The Australian banking industry is rapidly changing and 2020 is shaping up as a big year for digital banks and Neobanks which will provide Australians with an alternative option for their banking services to the Big Four – NAB, Commonwealth Bank, ANZ and Westpac.
With the terms ‘Digital Bank’ and ‘Neobank’ becoming increasingly popular, below are answers to some of the questions you might have about them.
What are they?
A banking service provider which primarily operates online. There are no retail shops to walk-in to and no face-to-face tellers to handle customer matters.
Is there any difference between a Digital Bank or a Neobank?
No. They also go by other names including Neo Banks, Online Banks and Challenger Banks.
What services do they provide?
Online banking accounts, savings accounts, international transfers, cheque books, personal loans, home loans, business loans, and credit cards.
Essentially, any common service offered by the Big Four banks will be available from Digital Banks and Neobanks once they meet the regulatory criteria from the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investment Commission (ASIC), and is granted a full banking licence.
Are they better than traditional banks?
This is subjective, but Digital Banks and Neobanks are able to be more competitive for customers on the grounds that their operating expenses are notably less than traditional banks.
This means that they can offer customers better interest rates and lower fees whilst greater banking service providers create a free marketplace where customers can shop around for better rates if that is their priority.
Digital Banks and Neobanks are driven by data and technology, with many using artificial intelligence (AI) to assist customers track their spending and forecast future spending. This also enables customers to receive alerts regarding balances and transactions if they opt into them.
Can I have a Digital Bank or Neobank account and keep my Big Four account?
Absolutely. It is the industry standard to make online transfers available to customers with no transaction fees. If customers have multiple accounts, they hold their savings in the account with the highest rate and freely move their cash as they wish between banks.
Do I still get a debit card with touch capabilities for my everyday purchases?
Yes. Customers can register for accounts with Digital Banks and Neobanks for a variety of account types. Some of these will include attached debit cards.
Do they have ATMs for cash withdrawals?
No. However if the Digital Bank or Neobank provides you with a debit card, you will be able to access 3rd-party ATMs to withdraw cash from your account but may have to pay an ATM withdrawal fee which you will be notified of at the time of the transaction.
How did they come about?
In 2017, regulatory restrictions on who could obtain a banking licence were relaxed. The process is still very stringent but it opened up opportunities for new banking service providers to enter the market.
Such providers must first apply for a Restricted Authorised Deposit-taking Institution (RADI) licence whereby they can accept deposits, before applying for a full banking licence.
Can I trust them?
If they have received the appropriate regulatory approval from APRA and ASIC – Yes.
As part of their banking licence, customers are protected for deposits up to $250,000 via protection by the Australian government.
How do I open an account with one?
Most Digital Banks and Neobanks offer account opening options via their websites. They will require personal information which is cross-referenced against government data to verify ownership of the account.
Some providers also have account opening options via their smartphone app if they have one available.
Who are some providers?
In Australia, current providers include Xinja, 86 400, Volt Bank and Judo Bank.
More are expected to be rolled out in the coming years as banking licences are applied for and granted.
Can I invest in Digital Banks and Neobanks?
Whilst none of the current Neobanks are listed on the ASX, some have plans to in the future. Other opportunities for investors to gain exposure to neobanks via ASX-listed companies may include Novatti Group (ASX: NOV) which has a banking application pending, or Wisr (ASX: WZR) which is not a neobank but offers online lending and debt consolidation services similar to those of a neobank.
What if they get hacked?
Security is a key criteria in the granting of a banking licence where Neobanks and traditional banks must meet the same security criteria to be granted their licences.
As mentioned, part of their banking licence includes protection for customer deposits up to $250,000 via protection by the Australian government.