Australians will soon have more options for their banking services with the Australian Prudential Review Authority issuing the first new banking licence since 2019 before the regulator hiatus through the pandemic.
The newest license, granted to Alex Bank last week, signals a win for Australians who had tired of the Big Four’s power on the market which contributed to the Royal Commission into Banking and subsequent Hayne Report.
At a time when digital payments have thrived as the preferred medium of payment around the world, digital banking from more technologically advanced providers have been a boon for Australians seeking more efficient services and more choices. Without the costly expense of retail shopfronts like those of the Big Four, neobanks have been able to pass savings onto customers and have been hugely popular.
Just last month, Judo Bank completed a $124 million equity raising which gave the neobank a $1.9 billion valuation. Since launching in 2016, Judo has been popular amongst small businesses seeking better interest rates than those offered by the traditional banks and have contributed to the $3.3 billion loan book housed by Judo.
With such strong demand for neobanking services when public trust around traditional banking is still in the mend, Judo have indicated a public listing on the ASX could be coming.
At present, we only know of one other ASX-listed company with a digital banking license under review being Novatti Group (ASX: NOV) who also recently completed a quickfire $40m capital raise last month. Novatti is very well capitalised to take advantage of multiple market opportunities now.
Funds were partially raised to secure a 19.9% stake in accounting software company Reckon (ASX: RKN) with the remaining $18m for growth initiatives, of which their neobank would likely be included. Given the majority of Reckon customers are small businesses, we see that the synergies between their customers and Novatti’s potential lending services could open very significant revenue opportunities for the two companies.
Novatti is likely to have been granted their license earlier having first submitted their application in November 2019 however, the regulator paused applications when the pandemic started.
While awaiting the resumption of new banking licenses being issued, Novatti had a very busy 2020 by beefing up their digital payment services. This included key partnerships signed with Visa, Apple, Google and Samsung to integrate their mobile payments with Novatti’s regulatory technology.
Emerging as leaders in the mobile payments space, Novatti was selected by Afterpay (ASX: APT) to manage payments for their New Zealand launch in April.
Separate from the $40m raised by Novatti last month, the fintech company also received $12m in funding commitments as part of an investment round led by BC Investment Group in May, specifically towards Novatti’s banking business. With BC Invest boasting a $1.1 billion loan book of mortgages from more than 3,800 customers, a banking licence could be the last piece of the puzzle for Novatti to bring all of their partners under one roof.
*Owners of this website are shareholders in a company mentioned in this article and have been engaged by them to assist in investor communications
Jarryd is an experienced Investment Adviser at Emerald Financial Group
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