Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 465

The fall of Volt Bank removes another bank competitor

The board and management of Volt Bank, in their bombshell decision in June 2022 to hand back their banking license, have underscored the fragility in so many fintech business models in Australia. Banking is an incredibly heavy consumer of capital and even in the best run organisations it chews through mountains of pricey executive and consultant time.

From the outside, it seemed Volt - which weathered the storm of Xinja Bank’s chaotic demise in 2020 - was passing milestones and finding its footing, even the outline of a sustainable niche, in the crowded banking market in Australia.

The hard-working Volt board, fed up with the shrinking pools of capital worldwide for the briefly-fashionable fintech and neobank sectors, have resorted to retrieving whatever owner value they can, and carrying on with the remnants of its tech (via Volt Limited) that may challenge banks, without the unaffordable luxury of a banking licence.

Startups who plan to fund and flip

As unbelievable as it sounds, there was a period - let’s say around 2019 - when all manner of schemers and dreamers and their advisers sat around devising banking business models that were never intended to be a proper business. The poorly-founded belief was that, once and if licensed, the plan was to cash in. Just flip the license pronto.

Proponents of this madness, of which there may have been dozens, must have thought the process was mainly a case of ticking APRA boxes, then cutting and pasting the absolute minimum risk, prudential, operational and governance documents to creep over the line.

With no more than vapourware, these schemers intended to rustle up the minimum capital to get the APRA green light. Then, these hopefuls believed, they’d pocket the profits from the sale of their non-existent bank via a trade sale.

Only equally desperate and even less well-capitalised fintechs could have been in the target market. Of course, none of these operators got anywhere near the starting line.

Judo Bank is kicking on, even flourishing. Two licenced RADIs doing not much are Alex Bank and Avenue Bank. Alex is up and running, or dawdling. The Alex balance sheet is constrained by the low ball cap on deposits. It has until July next year to progress to a full licence. Avenue, 20% owned by Liberty Financial, has no deposits, no loans and no known plans to make its debut.

Volt was different

Volt’s management and board were never part of the ill-informed antics. A defining difference at Volt was the depth and experience among the top management team and on the board. 

Only half a dozen or so neobanks ever secured a license from APRA during this strange era. And there won’t be any more. Xinja self-destructed 18 months ago. Soon after Xinja tanked, Cuscal – the owner of 86 400 – astounded the industry with the well-considered (and highly profitable) sale of the bank to NAB, in January 2021.

Now Volt, less dramatically, is staging a strategic withdrawal.

Non-bank mortgage funder Resimac appears to be the buyer of the mortgage book of Volt Bank, which is exiting the industry. In a media release, Volt said it had "executed a transaction to sell its mortgage portfolio," but did not identify the buyer. Resimac declined to comment on a request to confirm or clarify its dealings with Volt. APRA data shows Volt had $80 million in housing loans at the end of April.

Through Volt Limited, which will continue trading even as the bank is wound up, Volt retains ownership of the intellectual property at the heart of the Australian Mortgage Management business, which it acquired a year ago.

Volt Bank clients - fintechs and others – are scrambling to identify and engage with alternative suppliers of a banking-as-a-service offering, and minimise damage to their own businesses. Volt devastated their BaaS clients by withdrawing their increasingly in-demand BaaS suite – including deposit products – effective immediately. Volt had five BaaS clients in production and another half dozen ready to on-board. The number of prospects in the pipeline is unknown, but likely to be plenty.

For clients such as money management platform Parpera, which was reselling deposit and card payments product to sole traders and very small businesses, the sudden cancellation is compromising for a fintech emerging from its start-up phase. Parpera ceased onboarding new members immediately and providing its services to members by 5 July 2022.

Who might the likes of Parpera go to? There is little depth in the banking-as-a-service domain in Australia. BAAS is, nominally, a (recent) strength of Westpac, but there are doubts the bank is eager to serve small fry and its systems may be too clunky (the bank counts heavyweights such as Afterpay and SocietyOne as clients). CommBank? Maybe, but fintechs by and large plan to profit from attacking the market share of the biggest banks.

The drastically short notice imposed on clients by Volt had some asking: why not a few weeks longer? The reason may well be that this is a function of APRA’s inflexible requirements, rather than any resolve of the Volt board for a hard stop. 

 

Ian Rogers is a seasoned industry commentator with more than 30 years’ experience and Founder of Banking Day. This article is general information.

 

RELATED ARTICLES

What's next for bank hybrids?

Reputations hit hard at the Royal Commission

Bank limitations create opportunities for non-bank lenders

banner

Most viewed in recent weeks

Five months on from cancer diagnosis

Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

Are term deposits attractive right now?

If you’re like me, you may have put money into term deposits over the past year and it’s time to decide whether to roll them over or look elsewhere. Here are the pros and cons of cash versus other assets right now.

The public servants demanding $3m super tax exemption

The $3 million super tax will capture retired, and soon to retire, public servants and politicians who are members of defined benefit superannuation schemes. Lobbying efforts for exemptions to the tax are intensifying.

20 US stocks to buy and hold forever

Recently, I compiled a list of ASX stocks that you could buy and hold forever. Here’s a follow-up list of US stocks that you could own indefinitely, including well-known names like Microsoft, as well as lesser-known gems.

Latest Updates

Shares

Are term deposits attractive right now?

If you’re like me, you may have put money into term deposits over the past year and it’s time to decide whether to roll them over or look elsewhere. Here are the pros and cons of cash versus other assets right now.

Retirement

How retiree spending plummets as we age

There's been little debate on how spending changes as people progress through retirement. Yet, it's a critical issue as it can have a significant impact on the level of savings required at the point of retirement.

Estate planning made simple, Part I

Every year, millions of dollars are spent on legal fees, and thousands of hours are wasted on family disputes - all because of poor estate planning. Here's a guide to a key part of estate planning - making an effective will.

Investment strategies

Markets are about to get a whole lot harder

As the world shifts away from one of artificially suppressed interest rates and cheap manufacturing, investors will need to carefully consider how companies are positioned to navigate the new higher-cost paradigm.

Investment strategies

Why commodities deserve a place in portfolios

2024 looks set to be another year of reflation and geopolitical uncertainty — with the latter significantly raising the tail risk of a return to problematic inflation. That’s a supportive backdrop for commodities.

Property

What’s next for Australian commercial real estate?

It's no secret that Australian commercial property has endured its most challenging period since the GFC. Yet, there are encouraging signs that the worst may be over and industry returns should improve in the medium term.

Shares

Board games: two hidden risks for stock pickers?

Allan Gray's Simon Mawhinney thinks two groups with huge influence over our public companies often fall short of helping shareholders. In this interview, Mawhinney also talks boards, takeovers, and active investing.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.