Competition in Australia’s banking sector is set to heat up as a new digital player enters the increasingly cut-throat market.
Virgin Money Australia – owned by the Bank of Queensland – revealed it will launch a new app-based bank by the end of 2020.
The new bank will join a growing number of neobanks’ providing most of the services offered by incumbent institutions through customers’ mobile phones.
Other neobanks include Up Bank, 86 400, and Xinja. All three are digital-only banks customers access through their smart phones.
Australians using these banks have the same legal protections granted to customers of conventional banks.
The company’s chief executive, Greg Boyle, said the decision to create a new bank is “the beginning of an exciting journey”.
“Virgin Money Australia is uniquely positioned to build on our existing relationships with more than 200,000 loyal customers and a home loan portfolio that has quickly grown to more than $3 billion to effectively compete in the Australian market with challenger and incumbent banks alike,” he said.
The new bank is being launched through a partnership between Virgin Money Australia, Deloitte Digital, and Swiss-based banking software firm Temenos AG.
Brad Milliken, digital banking partner at Deloitte, said more than 100 Deloitte staff in teams across Australia and Europe will be working on the new bank.
“This includes the designers and technologists delivering the core banking platform and native mobile apps, the process engineers who are designing and implementing the back office, and our risk and regulatory experts,” he said.
Virgin Money Australia currently offers home loans, superannuation, and insurance to customers.
One in four considering switching
Neobanks are proving popular with customers after the banking royal commission uncovered thousands of examples of misconduct on the part of the country’s major players.
Research from consumer comparison site Mozo found that 75 per cent of Australians already do most of their banking through their phone, regardless of which institution they entrust their money to.
Now one in four Australian bank customers – roughly 4.9 million people – has either already switched to a neobank, or is “seriously considering” moving their money to one of the new digital-only banks.
“The royal commission raised some serious trust issues and many Australians are fed up and ready for more competitive product offerings,” Mozo director Kirsty Lamont said.
“With the majority of people doing their banking online, neobanks and other digital banks are one of the biggest threats to the stranglehold the big four banks have over the nation’s personal finances.
“With lower overheads, smaller staff numbers and a focus on a smooth digital user experience, neobanks are able to react to market changes quickly and offer some of the most competitive rates on the market.”
Up, 86 400 and Xinja all offer savings accounts with rates of 2.25 per cent per annum.
Xinja however placed a pause on would-be customers opening new bank accounts to preserve its 2.25 per cent rate following the RBA’s decision to cut the cash rate to a record low 0.5 per cent.