So far there have been 5 Neobanks launched in Australia, with 3 having already collapsed. In this article we explore what happened to Volt Bank, why they collapsed, and question whether the other 2 neobanks are next.
Overview:
What is Volt Bank?
Volt Bank is an Australian neobank, which means it operates exclusively online without any physical branch locations. Neobanks are financial institutions that leverage technology to offer banking services, typically with a focus on providing a user-friendly digital experience.
Volt Bank was one of the first neobanks to receive a banking license from the Australian Prudential Regulation Authority (APRA) in 2019. It was founded with the goal of offering a range of banking products and services, such as savings accounts and transaction accounts, through a mobile app or online platform.
Who owns Volt Bank?
Volt Bank is a privately-owned neobank based in Australia. At that time, Volt Bank's ownership included a mix of institutional and private investors. Steve Weston was the founder and CEO up until its demise in 2022.
What happened to Volt Bank?
Volt Bank Ltd, the pioneer as Australia's first exclusively online bank to secure a banking license, announced in 2022 its decision to cease operations. The bank returned deposits and divested its mortgage book due to an inability to raise sufficient funds to sustain its business.
The surge in inflation and interest rates in 2022 presented formidable obstacles for online-only banks, commonly referred to as neobanks in Australia, in competing with established lenders. Consequently, fundraising efforts became significantly more challenging. Despite the heightened demand for home loans triggered by the pandemic and COVID-19 restrictions in Australia, traditional banks engaged in a digital race, streamlining loan approval times and diminishing the competitive edge of neobanks.
This, coupled with very high interest rates offered by Neobanks for savings accounts as a way to draw new customers, led to the banks essentially collapsing under the weight slim profit margins and high competition. Volt now joins the likes oj Xinja and 86400 as failed Neobank ventures.
Why did Volt bank fail?
There are several reasons that Volt Bank went out of business. Mostly, it was due to the difficult nature of entering a market dominated by the BIg 4 banks of Australia.
While customers may express occasional dissatisfaction with their current banks, the allure of a digital competitor boasting a sleek app, groundbreaking technology, or an efficient mortgage approval process, such as one of Volt's key selling points, does not guarantee a switch. Volt CEO Steve Weston claimed in an interview with The Sydney Morning Herald, "We've got technology and capability that simply doesn't exist in Australia today."
Nevertheless, even with high deposit interest rates and other incentives, Volt faced the challenge of swiftly attracting and retaining customers, and such perks alone couldn't ensure account adoption as the primary one. Building trust in banking is a time-consuming process.
While Volt maintained a more transparent approach compared to some counterparts, such as Xinja, avoiding overpromising on fundraising abilities or misleading investors and customers, it encountered a fundamental issue: insufficient capital. Despite navigating through most of the pandemic, securing AU$15 million in a Series E funding round in June 2021, the company faced unfavorable market conditions due to events like Russia's invasion of Ukraine, surging inflation (reaching 5.1% in the first quarter, the highest rate since the early 2000s), and growing investor skepticism toward loss-making fintech companies.
When did Volt bank fail?
Volt Bank ceased operations on 5th July 2022.
Is Volt Bank safe?
Even though Volt Bank collapsed, they returned peoples money, so the people who took a punt on a challenger bank did not lose thier money or suffer as a result.
Did Volt return everyone's money?
Yes, Volt returned all the money it had taken as deposits to its customers. However, investors would have lost money on the failed venture.
Alternatives to Volt Bank
If you would like to try an alternative bank, there are several neobanks and digital banking alternatives that still exist in the financial landscape. These alternatives offer online banking services with various features and benefits. Here are a few alternatives to Volt Bank:
Up Bank: Up is an Australian neobank that provides a range of digital banking services, including savings accounts and transaction accounts. It focuses on a user-friendly app experience and offers features like real-time payments and budgeting tools.
Alex Bank: Alex Bank is touted as Australia's newest bank and has garnered attention for its diverse offerings and customer-centric approach.Initially awarded a restricted authorized deposit-taking institution license in July 2021 by the Australian Prudential Regulation Authority, Alex Bank has demonstrated remarkable progress. The bank reached a significant milestone in December 2022, with the Australian Prudential Regulation Authority officially granting its full authorized deposit-taking license. This announcement further strengthens the institution's standing within the financial sector.
Revolut: Revolut is a UK-based neobank that has expanded its services globally. It offers multi-currency accounts, budgeting tools, cryptocurrency support, and more.
The Demise of Volt Bank: The Bottom Line
Volt Bank's journey sheds light on the challenges that neobanks may face, particularly in securing sufficient capital for sustainable growth. While Volt Bank navigated the complexities of the financial landscape, it ultimately encountered hurdles related to market conditions and investor skepticism. To avoid a similar fate, neobanks can prioritize transparency, ensuring that their promises align with their fundraising capabilities. Moreover, maintaining a robust capital structure, adapting to changing market dynamics, and fostering long-term customer trust are crucial elements for success. Learning from Volt Bank's experiences, neobanks can continuously assess and adjust their strategies to thrive in the evolving financial ecosystem and build a resilient foundation for the future.
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