The news that Volt Bank, the last of the three true Australian neobanks to secure a banking licence, is shutting down sent waves through the banking and fintech community this week.
It is the second neobank to return deposits and surrender its banking license after the high profile collapse of Xinja, as well as the acquisition of 86 400 by NAB last year. Judo Bank also holds a licence but is well-funded and focused solely on the SME market.
As Volt shuts, citing inability to raise funding in an undoubtedly challenging market, it is worth noting that the $100 million in deposits are being returned to consumers, allowing commentators to dub it a “successful failure”.
In the wake of the news, there has been much speculation within the industry about the banking landscape in Australia, speculation and the continued viability of neobanks in Australia.
There are also positive sentiments with offers to hire staff and fintechs offering a home to Volt’s clients highlighting an engaged and active fintech community and a nod to the positives that Volt were able to achieve.
When a fintech fails
When a fintech, or any startup, dies so does a little bit of the soul of the founders and the team. That’s just a fact. It takes a lot of heart to start a fintech company or to take the leap and join a one. A lot is put on the line.
Founded in 2017, by this year 140 people came to work everyday at Volt 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 to have that ‘thing’ not exist anymore. Steve Weston is an impressive operator and I have no doubt that those 140 people have learned a great deal 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 were not adversely impacted.
Trust is a huge issue when building innovation into the financial system and these successful closures are an indicator of the protections in place in Australia.
This is not a negative indicator for fintech
This isn’t a loss for the outlook of the fintech industry because Volt has pushed it forward and its challenges are unique. From a broader perspective, while we do have similarities with other jurisdictions, we also can’t compare Australia with any other fintech market in the world.
This goes for fintech as a whole. A classic example is in payments, where my company works, in Australia we take tap and go for granted, in the US, which in some ways outpaces our innovation, they are still looking for innovations around cheques.
So regarding challenger banks, comparing their success or failures here compared to other markets only holds water at a very surface level but falls apart with 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 really well from a technology perspective.
Volt executed a pivot and kept ARPRA informed and updated – this is a give and take process that undoubtedly would have helped ARPRA understand their role in supporting innovation in arguably its hardest vertical.
Volt taught us that when a change to regulation happens (as did for bank regulation back before Volt launched), opportunity is created and people will do something about it.
Again, these are not just small wins for fintech. They set needed precedent within government, industry and consumers.
Overall Volt taught us that no matter 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 that right in Australia.
Funding, especially at the scale of Volt or Xinja which folded for the same reason is going to be one of the biggest challenges of the coming years.
As Steve Weston said this week:
“If you look at Volt, Xinja, 86 400, whilst customers queued up and were happy to use [them], all of us struggled to raise capital. And being a bank, you need a lot more capital than normal businesses. And that really was the challenge that we were unable to overcome.”
When all is said and done, Volt and the team – I am sorry to see you go but the ecosystem is stronger for the things you did.
Times to come
On a final note, Fintech and the wider tech sector are going to face some tougher times.
The coming months will be hard, however, fintechs and their teams are wired for ‘hard things’. No-one works on or at a fintech company because it’s the easy choice.
Fintechs will weather the storm and will come out the other side stronger for it.
Resilience, resourcefulness and a clear sense of determination and purpose will see companies and people through. We may see some changes and some casualties but we all will survive, learn and live to fintech another day.