Why it could be harder for neobanks to launch in Australia

author-avatar By on March 19, 2021
Why it could be harder for neobanks to launch in Australia

Following Xinja's exit, NAB's planned purchase of 86 400, and Volt still not having a publicly live product, requirements for new bank launches have tightened.

In a discussion paper released yesterday, the Australian Prudential Regulation Authority (APRA), announced it would change the framework in how it grants banking licences.

The changing framework includes: "Focusing applicants and new entrants on longer term sustainability rather than the short-term ambition of receiving a licence and becoming an ADI". 

An 'Authorised Deposit-taking Institution' (ADI) is a banking licence granted to financial institutions so they can take deposits, as well as lend money. 

"Achieving an ADI licence is a milestone, not a destination, given the considerable development that continues in the years following authorisation. While there remain two pathways to authorisation, the desired destination is the same: sustainability," APRA's paper said.

Other stipulations include new entrants having more advanced planning for an exit, increased transparency to stakeholders of capital requirements, and that "entities should launch products before being granted an ADI licence".

"This revised approach effectively targets key risks for new entrants, setting a higher bar for gaining a bank licence, while enhancing competition by making it more likely new entrants can find their feet and gain a firm foothold in the market," APRA's deputy chair John Lonsdale said.

As a result of raising barriers to entry, APRA forecasts that there could be fewer licence applications.

This follows Xinja's exit from banking, and NAB's planned purchase of 86 400 within four years of the bank launching.

Yesterday, Volt announced it has teamed up with finance platform Railsbank to distribute Volt's products, with Volt not having a publicly live product two years after being granted an ADI.

However, it has amassed 8,000 customers and $85 million in deposits with the savings account in 'beta'.

APRA is welcoming submissions to the revised framework until the end of April. 


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
WIN YOUR HOME LOAN INTEREST FREE

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • WIN your home loan interest free and save up to $1.1 million. Refinance by 29 October. T&Cs apply.
  • Refinance Only. Fast online application, refinance in minutes, not weeks.
  • No Nano fees, Free 100% offset sub account. Mobile app. Visa debit card & instant payments.
WIN YOUR HOME LOAN INTEREST FREE

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • WIN your home loan interest free and save up to $1.1 million. Refinance by 29 October. T&Cs apply.
  • Refinance Only. Fast online application, refinance in minutes, not weeks.
  • No Nano fees, Free 100% offset sub account. Mobile app. Visa debit card & instant payments.
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services

Rates correct as of September 25, 2021. View disclaimer.

Home loan rate rises a sign of things to come?

Speaking of neobanks, Adelaide Bank (which shares an ADI licence with Up Bank) raised two home loans by 54 basis points today, or a little over half a percentage point.

These rate rises were:

  • Owner Occupier SmartFix P&I 5 Years: Up to 2.88% p.a. (3.02% p.a. comparison rate*)
  • Owner Occupier SmartSaver P&I 5 Years: Up to 2.88% p.a. (2.83% p.a. comparison rate*)

'SmartFix' and 'SmartSaver' home loans fixed for four years were also raised by 29 basis points, and the SmartFix and SmartSaver products fixed for four years for investors were raised by 10 basis points.

These rate rises, while from just one lender, could be a sign that banks are predicting a rate rise sooner than the Reserve Bank has said.

Positive jobs data released yesterday, up to pre-COVID levels, is one factor in financial markets 'pricing in' at least one 25 basis point rate rise by the end of next year and an additional hike in 2023, according to the Australian Financial Review.

The Reserve Bank's Term Funding Facility is also set to be re-tooled from July, ending billions in low-cost funding for banks, which some pundits predict will spell an end to 'record low' fixed home loan rates.

With that said, it was a busy week for home loan rate cuts, with NAB, and Homestar slashing interest rates on fixed products. 


Photo by Karla Hernandez on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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author-avatar
Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about breaking down complex financial topics for the everyday consumer.

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