As trust in Australia’s major banks continues to dwindle, a new generation of digital banks is rising up to challenge the way we manage our money.

Already, Australia’s prudential regulator APRA has approved three ‘neo-banks’ to take money from customers: Volt Bank, Judo Bank and, most recently, 86 400, which just received its licence as an authorised deposit-taking institute (ADI).

A fourth challenger, Xinja, is operating on a restricted licence and expects to be granted full ADI status within weeks.

Each of these banks operates through apps rather than bricks-and-mortar branches, and plans to use innovative tech to make the banking process smoother, more transparent and more customer-centric.

Establishing a new bank is no easy process, but Canstar executive Steve Mickenbecker believes it could introduce much-needed change into an otherwise stagnant industry.

“To build a whole new bank from the ground up is such a big challenge, you sometimes have to question whether the people trying it are completely crazy,” he told The New Daily.

“If they can make it work though, it will be a net positive – and not just because they offer more competition.”

The real benefit, Mr Mickenbecker said, will be that the introduction of new banks offering more competitive products and new ways of working with customers (something all have promised to do) will likely force existing banks to improve their products, services and offerings.

That’s precisely how things have played out elsewhere in the world, according to 86 400 chair Anthony Thomson, the man who launched Metro Bank and Atom Bank in the UK.

“What I know from my experience in the UK is that if you give your customers a better product and a better service and a better experience, then the others are forced to try and follow because that’s what customers want,” he said.

“When customers start coming to you, you attract the attention of the other banks.”

How safe is a neo-bank?

The idea of handing over large sums of money to an app downloaded on to a phone is sure to make many people nervous.

But Xinja founder and chief executive Eric Wilson said there’s little reason for the average consumer to worry.

“As banks, we operate under the jurisdiction of APRA and we have to meet our capital requirements, and deposits are guaranteed in the same way as it would be with Commonwealth Bank for example,” he said.

Mr Mickenbecker agreed.

“People will have to expect it to feel and look different. They won’t have a branch, so they can’t used that good old-fashioned kind of service, but I don’t think it will be unsafe,” he said.

“You wouldn’t put more than the government-guaranteed deposit in there,” Mr Mickenbecker said. “Why tempt fate?

“In terms of borrowing, you have the money, so it’s not quite the same level of risk.

“It could be messy if these companies went to the wall, but if you have strong credit then chances are you’ll be able to have your mortgage successfully bought by someone else, or refinanced.”