Opportunities and Challenges for Neobanks in the Present Scenario

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 Opportunities and Challenges for Neobanks in the Present Scenario


  • Neobanks are now operating in a crisis, and the Prudential Regulator will likely make sure that these banks survive the crisis.
  • Digital banks have a great opportunity to capture market share with their value-driven products.
  • These banks largely have millennial customers that are hardest hit by COVID-19 pandemic.

Neobanks have been buzzing over the past few years, but now they sit at a tight position as economic contraction will likely unfold its second-order consequences in the economy. A silver lining is that Neobanks are controlled by the Australian Prudential Regulation Authority (APRA), which means that regulatory oversight is being maintained.

Neobanks operate like traditional banks, but not from branches and face to face interactions with clients. Neobanks operate digitally with high quality mobile applications, providing services like loans, payments and deposits.

APRA also maintains a similar level of regular oversight on neobanks. Customers of these banks must solely rely on digital banking platforms, and there are no branches. These banks are powered by high quality technology features and data analytics, seeking to improve overall customer experience.

Customers of neobanks largely comprise of tech-savvy demographics, which largely include millennials and the younger generation as they are less accustomed to visiting branches and more inclined to use mobile applications.

Opportunities for Neobanks

There is no denying that Neobanks have a big market opportunity. It depends on how these digital banking companies acquire customers and undertake market penetration. They have cost effective business model as there are minimal occupancy costs, enabling banks to offer value driven proposition to the clients.

These banks do not have to bear the cost of employees to run branches. Moreover, they have lower operating costs that could allow to offer higher interest rates on deposits and maybe lower interest on advances and borrowings.

Neobanks have a competitive product base, which would allow to gain market share. Since they are new to the banking world, it allows the them to utilise best in class technologies and disrupt the existing services driven by innovation and technology.

It is also important to note they use big data analytics and artificial intelligence that enables customers to efficiently manage their finances. Royal Commission into Banking has shown flaws in the traditional banking systems, enabling Neobanks to capture additional market share with their value-driven products.

It was noted that Australian banks were charging hefty fees for some of the services, and allegations like fees for no service were charged to many traditional banks. Australian banking market is largely dominated by the big four banks, and there are a lot of opportunities for Neobanks to capture market share.

In the current context, Neobanks could be favoured by customers as they provide contact less services. COVID-19 may also induce these banks to launch services that solve the problems being faced by customers now.

Challenges for Neobanks

Australian banks have much larger capital reserves and investment capabilities to introduce digitally driven services. It means that large Australian banks can also keep up with the growing competition in the banking industry in part due to large investment capabilities.

Since economic contraction is well on the way, these are times when business model and operational capabilities of Neobanks would be tested as bad debts are expected to reach higher levels.

Neobanks may need to raise additional capital to survive this environment. As Neobanks are private companies, they might need to tap private investors unlike Australian banks that can raise capital through markets.

If conditions were to deteriorate further, it is likely that we may see some casualties in the Neobanks sector, owing to funding mix, capital position and credit quality of incumbents. Millennials and younger generations are more susceptible to the economic impact of COVID-19, and Neobanks are largely preferred by this section of the demographics.

Moreover, Neobanks have small product base, less diverse revenue streams and are susceptible to millennial customers who have faced hardships during this pandemic.

Neobanks in Australia

Volt Bank

Volt offers a savings platform for customers. As per its website, the bank is providing 1.65% per annum on deposits of up to $245K. Currently, it is running a savings challenge for its customers, which induces customers to start saving on a recurring basis.


Xinja offers bank account to its customers with a debit card. Customers can set up Apple Pay or Google Pay in their bank accounts, and they can have a maximum balance of $245k. For travelling, it offers zero currency conversion fees. Saver’s money is protected through the Government scheme, which guarantees deposits of up to $250k.

It also offers savings accounts along with banks accounts, paying an interest rate of 1.8% per annum on balances of up to $245k. Savings account come with no minimum deposits. However, the bank has paused the savings account openings at the moment, according to its website.

86 400

Named after seconds in a year, 86 400 offers pay account that has no monthly fees and international card payments fee. Pay account can be integrated with a range of payment service providers, including Apple Pay, Google Pay, Garmin Pay, Samsung Pay.

Its savings account pays interest of up to 1.85% per annum. Deposits are also guaranteed by Government’s deposit scheme for up to $250k. And, the interest rate is variable made up of 0.25% base rate and 1.6% of bonus rate, which is available on deposits of up to $100k. 86 400 also offers home loans.

Judo Bank

Judo is an SME focused bank. As per the details available on the website, the bank has advanced $1 billion to SMEs with a staff size of 178. Presently, its business operates in Sydney, Melbourne and Brisbane and Judo intends to expand its reach.

It offers business loans, line of credit, equipment loan, finance lease, personal term deposits, SMSF term deposits, home loans and business term deposits. Judo is actively leveraging the support schemes launched by Governments and the Reserve Bank of Australia for its SME clients.


Neobanks are now operating amid testing times. It is likely that additional capital would be required to navigate the crisis, and there will be winners and losers.


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