- COVID-induced crisis has ushered in an era of digitalization across banking, health, property and other industries.
- Neobank players entered the Australian market after a change in legislation in 2018.
- Banking and the fintech industry are looking to add futuristic business modules. The use of automation and AI are among significant trends.
- From personal to home to a business loan, neo banking aims to make it easier for consumers.
- The Big Question is- Is Wisr getting ready to compete with the traditional banking system?
Digitalisation has been under spotlight amidst Global Virus Crisis while businesses and economies struggle for survival. As per a report released by IDC and Backbase in May 2020 highlighted that 63 per cent of the Asia-Pacific customers intend to switch to neobanks and challenger banks by the next five years.
Neobanks or digital app-based banks have emerged much faster in Australia then we ever thought. But they aren’t a new concept. These banks have thrived for long in countries like Germany, Brazil, South Korea, Vietnam and the UK. As banks are highly regulated financial institutions, digital banking arrived at a much later stage in Australia because of the regulations they need to follow. During the 2017 budget, the then-treasurer Scott Morrison proposed for digital banks to apply for the entry in AU’s banking and financial space.
Neobanks operate like any other startup on a cost-efficiency model. Being a digital bank, they limit themselves with office space, staff and branches, making their expenses minimal. Also, by having a small set up, they can reform their systems as and when it is needed.
To help you manage your finances, they use big data to artificial intelligence (AI). These app-based banks provide you services at the touch of your finger, quite literally. But most importantly, Neobanks are nothing like traditional banks.
Wisr, Volt bank, Xinja, 86 400 and Judo bank are some of the existing Neobanks in Australia.
Wisr leading the way
Wisr Limited (ASX:WZR) is Australia’s only ASX listed digital bank. Initially, it was named DirectMoney, but later renamed the brand to Wisr. It is a neo-lender and fintech, offering dedicated consumers services in the Australian finance market. The Company makes it easier to access smarter and fairer credit in personal finance segment. With the operational reliability of a traditional lender, Wisr has developed products, apps and services that help Australians repay their debt faster.
Currently, Shares of Wisr are trading at 21.5 cents (3:52 PM AEST).
In the year 2014, the Company started its operations in Australia, and by March 2015, originated $6m in personal loan. Eaglewood Capital Management and Liberum provided the Company with the seed funding of $500,000. Initially, the financing of loans came from wholesale investment raising.
In May 2015, the platform allowed retail investors to invest with a minimum amount of $50,000. In 2020 Wisr decided to wind up Personal Loan Fund (ARSN 602 325 628), and as they did in June 2020, the capital was returned to the investors.
AOFM Funding Approval
In its latest business update, the Company announced receiving funding approval from the Australian Office of Financial Management. Through the Structured Finance Support Fund, Wisr Warehouse received $30.8m.
This investment will support Wisr Warehouse up to $200 million along with its existing senior and mezzanine financiers.
Wizr Chief Financial Officer, Andrew Goodwin said that the Company appreciated the investment from AOFM into the Wisr Warehouse. This move will support everyday Australians with the company’s mission to deliver reasonably priced credit.
Wisr reported 48% growth in new loan originations in May 2020 compared to April 2020. Notwithstanding, a tighter credit policy is in place from March 2020 in response to COVID-19. The customer support request has also returned to pre-COVID times.
As a prudent response to the COVID-19 disruption, the Company took steps as advised to deliberately moderate loan originations through Q4FY20. The Company delivered $23.1 million new loans in the first two months of Q4FY20. In April 2020, it was $9.3 million and $13.8 million in May (+48% month-on-month).
In the month of May, Wisr saw new records of total weekly settled loan volume. It exceeded $4.0 million for the first time, with the whole Company staff working from home.
The Company has maintained strong support from investors like NAB. The loan book continues to grow with an average credit score of 712, reinforcing the prime nature of the Company’s loan book and customer base.
With any banking system, trust with consumers is the most significant factor in success. Looking at this, Wisr recently implemented enhanced governance measures. It will take into account the Company’s growth and increase in market capitalisation. These measures include the establishment of Risk Committee and a Remuneration and Nomination Committee.
Digital Banks are Dependent on Innovation in Product offering
Neobanks like Wisr cater to the expectations of younger generations and tech-savvy customers, as compared to limited offering in terms of financial apps and product information by the traditional banks. This means neo-lenders with their innovative business model and digital platform have the potential to disturb the conventional players. The innovation to deliver more valuable services is what is expected from the Neobanks.