https://www.afr.

com/chanticleer/volt-bank-dies-with-cutting-edge-tech-20220629-p5axob

Volt Bank dies with cutting-edge tech

Innovation was a key plank of the neobank’s business model. But the best mortgage platform in
Australia is of little use without capital to lend the money.

Jun 29, 2022 – 12.09pm

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The demise of fintech deposit taker Volt Bank so soon after Citi sold its retail banking business to
National Australia Bank says a lot about how hard it is to crack Australia’s banking oligopoly.

It also says a lot about Australia’s challenge in boosting productivity because it is fair to say the big
four banks are highly inefficient. With one exception, they have a track record of wasting money on
technology products.

Volt Bank founder and chief executive Steve Weston says he is incredibly sad about the bank’s
demise. Christopher Perace

As economist and former OECD official Adrian Blundell-Wignall pointed out in a column this week,
the country’s finance sector has experienced a secular decline in productivity since 1985.

Volt, which died on Wednesday, was a technology leader. It spent about $219 million in venture
capital over the past five years building what is arguably the best mortgage lending platform in the
industry.

The platform can issue a mortgage within 15 minutes. This timeframe is something that ANZ Banking
Group is aspiring to have operational in 2023.
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The amount Volt has spent is a fraction of the cost of what Westpac Banking Corp has spent on its
mortgage platform, which remains inferior to the Volt product.

Volt was one of the first recipients of a new form of neobanking licence developed by the Australian
Prudential Regulation Authority five years ago to encourage increased competition in deposits and
lending.

It is returning its $100 million in deposits and winding back its $100 million mortgage book because
it could not raise $200 million in fresh capital.

Volt chief executive Steve Weston says the bank needed about $7 in capital for every $100 of
mortgage lending. Investors would not stump up the money given the current economic conditions.

Citi entered the retail banking market with a licence issued by former treasurer Paul Keating in 1985.
It would seem the only one of the 17 banks that took a licence 35 years ago and is still active in
lending and deposits is HSBC.

Cracking the banking oligopoly is hard because they are experts at guarding their back door from
intruders.

Volt wanted to do a deal with Afterpay to grow its customer base. But Westpac made this important
strategic move first.

Some would argue that Volt failed because of poor execution of a bad strategy. It is hard to be
conclusive about this because Volt never actually launched itself into the mortgage market.

When it died, it was moving from a pilot phase to being fully operational, which would have required
$1.2 billion in capital over the next 18 months.

Entities like Athena Home Loans and Nano Digital Home Loans have proven it is not necessary to
have a banking licence to be successful in the mortgage market.

APRA, which deserves praise for encouraging innovation through neobanks, is monitoring the return
of Volt’s funds.
APRA chair Wayne Byres said last year the failure of the first neobank, Xinja, was a “successful
failure” because all the deposits were returned.

Weston sums up the banking competition issue with a few comments about deposit rates and the
alleged efficiency of Australia’s major banks.

“Australia has a reputation from afar of being a really efficient banking market and often the
assessment is made on the high return on equity and the low cost to income ratios the major banks
have,” he says.

“But people forget the calculation has income and cost - we are not as efficient as people think
because the income is relatively higher thanks to lack of competition.

https://www.afr.com/companies/financial-services/volt-bank-gets-apra-green-light-20190122-
h1abme

Volt Bank gets APRA green light

James EyersSenior Reporter

Updated Jan 22, 2019 – 7.51pm,first published at 11.43am
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Australia's newest bank, Volt, has pledged to provide "a fundamentally
different banking experience" after the prudential regulator awarded it an
unrestricted banking licence, making it the first of a new generation of
purely digital banks to compete with the big four.

Volt Bank, which has a valuation of about $180 million, plans to launch
savings accounts in March, transaction cards in May, personal loans by
mid-year, and home loans towards the end of this year, before expanding
into small business banking in 2020.

"Quality has to trump speed," said co-founder and CEO Steve Weston. "We
have gone through a rigorous process [with APRA] that we are glad is
behind us, and we can now get out of the blocks."
Volt Bank co-founders Steve Weston and Luke Bunbury, outside their
North Sydney office on Tuesday, after APRA announced Volt had secured
an unrestricted licence. Peter Braig

But the big banks and analysts shrugged off the disruptive threat, saying
Volt and the new wave of start-up banks will have to spend millions to lure
away customers who are already receiving the benefits of digital innovation
in the majors.

"The digital offerings of the mainstream banks in the main provide a high
level of functionality, convenience and security, so I am not sure that there
is a yawning gap to be filled," said Mike Ebstein, director of MWE
Consulting.
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"My feeling is that it's going to be quite a challenge to provide a product
proposition that delivers a knock-out blow. In addition, the Australian
market is relatively small and the quite large number of neobanks emerging
is likely to make it difficult for them to achieve the mass required to deliver
an adequate return."

Volt is the first of the so-called "neobanks" to progress through a new start-
up banking licensing regime established by the Australian Prudential
Regulation Authority in the wake of the federal budget in 2017.

The government wants new banks to compete rigorously against the big
four to improve customer experience and Treasurer Josh Frydenberg said
on Tuesday he welcomed APRA's approval of Volt.

"Increasing competition in the banking sector to give consumers more

choice, lower prices and better service is part of the government's plan for a
stronger economy," he said.

RELATED
New giants Afterpay and Revolut are redefining trust for the fintech
generation

Customer deposits up to $250,000 at Volt will be guaranteed by the federal

government, like they are for other banks.

Co-founded by Mr Weston, the former head of mortgages at UK bank

Barclays, and former St George and Challenger executive Luke Bunbury,
Volt was awarded a restricted licence in May last year, allowing it to test its
systems with a small number of customers.

No branches
Volt will roll out its first savings accounts in March via partnerships,
including with Paypal and ASX-listed Collection House.
Collection House invested $8.5 million into Volt on Tuesday for a 4.5 per
cent stake – suggesting Volt's current valuation is around $180 million.
Collection House will work as its collection agency and under a strategic
partnership help with acquiring new customers and analysing data to
assess vulnerable borrowers.

Van Le, co-founder, chief strategy & innovation officer, Xinja, which was
given a restricted licence in December and is hoping for a full licence mid-
year. Peter Braig

Volt also plans to grow via internet marketing to target Millennial

customers to its digital-only offering – it will have no branches. It plans to
offer better interest rates on savings than the majors due to its lower fixed
costs. These are yet to be published. It will also target institutional deposits,
and savings from retirees.

Volt plans to break even three years from now as it targets customers from
the big four. It will need to continue to raise regulatory capital to back loan
growth. Mr Weston said he remained confident that the bank will not be
constrained by the supply of capital.

A source in one of the major banks said the arrival of Volt and other
neobanks will be closely watched but it is expected it will take time – and
plenty of capital – to build their brands.

"It's not going to be easy for them, but we can't ignore them," the banker
said. "One or two might break through, but the question is how much that
will cost."

Steve Weston, CEO of Volt: "Against the backdrop of systematic failures

and breaches of trust by incumbent banks, our mission is simple; to
empower people and make financial services easier." Nick Moir

Volt is one of several start-up banks seeking to take on the majors. Xinja was
given a restricted licence in December and is hoping for a full licence mid-year.
86 400, backed by Cuscal, and Judo Capital, which will focus on business
lending, have applied directly for full, unrestricted licences, which are also
expected to be awarded by APRA this year.
Another new neobank – Up – has already launched. It is using the banking
licence of Bendigo and Adelaide Bank, which will also hold regulatory
capital against Up's lending. Up has already opened 20,000 savings
accounts after launching last year, is understood to be opening 1000 new
accounts a week, and is negotiating various partnerships to help it scale.

It is understood other applicants for new APRA licences include Pelikin,

Wildcard, Douugh, Archa and Bene.

Funding support
Volt said on Tuesday a $35 million Series C raising, first flagged in The
Australian Financial Review's Street Talk column, remains open with around
40 per cent filled. Part of these funds will be regulatory capital and part will
support growth. This comes on top of $32 million already raised in earlier
rounds.

"We are extremely pleased with the level of support we have received from
early-stage investors. Now that we have been granted our full licence, we
will look for further strategic investors to partner with us and support our
future growth," Mr Weston said.

Initial debt funding will come from institutional deposits, including from
superannuation funds, that will be accepted from Tuesday. Once it starts to
make loans, there are plans for a mortgage-backed securities warehouse
facility, which could be supplied by one of the major banks.

Volt is also in discussions with ratings agencies to get a private rating to

provide more funding options from wholesale debt capital markets.

The licence also provides it with access to RBA open market operations to
manage liquidity.

Volt is running banking systems on technology supplied by Temenos and

the Microsoft Azure cloud.

This is the first unrestricted new bank since Tyro was approved to conduct
business banking in August 2015. It is the first new retail licence awarded
since MeBank's in the early 2000s.
Robert Bell, CEO of 86 400, said its full licence application "is progressing
as expected and we look forward to making our own announcement in early
2019".

"While currently fully funded by Cuscal, Australia's leading independent

payments company, we are opening our doors to new investors in 2019," he
said.

UK sets the path

Volt is basing its strategy on Monzo and Revolut and similar neobanks in the UK.
There are now 2.5 million customers using the five largest UK neobanks–-
Monzo, Revolut, Atom, Starling, Tandem – up from 600,000 a year earlier.

Neobanks are gathering momentum in other global markets. In the US,

Chime has opened more than 2 million transaction accounts; in Asia, Kakao
has 6 million sign-ups in less than a year.

One of the biggest UK players, Revolut, has plans to open in Australia this year;
it is understood to be talking to APRA about a licence and potentially
tagging on to the licence of an existing player like Up has done. It said
20,000 potential customers had joined its waiting list as of last October.

Volt's board comprises former Foxtel and News Corp CEO Peter Tonagh,
former Tabcorp CIO Kim Wenn, former Macquarie banker Tony Fehon,
Magellan Financial director Paul Lewis and ING Australia board director
John Masters.

Mr Weston said getting approved by APRA was not an easy process and the
standards applied to assess the fintech start-up were just as rigorous as any
other licensed lender, as they should be.

"Australians can take comfort in the robustness of APRA's licensing process

as it thoroughly examined every aspect of our business to ensure that we
are prepared for the demands and challenges of running a bank," he said.

"It is very, very difficult to get a full banking licence. If you've got six staff
and want to take over the world, we will see people giving up because its not
easy. We won't see an influx of players because it's very, very difficult, and
we are glad that it is," he said.

Mr Weston also said the banking royal commission could help neobanks
win customers from the majors.

"Against the backdrop of systematic failures and breaches of trust by

incumbent banks, our mission is simple; to empower people and make
financial services easier. It's about giving Australians a fundamentally
different banking experience, one that is honest and fair."

"We are building a bank that works tirelessly for our customers and their
money. We can do this by being digital only and smartphone led, focusing
on removing the 'speed bumps' too often experienced by Australians, like
lengthy waiting times and excessive fees."

"We will roll out cutting-edge technologies, embrace data and analytics and
create a highly personalised offer that can be tailored to the specific needs
of individuals."

with Lucas Baird