The news that Volt Bank, the last of the three genuine Australian neobanks to receive a banking license, is about to close, caused a lot of wave through the banking and fintech community this week.
It is the second neobank to return deposits and surrender its banking license after Xinja’s notable collapse, as well as NAB’s acquisition of 86 400 last year. Judo Bank is also licensed but well funded and focused exclusively on the SME market.
While Volt stops, citing its inability to raise funding in an undoubtedly challenging market, it’s worth noting that the $100 million in deposits are being returned to consumers, leading commentators to call it a “successful failure.”
In the wake of the news, there has been much industry speculation about Australia’s banking landscape, speculation and the continued viability of neobanks in Australia.
There is also positive sentiment with offers to hire staff and fintechs that provide a home for Volt’s customers, highlighting an engaged and active fintech community and a nod to the positive things Volt has managed to achieve.
When a fintech fails
When a fintech, or a startup, dies, a little bit of the soul of the founders and the team also dies. That’s just a fact. It takes a lot of courage to start a fintech company or to take the plunge and join a company. A lot is at stake.
Founded in 2017, this year 140 people joined Volt every day to do things that mattered and contribute to something they believed in.
This is the backbone of a Fintech – they are built by passionate and dedicated people. It must hurt not to have that ‘thing’ anymore. Steve Weston is an impressive operator and I have no doubt that those 140 people learned a lot during their time at Volt.
Again, it is a nod to the successful management and regulation of the two neobanks that have closed that consumers have not suffered any ill effects.
Trust is a huge problem in building innovation into the financial system and these successful shutdowns are an indicator of protection in Australia.
This is not a negative indicator for fintech
This is not a loss to the prospects of the fintech industry, as Volt has moved it forward and the challenges are unique. From a broader perspective, while we have similarities with other jurisdictions, we also cannot compare Australia to any other fintech market in the world.
This applies to fintech as a whole. A classic example is payments, where my company works, in Australia we take tap and go for granted, in the US, which in some ways exceeds our innovation, they are still looking for innovations around checks.
So as for challenger banks, comparing their success or failures here compared to other markets only holds water at a very surface level, but breaks down on a deeper comparison.
But what does this mean for our ecosystem?
Volt leaves the ecosystem with a legacy of what it looks like to do something really well from a technology perspective.
Volt ran a pivot, keeping ARPRA informed and updated – this is a give-and-take process that would no doubt have helped ARPRA understand their role in supporting innovation in perhaps the toughest industry.
Volt taught us that when there is a regulatory change (as happened with banking regulation before Volt was launched), opportunities are created and people will do something about it.
Again, these are not just small wins for fintech. They have set the necessary precedent within government, industry and consumers.
Overall, Volt taught us that regardless of the talent of the team, the vision of the founders, the alignment of the regulators or the strength of the mission, funding matters and we really need to get it right in Australia.
Financing, especially on the scale of Volt or Xinja which stopped for the same reason, will be one of the biggest challenges of the coming years.
As Steve Weston said this week:
“If you look at Volt, Xinja, 86 400, while customers queued and liked to use [them], we all struggled to raise capital. And as a bank you need much more capital than normal companies. And that was really the challenge we couldn’t overcome.”
When all is said and done, Volt and the team – I’m sorry to see you go, but the ecosystem is stronger for the things you’ve done.
times to come
Finally, Fintech and the broader technology sector will struggle.
The coming months will be tough though, fintechs and their teams are wired for ‘hard stuff’. Nobody works at or at a fintech company because it is the easy choice.
Fintechs will weather the storm and come out stronger on the other side.
Resilience, ingenuity and a clear sense of determination and purpose will endure businesses and people. We may see some changes and some casualties, but we will all survive, learn and live by fintech some other day.