Every industry is experiencing disruptors, and the financial services sector is no different. Neo banks are shaking up the way people approach their wealth creation and management strategies, with the potential to capture a significant portion of the Australian home loan market through the introduction of home loan products. This article examines the growing influence of neo banks in the real estate industry and how they are establishing a reputation.
Neo banks are causing a significant disruption in the banking industry in the UK, Europe, and North America, achieving remarkable success. Monzo, a neo bank based in the UK, has recently been valued at AUD $3.6 billion and is opening 55,000 new accounts every week.
Following the Royal Commission, neo start-ups are now challenging Australia’s big four banks. However, can they compete with these established banks in the critical area of real estate and home loans?
WHAT ARE NEO BANKS?
Neo banks are a distinct departure from traditional banks, as they operate solely through digital means and eschew reliance on the conventional technology and infrastructure utilized by established institutions. These banks do not have a physical presence, and their technology is designed from scratch to offer customers an effortless user experience across all web-connected devices.
According to David Hornery, a co-founder of Judo Bank and a finance industry veteran with more than three decades of experience in ANZ, Macquarie Bank, and NAB, neo banks’ technology provides significant advantages. He explains that this technology offers more extensive and more flexible capabilities, which can give neo banks an unfair advantage over traditional banks that have not undergone a comprehensive overhaul of their technology in the last 20 or 30 years.
Neo banks distinguish themselves from traditional banks through their utilization of cutting-edge, purpose-built technology. This innovative approach enables them to conduct all banking transactions through their mobile applications, rendering physical branch visits and queuing obsolete. As a result, neo banks are at the forefront of the shift away from the traditional banking model.
DON’T ALL BANKS HAVE APPS NOW?
Although traditional banks do offer mobile apps, they often rely on outdated legacy technology. In contrast, neo bank apps provide a more seamless experience and superior performance.
Neo bank apps serve as control centers for managing your finances, equipped with advanced features such as spending pattern analysis, peer-to-peer fund transfers, and AI-powered savings goal setting. These apps actively assist you in achieving your financial aspirations by providing alerts when your spending habits could compromise your goals.
Furthermore, neo bank apps provide visibility across multiple accounts held with various financial institutions and can predict upcoming payments automatically. This functionality empowers users to make informed financial decisions and manage their funds effectively.
HOW DO NEO BANK START-UPS LAUNCH?
To avoid banking regulations, many neo banks enter the market with a single product: a prepaid debit card connected to an app. This allows them to bypass the regulatory requirements imposed on traditional banks.
Currently, Australian neo banks not only offer prepaid debit cards but also transaction accounts and savings accounts with competitive interest rates of up to 2.5%. This rate is the highest available in Australia, and accounts can hold multiple currencies and earn interest, making them attractive to forex traders.
WHAT ROLE WILL THEY HAVE IN REAL ESTATE?
As neo banks continue to grow and expand their offerings, they are delving deeper into the realm of personal finance products and services. One of the most significant developments is their increasing integration of home loans and mortgages into their services, with a focus on undercutting traditional banks on interest rates.
This convergence of FinTech and PropTech enables neo banks to customize loan packages in ways that traditional banks cannot or will not. This is largely due to the fact that neo banks operate from a central digital platform and do not have the same overhead and operational costs associated with maintaining physical branches.
Although many people still prefer to meet with a broker to discuss mortgage options, the ability to offer home loans at lower rates without the hassle of negotiation is a clear advantage for neo banks, and is a primary reason why younger home buyers are drawn to them.
WHICH AUSTRALIAN NEO BANKS ARE ENTERING THE HOME LOAN MARKET?
- 86 400
- 86 400, named after the number of seconds in a day, provides home loans that come with competitive rates, digital application processes, smart contracts, faster approvals, and access to broker assistance. In contrast to the big banks, 86 400 emphasizes transparency and even offers a service on their website that shows the true cost of their home loans.
- Athena
- Athena, a fast-expanding FinTech start-up, specializes in mortgage lending services. Leveraging their proprietary technology, they simplify the home loan process and offer borrowers attractive low rates. In addition to this, Athena provides refinancing options for both owner-occupiers and investors.
- Revolut
- Although they do not presently provide home loans, they have acquired an Australian Financial Services (AFS) license and are actively pursuing certification as an authorized deposit-taking institution. These prerequisites are essential for marketing financial products and are compelling evidence of their intention to enter the mortgage industry shortly.
- Volt
- Volt, founded in 2017, made history by becoming the inaugural neo bank to receive an Authorised Deposit Taking Institution (ADI) license. Even though they have not yet introduced a home loan product, they have expressed their goal to revolutionize the mortgage industry by implementing advanced technology and creating a faster, simpler, and more beneficial application process.
- Xinja
- Xinja, a financial institution in Australia, has obtained a complete banking license and an ADI license. They have also been running pilot tests on home loan products for a select group of their customers. The company plans to launch their home loan offerings on a large scale this year with the objective of transforming how Australians perceive and acquire mortgages
FINAL WORD
With the thriving popularity of neo bank home loan products in various real estate markets around the world, it’s highly likely that a multitude of start-ups will emerge to capitalize on the early adoption trend in Australia. At present, the current pool of Australian neo banks is fiercely competing to secure a portion of the profitable mortgage market.
Neo banks are able to offer improved interest rates and reduced fees to investors and buyers, owing to their lack of conventional lender expenses. This is a positive development for the real estate industry.
