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Volt bank aims to disrupt the mortgage industry - and they will!

Volt bank aims to disrupt the mortgage industry - and they will!

Originally posted by Joyce Moullakis @ afr.com 

Volt bank is led by former Barclays and National Australia Bank executive Steve Weston. He co-founded the company, which was authorised as a restricted authorised deposit-taking institution (RADI), with former colleague Luke Bunbury.

Mr Weston said volt would aim to be compelling on price and services, backed by investment in technology, to attract Millennials and other customers. 

"Clearly trust [in the banks] is under enormous pressure and even if the trust isn't broken it's hanging by a thread," he said. "But people are not willing to switch unless they believe the alternative is better for them and is easier to do... we need to be fundamentally different and better."

Mr Weston said he would be disappointed if volt didn't hit the 1 per cent mark within 10 years. That level is about half the share of Macquarie Bank's mortgage market position. 

"We are being very conservative," he added. "Our financial projections over 10 years have us having still less than 1 per cent market share and on that basis we would have a very successful business."

There is a race between local startup firms to get first mover advantage in the digital bank space, which is well established in other markets including Britain. Digital or neobanks, as they are referred to, are typically fintech companies focusing on mobile and digital banking without the costs of traditional branches.

They do confront a string of challenges, however, particularly as the large banks have tried to become more nimble and have upped their game in technology-led banking. NAB subsidiary ubank is digital only, but offers its deposits, term deposits and mortgages under the bank's full banking licence.

'Hard slog' awaits

The first banking products to be established by volt will include saving accounts, transaction accounts, term deposits and foreign exchange, and the company wants to move to a full licence for an authorised deposit taking institution this year.

The idea is to test the systems on staff and their families, pending offering them more broadly if a full licence is granted. 

Once a fully fledged bank volt wants to push into personal loans, mortgages and small business banking. 

But MWE Consulting director and former bank executive Mike Ebstein said it would be a "hard slog" for new entrants in the digital bank market. 

"There is going to be a challenge in establishing a brand, brand confidence and instilling confidence," he said. "What the royal commission has demonstrated though is that banks need to have integrity, confidence and security. 

"Looking out longer term, say 20 years... they should be able to offer a cost advantage and get a considerable slice of the market."

Rival local start-up Xinja has also been pursuing a restricted licence. It counts Jason Bates, who co-founded neobanks Monzo and Starling, in the Britain as an adviser to its board.

Monzo is a smartphone-only challenger bank that was established in 2015. The company now has more than 500,000 customers.

But in this market volt is first out of the blocks. 

Speeding up processes 

Volt wants to draw on facial recognition technology – similar to that used for Australian passports – to make the bank account opening process faster, while also speeding up the process of changing over billers and direct debits. Budgeting and other comparison tools are also planned.

It's a slow grind, though, while volt has a core system provided by software provider Temenos it is still in the tender process for other parts of its business. PwC is advising on the tender. 

To date, volt has raised $15.7 million in equity capital via three funding rounds.

Mr Weston was Barclays' former head of mortgages and managing director of retail lending before returning to Australia in late 2015. He and Mr Bunbury previously worked together at St George Bank and Challenger Financial Services.

Volt has also assembled a board including former Macquarie stalwart Tony Fehon, Magellan Financial director Paul Lewis and ING Australia board director John Masters. 

Monday's development followed the Australian Prudential Regulation Authority releasing an information paper formalising the new RADI framework late last week. It noted the regime was effective immediately.

APRA chairman Wayne Byres labelled the new licence "a tangible milestone" for applicants as it allowed limited banking activities at an earlier stage of the licensing process.

'Healthy sign'

Mr Weston also shrugged off the threat of the big banks getting more involved in digital banking. 

"Changing a major bank is like turning around a flotilla ... the legacy technology makes it really difficult."

Xinja's chief Eric Wilson said the company hoped to follow volt in attaining a restricted licence to extend its products into transaction accounts.

"The fact that the first RADI has been granted and the fact that there is more than one neobank launching in Australia is great news for the industry; it shows that the market is there for something new in banking," he said.

"This is what we witnessed in the UK – a set of neobanks arriving, and it's a healthy sign."

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