Neobank Xinja is shutting up shop

Xinja’s neobank adventure is over after just three years, with the fintech startup announcing it will hand back its banking license.

The company hopes to continue with its US share trading platform, Dabble “should circumstances allow”, but that project has already been delayed indefinitely.

The bank says customers won’t be able to put money in their accounts from December 23 and should take out all funds and stop direct debits by January 6, with all account functions ceasing to operate from January 15, 2021.

All existing empty accounts will automatically close on December 30.

“Xinja has decided to discontinue the Xinja Bank Account, Stash Account and all services relating to these products,” the neobank said in a statement on its website.

Xinja founder and CEO Eric Wilson

“As part of this decision, Xinja will be exiting from banking business and returning its ADI licence (effectively stopping being a bank).”

When founder and CEO Eric Wilson launched the neobank he said: “Xinja wants to break the traditional banking model.” Instead, it appears Xinja has broken itself.

The company says people’s money is “completely safe” and the financial watchdog, the Australian Prudential Regulation Authority (APRA) is closely monitoring Xinja’s return of deposits.

In a statement following the announcement, APRA said Xinja’s decision to exit the banking industry and pursue other business opportunities is a commercial decision for Xinja.

“In addition to the return of deposit process, Xinja’s depositors remain protected by the Financial Claims Scheme,” APRA said.

Xinja stopped paying interest on its much-vaunted Stash accounts on December 14 and has told people to take their money out of the account by December 23.

“We will automatically close your Stash account and transfer the balance to your Xinja Bank Account on Wednesday 23 December if you haven’t already done so,” the company said.

The company blamed the coronavirus pandemic and trouble accessing additional cashflow for its demise.

“After a year marked by COVID 19 and an increasingly difficult capital-raising environment, and following a review of the market in Australia, Xinja has decided to withdraw the bank account and Stash (savings) account and cease being a bank. This was an incredibly hard decision,” a statement attributed to the company, and not founder and CEO Eric Wilson, said.

Funding delays

The company held a $5 million crowdfunding round in March this year, and then announced a $433 million investment over two years from Dubai investment company Emirates’ World Investments (WIG), which was supposed to tip in $160 million immediately, with the remaining A$273 million available to be drawn down in multiple tranches over the next two years, although that deal was delayed by the global pandemic.

Last month Wilson told media his neobank was still working to finalise the deal announced eight months earlier.

Meanwhile, the bank raised another $10 million from investors in September. Xinja, which launched in 2018, received its full banking license in September last year, but never got around to producing income by lending to customers. The closest it came was a pilot program lending to staff.

In March Xinja had $450 million in deposits from 45,000 accounts on its books having launched Stash as as the nation’s best savings account offering 2.25% interest on deposits of up to $245,000.

The inflow of cash was so successful Xinja stopped taking additional deposits eight weeks later. But that interest rate appeared to burn through capital at the bank, and as the RBA cut interest rates to a consecutive record nows, Xinja cut the Stash interest rate four times – most recently last month – and dropped the cap on paying interest to just $50,000.

While it raised $55 million in FY20, the business still burned through $36 million to June 30, leaving it with just $25 million in net assets

Xinja’s auditors PWC warned in the most recent financial statements lodged with the corporate regulator that the business needed additional capital, warning that there was “material uncertainty exists that may cast significant doubt on its ability continue as a going concern” if it was to also meet the prudential requirements of a bank.

Just six weeks ago, Wilson said the bank and WIG had signed an updated funding agreement, but it now seems that cash injection has failed to materialise.

Xinja raised more than $70 million in total, from Australian and offshore investors through Series A, B, C and the first half of Series D. That included two equity crowdfunding rounds in January 2018, followed by a record-breaking crowdfunding round 12 months later.

The likelihood of investors who paid $4.08 a share in the 2019 crowdfunding raise seeing any of their funds returned is now highly doubtful.

Xinja’s statement said: “We hope to refocus the business in other areas such as our US share trading product, Dabble, should circumstances allow.”

In November, the soon-to-be-former neobank said the launch of Dabble, which was originally scheduled August, “has been delayed and exact date of launch is yet to be confirmed”.

The closure of Xinja comes as the Australia banking sector marks 25 years since it first switched on internet banking.

On December 5, 1995, challenger bank Advance (now merged into St George/Westpac) launched internet banking in Australia. Another two-three years passed before the major banks joined the online revolution.

MedAdvisor chairman and former Xero MD Chris Ridd perhaps got to the root of Xinja’s problems when he said on Twitter: “Failure of neobanks is inevitable in my view because breaks the 3-6-3 rule of banking. 3% on deposits, 6% on lending, tee off at 3pm. When the current RBA cash rate is 0.1%, just hand back all funding and go surfing.”