Xinja kicks off low-key with full licence

George Lekakis Authorised deposit-taking institutions

Sydney-based fintech Xinja has begun marketing transaction accounts to customers after securing a full banking licence from APRA.

The company, now trading as Xinja Bank, is the fourth Australian startup to win regulatory approval this year behind Volt Bank, Judo Bank and 86 400.

Founder and chief executive Eric Wilson said obtaining the licence  was “enormously exciting” and followed a meticulous regulatory process.

“This has been an incredibly thorough process,” he said.

“We have been really busy building the best systems, to the highest standards authorities rightly set, to get our bank up and running.”

The ability of Xinja and other startup banks to hack into the customer bases of industry incumbents will be severely tested in the declining rate environment because it is likely to compress the premium on rates they can offer retail depositors.

As rates on term savings accounts fall below 2 per cent, the incentive for depositors to switch banks diminishes because spreads between top quartile and median rate offers in the market tend to contract.

Unless neobanks such as Xinja embark on aggressive loss-leading strategies to acquire customers, the current rate cycle is likely to squeeze their prospects for becoming deposit-funded lenders.

That would magnify their dependence on equity investors and wholesale debt  markets to sustain lending activity.

Xinja expects to roll out savings products in the next few months before making its debut as a retail lender sometime early in 2020.

While a mortgage product is a priority, Wilson said the new bank would not be issuing credit cards.

The Xinja boss said the bank would offer products and services exclusively through its mobile banking app - a business model he believes will yield significant cost advantages over traditional banks.

“Having zero legacy systems and state-of-the-art technology gives Xinja Bank a massive advantage over both traditional and Australian digital banks,” he said.

“We don’t have bricks and mortar branches or old technology that we are constantly patching to meet the needs of customers.

“Our costs will be significantly lower than traditional banks.”

Xinja’s business case is focused on leveraging data to deliver “hyper-personalised” offers to customers and risk-based pricing on lending products.

“We also hope to be able to use data for risk assessment that allows us to offer better lending rates for good financial behaviour,” Wilson said.

However, the focus on customer engagement also has the potential to take the bank into controversial terrain.

According to disclosures published on the Xinja website on Monday, the bank is set to impose several unusual conditions on customers who open transaction and deposit accounts.

Xinja is reserving the right to close bank accounts that have not recorded a transaction over a 12 month period.

The terms and conditions for Xinja bank accounts include the following clause:
“We may close one or more of your Xinja Accounts if there have been no transactions on the Account for at least 12 months. This excludes any transactions initiated by us, for example interest payments or fee transactions.”

Xinja also warns customers that it may stop paying interest on accounts that are inactive for 12 months.

This condition is controversial because inactive accounts are only considered “dormant” under Australian banking laws when a customer-initiated transaction has not been recorded for seven years.