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Neo banks are live – but do they live up to the hype?

Neo banks are live – but do they live up to the hype?

Australia’s neo banking market is heating up with 86 400 officially opening its doors today, and neo-rival Xinja receiving its full banking licence from APRA yesterday.

These digital start-ups face an uphill battle to wrestle market share from the big four banks. But are they just marketing hype, or are they putting good deals on the table?

RateCity.com.au’s research team unpacks the latest craze in Australian banking:

Who are the neo banks?

Neo bank

Full banking licence?

Current products

Features

Future products

86 400

Granted 18 July 2019

Transaction account, Savings account

Max savings rate of 2.50% if you deposit $1K per month

Home loans

Xinja

Granted 9 September 2019

Early offering of transaction account

Deposit accounts and loans

Judo 

Granted 24 April 2019

Term deposits

2.00% for terms of 2 years and over.

Up

Using Bendigo and Adelaide Bank licence

Transaction account, Savings account

Max savings rate of 2.50% if you make 5 transactions.

Volt

Granted 22 January 2019

None

Deposit accounts and loans

Q&A with RateCity.com.au research director, Sally Tindall

What are neo banks?

Neo banks are digital banks, controlled from your mobile phone typically with a customer service platform within the app. Already at large in the UK, Europe and US, Australia now has three banks offering live products with more to follow.

Most banks already offer a banking app. What’s the difference?

Neo banks say their advantage is that they have no cumbersome legacy technology, and as a result, they can offer faster, smarter, streamlined banking.

The neo banks also differentiate themselves in their marketing. They’re presenting themselves as the Uber of the banking world in the hope this will resonate with customers fed up with the incumbents.

Are they a threat to the big four banks?

The big four banks have deep pockets and they don’t like losing market share. The big banks are already investing heavily in retail banking technology. If the neo banks start gaining traction, the big four are likely to respond in spades to make sure they appeal to tech savvy Australians.

We’re in an age where people are taking to disrupters with huge enthusiasm in other industries. But Australians are notoriously loyal to their bank. More than three-quarters of our savings are with the big four and their subsidiaries. Neo-banks are unlikely to rock this boat any time soon.

Are they competitive?

Neo banks are going to have to be competitive on two fronts: technology and price.

So far, 86 400 and Up are both offering a maximum savings rate of 2.50 per cent, which is the equal highest rate on our database, while Judo Bank is offering term deposits of up to 2.00 per cent which is one of the most competitive rates on the market.

When it comes to transaction accounts, the neo banks will find it near-impossible to compete on cost. Up and 86 400 transaction accounts include some international fees and don’t waive all domestic ATM fees when a growing list of banks do.

High interest savings accounts

Bank

Max savings rate

Conditions

My State

2.50%

Deposit of $20/mth and 5 transactions

BOQ

2.50%

Mthly deposit of $1k

Up

2.50%

5 card transactions /mth

86400

2.50%

Mthly deposit of $1k

Note: excludes kids accounts and introductory rates. 

How neo transaction accounts stack up with market leaders

Bank

Domestic ATM fees

Currency conversion fees

O/S ATM fee
(from your bank)

O/S ATM fee
(from the provider)

ING*

Refunded

None

None

Refunded

Macquarie Bank

Refunded

None

None

Set by ATM provider

ME Bank

Refunded

2.30%

$4

Set by ATM provider

Up

Set by ATM provider

None

$5.00

Set by ATM provider

86 400

Set by ATM provider

1.50%

None

Set by ATM provider

*ING account requires you to deposit $1K and make 5 purchases per mth for the free ATMs. Otherwise ATM and currency conversion fees apply.

Will neo banks live up to the hype?

There’s no question neo banks will help drive innovation in the sector. Neo banks don’t have cumbersome banking systems that have been known to slow the bigger banks down. They also don’t have branches which will help them save on costs.

In order to be successful, neo banks will have to patiently chip away at the market. But the big banks won’t go quietly into the night.

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This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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