How neo-banks are changing the future of banking and home loans

A smarter way to help brokers with their borrower customers is coming, as the Australian neo-banking market heats up.

While digital bank Xinja was granted its banking licence this week, rival digital bank 86 400 went live after receiving its own licence back in July. Both digital banks are aiming to disrupt the banking sector and improve the way people use their accounts.

Speaking to MPA, 86 400’s home loan lead Melissa Christy said that staying on top of finances had become “too complex”, which left people feeling stressed, anxious and frustrated. With the way consumers paying for things changing so dramatically over the last few decades – think cash to cards to phones to watches or even rings – banking has stayed the same.

Changing the future of home loans
Instead of looking back at expenses, these neo-banks will look forward – and this could provide a very useful tool for brokers helping their borrowers track their expenditure.

“We’ve designed and built a bank which works a little differently. We enable our customers to look forward, as well as backwards and help understand what’s actually going on with their money, surfacing the most relevant information about upcoming bills, subscription payments and direct debits, so they feel in control,” Christy said.

“In the coming months, we'll launch our competitive home loan offering, which takes the same smart approach as our Pay and Save accounts. This will be available through brokers.”

Explaining more about 86 400’s home loan product, Christy said that along with the rest of the bank, it would be digitally-led.

“We’re making it as easy as possible to fulfil a loan and reduce the amount of paperwork for both brokers and their clients,” she said.

"We will eliminate key pain points for brokers by simplifying the income and expense verification process and improving the borrowing experience – making it quicker and easier to get a decision from 86 400.

“Brokers currently waste too much time trawling through paperwork. We have the smart technology to do that for them, letting them prioritise the stuff that really matters – more time with their clients."

Competition to the Big Four
In an age where consumers are looking for “disruptors” – they want an easier way to do things. But can these neo-banks compete with the big four banks?

RateCity.com.au research director, Sally Tindall, said the big banks have deep pockets and do not like losing market share.

“The big banks are already investing heavily in retail banking technology. If the neo banks start gaining traction, the big four are likely to respond in spades to make sure they appeal to tech savvy Australians,” she said.

While people are on the lookout for disruption and technology, consumers remain extremely loyal to their banks. Tindall said more than three quarters of savings are with the big four and their subsidiaries.

“Neo-banks are unlikely to rock this boat any time soon,” she said.

To compete, neo-banks like 86 400, Xinja and Up will have to be competitive on both technology and pricing. But Tindall said this is proving to be difficult.

“So far, 86 400 and Up are both offering a maximum savings rate of 2.50%, which is the equal highest rate on our database, while Judo Bank is offering term deposits of up to 2.00% which is one of the most competitive rates on the market,” she explained.

“When it comes to transaction accounts, the neo-banks will find it near-impossible to compete on cost. Up and 86 400 transaction accounts include some international fees and don’t waive all domestic ATM fees when a growing list of banks do.”

But Tindall added there was “no question” neo-banks would drive innovation in the sector. Neo-banks don’t have the cumbersome banking systems which are known to slow the bigger banks down and they don’t have branches costing them money, she said.

“In order to be successful, neo banks will have to patiently chip away at the market. But the big banks won’t go quietly into the night.”