Australian neobank Xinja has kicked off its second equity crowdfunding campaign, smashing its minimum subscription of $500,000 within just nine hours.
Xinja’s first crowdfunding campaign in January last year — also the first campaign in Australia — raised $500,000 in 18 hours, and went on to raise a total of $2.4 million.
Since then, the neobank has launched its prepaid card product and signed 23,000 customers up to the platform.
In December 2018, it was authorised as a restricted authorised deposit-taking institution by the Australian Prudential Regulation Authority (APRA), and it’s now running family-and-friends alpha testing for its mortgage products.
This latest campaign has a legal upper limit of $4.86 million, and at the time of publishing, has more than 38 days remaining.
Xinja may not have its full banking licence yet, but founder Eric Wilson tells StartupSmart take-up has already been faster than expected. There are now about 7,500 cards out in the market, being used in an average of 15 countries across the world every day, he says.
The latest crowdfunding campaign is part of the neobank’s third capital raise. The startup has previously raised more than $13 million in investment from private investors, high-net-worth individuals and family offices.
However, for Wilson, it was important to continue down the equity crowdfunding route — even though it’s “not the easiest way in the world to make money”.
Launching a campaign early on meant Xinja had to become an unlisted public company, which comes with its own set of onerous obligations.
However, Wilson wanted people who were early adopters, or merely supporters of changing the banking space in Australia, to be able to make a difference, and eventually some profit out of it.
Right from the start, “we wanted the people who use it to own it”, he says.
“It was important the people we were building it for had a chance to own some of it,” he adds.
Equally, having customers as shareholders piles on the pressure to succeed, “but in a good way”, Wilson says.
“You get a very direct line of feedback,” he explains.
“Because a lot of [customers] are investors and they’re so passionate about it, they will pick up the phone and tell us if they love something or if they hate something,” he says.
“It’s a super competitive advantage for us.”
While Xinja hasn’t gone down a VC funding route yet, Wilson says its not entirely off the cards in the future.
As the startup begins to scale it’s likely to need larger amounts of capital, and the team will not rule out VC or institutional investors, as long as they’re not connected to the Australian financial system in any way.
“It’s overwhelmingly important to me that we don’t in any way compromise our independence,” Wilson says.
On the cusp of a revolution
Receiving its restricted banking licence is a strong step forwards for Xinja, and a positive sign for investors. According to Wilson, the restricted licence is seldom granted without the expectation a bank will apply for a full licence shortly afterwards.
It means deposits are now covered by the national bank guarantee, allows Xinja to take deposits, and “proves to the regulator that we are ready to go and be a big grown-up bank”, Wilson says.
“It’s an important stepping stone,” he adds.
However, while neobanks have been a reality in the US and the UK for some time already — Jason Bates, co-founder of UK neobank success story Monzo, now sits on the Xinja board — Australia has been somewhat slow to take up the challenge.
Part of this is to do with prohibitive legislation that was only changed in May last year. Xinja was up and running before the change, and so was able to move quickly, Wilson says.
But even so, there are still only two “genuine independent neobanks” — that is, challenger banks with no connections to existing institutions — in Australia: Volt and Xinja.
Wilson expects the Australian market to go the same way as the UK, with four or five additional neobanks entering the market in quick succession.
“I would be very surprised if we got through 2019 without another couple coming on,” he says.
And Xinja would welcome the competition, he adds.
The idea behind the neobank was to revolutionise the Australian banking industry, “and the best way to do that is to have a bucketload of competition”, Wilson says.
In the current market, more neobanks won’t necessarily create competition for Xinja. Rather, they will create even more competition for the big four, Wilson says.
“We can’t steal customers off of Volt because they don’t have any … what we’re after is the incumbents,” he says.
Finally, more neobanks will only improve consumer knowledge of the concept as a whole, making them appear less risky, and helping consumers to understand and trust a new form of financial institution.
“Once you get a critical mass of neobanks, the customer base for all of them starts to increase,” Wilson says.