Xinja exits the neobank scene: What happened, and what does it mean for the competition?

Xinja

Xinja founder and chief Eric Wilson. Source: supplied.

Xinja has made a shock exit from the Australian neobank scene, handing back its Authorised Deposit-taking Institution (ADI) licence and closing customer accounts, while naming COVID-19 as a major factor.

Following what it called “a review of the market”, Xinja announced it will withdraw its bank account and Stash savings account, and stop operating as a bank.

Instead, it will “refocus the business”, in other areas, including its US share trading product Dabble.

Xinja largely blames the failure on the COVID-19 pandemic, and the challenge of raising funds for a particularly capital-intensive business in this environment.

However, Rebecca Schot-Guppy, chief executive of fintech Australia, tells SmartCompany this isn’t necessarily a reflection of the state of the neobank sector in Australia, which remains “strong”.

The likes of 86 400, Up and European player Revolut are continuing to bring new products to the market, she notes, and large players pulling out is also not unheard of in more mature markets.

“When Loot pulled out of banking in the UK, it served to strengthen the rest of its neo-banking sector,” she explains.

“We expect to see something similar in Australia.”

At the time of writing, Xinja has not responded to a request for additional commentary on what happened here.

However, for Schot-Guppy, this just goes to show why government support for fintech is so essential.

“Xinja was one of the few fintechs unable to attain support, and we believe that contributed to this outcome,” she says.

“An incredibly tough call”

In an email to customers on Wednesday morning, Xinja co-founder and chief Eric Wilson said closing the banking operations of the business was “an incredibly tough call”.

“All of us here wanted to be able to offer you a new, amazing way to bank,” he wrote.

“But after COVID-19 and an increasingly difficult capital-raising environment affecting who is willing to invest in a new bank, we are convinced the best thing for Xinja is to pivot away from being a bank.”

Xinja is now returning all deposits to its customers, giving them the required seven-day notice period before closing their Stash savings accounts, which are no longer earning any interest.

Funds must be transferred out of the Stash accounts by Wednesday, December 23. Any funds remaining in accounts by that date will be returned automatically.

Wilson also asked customers to start transferring their funds out of their transaction accounts. After December 29, accounts will be closed automatically, as long as they have no cash left in them.

The Australian Prudential Regulation Authority (APRA) said in a statement it is monitoring the return of deposits, to ensure funds are returned “in an orderly and timely manner”.

A challenging 2020

Founded in 2017, Xinja secured its full ADI banking licence less than 18 months ago and launched its Stash saving account in January this year, with $100 million in deposits flowing into the accounts within the first three weeks.

In March, Xinja announced Dubai-based World Investments was investing $433 million into the business over 24 months.

At the time, $160 million was made available immediately, and $273 million was expected to be drawn down in multiple tranches over the space of two years as the bank grew.

The outbreak of COVID-19 in Australia coincided with the end of Xinja’s first major acquisition push, so Wilson was expecting the creation of new accounts to slow. And they did, but no more than anticipated.

At the same time, however, Xinja had to stop onboarding new Stash customers, and was forced to cut interest rates from 2.25% to 1.8%, bringing the account in line with competitors.

Later, the rate dropped again to 1.65%, and then to 1.5%, and Xinja lowered the cap on the interest-earning portion of savings, from $150,000 to $50,000.

All of this brought the neobank in line with other competitors, with one Reddit user saying rates had dropped to “why bother?” levels.

“The writing is on the wall as far as the trend goes,” another said.

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