing on no more than 100 retail clients (unlimited wholesale clients) and have a ‘total customer exposure’ of less than $5 million. 

Even if a business does hold an AFSL, it’s worth remembering this advice from ASIC’s own MoneySmart website: 

“A licence does not mean that ASIC endorses the company, financial product or advice or that you cannot incur a loss from the investment. ASIC grants a licence if a business shows it can meet basic standards such as training, compliance, insurance and dispute resolution. The business is responsible for maintaining these standards.”

3. Other fintechs and money apps 

So, I can hear what you’re thinking, how are some of the other, non-neobank Australian fintech and money app players I’ve heard about licenced? Rather than holding their own licences, many have established partnerships with existing ADI’s, AFSL and Australian Credit Licence (ACL) holders. Here are some examples: 


Based in Brisbane, Alex.Bank is an Australian fintech currently offering personal loans. Alex also plans to roll out savings accounts to customers sometime in the near future if it is approved by APRA as an ADI. 


Hay is a Sydney-based fintech and aspiring bank currently offering a card, account and app. Once it secures the necessary licences from APRA, Hay be able to offer traditional banking products like a bank account, savings account and more.          


Billed as a ‘financial control centre’ featuring a personal AI money assistant, Douugh is aiming to improve the financial health of Aussies through its app. Though Douugh isn’t available just yet, it has partnered with ADI Regional Australia Bank to issue a bank account and debit Mastercard. 


Melbourne-based travel and money app Pelikin has partnered with Heritage Bank (ASFL and ACL) and Tuxedo Money (ASFL) to issue and distribute its Pelikin Visa Prepaid Card. 


Student payment and budgeting app QPay has partnered with EML Payment Solutions (AFSL) to issue its QPay prepaid debit Mastercard.


UK fintech has recently launched its travel-focused cards and accounts in Australia. ASIC had originally provided Revolut with special dispensation to hold Australian customer funds in ‘one or more trust accounts’ with an unknown Australian bank, but in 2020 Revolut announced that it had secured its own AFSL. 

RELATED: Open banking opens way for neobanks 

Looking for even more tips and tricks to keep your money safe in a world of emerging technology? Check out our neobanks safety guide or read up on all the latest neobank and fintech news over at the Mozo fintech hub.

Tom Watson
Tom Watson
Finance journalist

Tom Watson is a financial journalist at Mozo and co-host of the Finance Burrito podcast, specialising in fintech, property and business banking. Whether it’s reporting on banking trends or uncovering the latest product innovations, Tom’s mission is to keep our readers up to date with breaking Australian financial news. His work is often sourced in the media and across social media channels. Tom has a degree in Journalism from the University of Technology, Sydney. He is also ASIC RG146 (Tier 2) certified for general advice.