Xinja CEO Eric Wilson is “gutted” the company has exited banking
Neobank Xinja has blamed COVID-19 and a tough capital raising environment for its decision to exit banking in Australia and focus on its US share trading platform.
Xinja announced on Wednesday it would close all bank accounts, refund customer savings and hand back its banking licence after what has been a challenging year for the company.
The bank’s chief executive, Eric Wilson, told customers via email it had been an “incredibly tough call” to terminate banking services. “But after COVID19 and an increasingly difficult capital-raising environment affecting who is willing to invest in a new bank, we are convinced that the best thing is for Xinja is to pivot away from being a bank.
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“We’d like to reassure you that your funds are completely safe, and you’ll be able to easily access your funds and have ample time to transfer them to another account,” he said.
The fintech said it would give customers seven days’ notice before closing all high interest Stash accounts, after it banned new customers from joining in March. Accounts will no longer earn interest effective immediately, and cards and payment facilities will be terminated from January 15. The Australian Prudential Regulation Authority said it would ensure all funds are returned to Xinja’s depositors.
Xinja said it would refocus the business on its US share trading platform Dabble “should circumstances allow”. Dabble was launched in July and aims to connect Australian investors with the US stock market with no brokerage fees and an annual subscription.
App-based digital banks, known as neobanks, emerged in Australia in 2018 following budget reforms that simplified the application process to enter the deposit market. Major players include Judo Bank, 86 400, Up Bank and Volt.
Xinja was marketed to Millennials, offering high interest deposit accounts and glow-in-the-dark bank cards but has been unable to launch loan products to offset the cash burn.
Xinja held two equity raisings earlier in the year, which sought to prevent staff layoffs and safeguard the company’s balance sheet. The neobank’s auditors said last month Xinja was “highly dependent on raising additional capital” to stay afloat.
KPMG partner and fintech specialist Ian Pollari said the banking sector had been hit with a challenging year — with record low interest rates and subdued credit demand — and Xinja’s closure should not be seen as a “death knell” for fintechs.
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“The reality is, the world has seen traditional banks come and go. Why would a neobank be immune from those same issues?
“If we want innovative sectors or economies, there will be some failure. It’s important we reflect and learn but I fear that will be lost in the sea of ‘we told you so’.”
Mr Pollari said there had been a “well-trodden path globally” of neobanks aggressively growing customers by offering low-cost products, building brand recognition and then expanding into other products and services.
However, Mr Pollari said neobanks that have been able to become profitable have focused on both sides of the balance sheet — growing customers and loan books simultaneously.
“It’s very hard to sustain the economics of business models with a biased focus on the liability side of the balance sheet,” he said. “Clearly it’s a really disappointing outcome, but it’s important for the Australian financial system to learn and individual players to consider their strategies and business models.”
Venture capitalist Artesian chief executive Jeremy Colless said there had been “some massive successes” in the fintech space this year. “Judo Bank has had a terrific run. It’s hard to cast them all in the same light.
“If the neobanks have the right teams, the right business models, I think they can go head on with the banks.”
However, Mr Colless said bank regulation had become prohibitive for neobanks. “Capital requirements can be a challenge and act as a moat for the big four banks.”
Liberal Senator Andrew Bragg, who chairs the Senate’s fintech committee, said he would probe all barriers faced by neobanks in the new year.
“Our policy is to incentivise competition and innovation. What we will be doing in the second phase of the fintech review is looking at any further impediments which face startups.”