We put the question to Richard Blumberg, NOW Finance CEO and Founder.Anyone older than a Gen Z or millennial is familiar with the traditional concept of the physical bank. But more recently, a proliferation of new technologies has seen this reality change at an accelerated pace. Now, it’s possible to find new generations of neobanks, similar to banks, with the one notable difference – that they work 100% digitally, with digital systems and apps especially designed to support their users.

Sounds exciting, and an interesting opportunity to disrupt the market if you can develop the technology platform, find the right people, raise lots of capital and survive the ‘brain damage’ of obtaining a banking licence. After all, once you’re an ADI you can take bank deposits which can be a very efficient source of funding.

So why have Neo Banks focused on retail banking services largely failed so far in the Australian market? It’s not uncommon for start-ups, including neo banks, to face challenges and potentially fail. Some potential reasons could include:

Competition: There may have been strong competition in the market, making it difficult for the neo bank to stand out and attract customers.

Lack of differentiation: The neo bank may not have offered unique or compelling features or services that set it apart from other financial institutions in the market.

Poor marketing: The neo bank may not have effectively marketed itself to potential customers, resulting in low awareness and adoption.

Lack of funding: The neo bank may not have had sufficient funding to sustain its operations and invest in its growth.

Regulation: The neo bank may have faced challenges related to regulatory compliance, especially meeting APRA requirements and capital adequacy needs.

Customer acquisition and retention: The neo bank may have struggled to attract and retain customers, potentially due to a lack of trust or lack of value proposition.
I think the failure here of retail-focused neo banks may have been due to a sprinkle of all or most of these issues. We also exist in an oligopoly where the big four banks dominate the retail banking landscape with large resources and capabilities. So, unless you clearly understand your competitive advantage and have a great deal of focus and access to capital, success often is quite illusive. Responding to the collapse of high profile neobank, Volt, in July, Australia’s largest banks maintain they’ve improved their own technology and adopted start-up ideas so effectively that it’s increasingly difficult for start-ups to take customers off them. In my view and experience, it’s too early to celebrate the defeat of a fintech/non-bank alternative. There is always plenty of scope remaining for companies who have the ability and agility to develop viable technology and innovate products and solutions at a much faster pace than the banks and out-manoeuvre larger rivals. There is no doubt that more competition, not less, benefits consumers. There’s also a revolution coming with Open Banking.

Open Banking will be a game changer – it allows financial institutions and third-party developers to access and use customer financial data in a secure and regulated manner. This has the potential to revolutionise the way we manage our finances and interact with financial services. One of the key benefits is increased competition and innovation in the financial industry. By opening up access to financial data, financial institutions are able to offer more personalised and customised financial products and services, which can lead to lower costs and better value for consumers.

Another benefit of Open Banking is the ability to make financial transactions more convenient and efficient. Plus it has the potential to increase financial inclusion, particularly for underserved or marginalized communities. By making it easier for people to access financial services and products, Open Banking can help to promote financial literacy and financial stability.

In addition to these benefits, Open Banking is also helping to drive the development of new financial technologies, such as artificial intelligence and machine learning. These technologies can be used to analyse financial data and provide insights and recommendations to consumers, further improving the experience. Overall, it has the potential to improve the financial landscape for consumers, businesses, and the financial industry as a whole. By fostering competition, innovation, and convenience, Open Banking will help to create a more efficient and inclusive financial system, which must benefit the non-bank lending sector and create much needed competition.