NEOBANK - Volt Bank
NEOBANK – VOLT BANK - January 2019
According to Wikapedia, a NEOBANK is defined as,
‘A type of direct bank that is 100% digital and reaches customers on mobile apps and personal computer platforms only. Neobanks do not operate traditional physical branch networks. Neobanks are technology-driven and may adopt machine learning and artificial intelligence technologies whilst not being constrained by legacy systems of traditional banking competitors.’
In late 2018 the first Neobank has been approved to operate in Australia by the Federal Government, providing an unrestricted banking license, granted by APRA, in Australia - VOLT Bank.
Previously, restrictions pertaining to Neobanks seen limitations on single deposit amounts, restrictions on lending etc, making them just an entity in the commercial world without any true influence or bearing in the banking industry.
So, after the highly publicised, unscrupulous conduct and practices of current banks in Australia, (as seen from the Royal Commission into the Banking Industry) maybe Australia can truly have real competition in this sector.
What does this mean for home buyers and property investors? Generally, three things can be the difference of getting a loan or not, ability to borrow more or pay the loan off sooner.
As Neobank operational costs should be very low, it is uncertain if costs to attract funds for lending will be as effective. Costs can vary according to many factors including the level the credit agencies assess Neobanks. ‘AAA’ ratings are generally the strong point of the main lenders in Australia, will Neobanks enjoy the same ratings?
The main/traditional lenders will outwardly pretend not to be too worried by Neobanks coming into the industry but they will need to be very careful of complacency, as the Royal Commission into the Banking industry hasn’t even handed down its findings as yet. Lenders pay large commissions to brokers and high achieving staff who secure loans for them so, be assured they’ll be worried about losing any business.
The public have a right to greater lending choices, honest and transparent dealings as much of the public hope the banks have significant and positive impacts from the new lenders coming in as competitors in the near future. After all, they have taken advantage of so many individuals and companies over a long period, as revealed by the Royal Commission, who would want to deal with current major lenders anyway, given a choice?
Other issues that may help better competition in the industry should include,
1. Mortgage brokers to get on board when the new lenders offer viable home loan packages and avoid the temptation to offer traditional loans based upon the highest commissions offered to them.
2. The major mortgage valuation companies stop providing mortgage valuations to the major lenders, almost at cost level or below – mortgage valuations from well under $200 in some instances – this is unsustainably low for valuers to provide good quality reporting that is suitable for the bank, the client and the valuer’s employees who are the disadvantaged individuals providing these reports at constantly reduced fees for most of them.
The Federal Government is also about to introduce some legislation that hopefully will allow switching banks much easier than previous times and who knows what other features may come about from the Royal Commission.
Conclusion: At the moment or until we see some real competition into the mortgage market, as astute borrowers should know, check the ‘comparison’ interest rate on any loan product before getting too excited about advertised rate, advertised variable rates can often be very misleading so strongly quiz your mortgage broker/advisor about their recommended mortgage, what alternative loans were considered and why the recommended loan is suitable for your personal needs.