Analyst uses demise of Xinja as warning

by Madison Utley25 Jan 2021

An analyst has cautioned that while Australia has the potential to cultivate a "dynamic and successful neobank sector", there are several factors making it difficult to achieve within the country – pointing at the way Xinja was recently forced out of the banking space as an example of what will continue to happen unless changes are made towards a more sustainable future.

As GlobalData banking analyst Katherine Long Long sees it, the main barriers for Australian challenger banks to overcome include a cautious regulatory environment, a general public which has not proven to be enthusiastic about neobanks and a market which is difficult to break into as a "pure challenger". 

“It is easy to see in hindsight why Xinja failed in banking as any bank offering above-market deposit rates while not being able to deploy them back as loans was going to have problems," Long added.

"However, these are just symptoms of something bigger. Research from GlobalData’s report, ‘Beyond the Hype: Insight into Digital Challenger’, has shown that behind all of these problems was an underlying cause: the lack of focus on essential revenue-generating products, and the reluctance to incentivize customers to pursue mutually beneficial outcomes.

“Even recently, Xinja still had big plans for the kind of features it wanted to offer, including using data to personalize the banking experience. However, as interesting as a personalized feature sounds, it is a ‘nice to have’ - and not essential. Xinja did not prioritize early on, trying to create a sustainable future with revenue-generating products, and it was too late when it finally dawned that it needed personal loans and wealth services instead. However, Xinja is not the only bank to make this mistake, with several challengers also currently in this situation," she explained. 

Long named 86 400 as having done the best to overcome the hurdles in the neobank space to date; however, she emphasised, "they have by no means secured a long-term future".