The amount Volt has spent is a fraction of the cost of what Westpac Banking Corp has spent on its mortgage platform, which remains inferior to the Volt product.
Volt was one of the first recipients of a new form of neobanking licence developed by the Australian Prudential Regulation Authority five years ago to encourage increased competition in deposits and lending.
It is returning its $100 million in deposits and winding back its $100 million mortgage book because it could not raise $200 million in fresh capital.
Volt chief executive Steve Weston says the bank needed about $7 in capital for every $100 of mortgage lending. Investors would not stump up the money given the current economic conditions.
Citi entered the retail banking market with a licence issued by former treasurer Paul Keating in 1985. It would seem the only one of the 17 banks that took a licence 35 years ago and is still active in lending and deposits is HSBC.
Cracking the banking oligopoly is hard because they are experts at guarding their back door from intruders.
Volt wanted to do a deal with Afterpay to grow its customer base. But Westpac made this important strategic move first.
Some would argue that Volt failed because of poor execution of a bad strategy. It is hard to be conclusive about this because Volt never actually launched itself into the mortgage market.
When it died, it was moving from a pilot phase to being fully operational, which would have required $1.2 billion in capital over the next 18 months.
Entities like Athena Home Loans and Nano Digital Home Loans have proven it is not necessary to have a banking licence to be successful in the mortgage market.
APRA, which deserves praise for encouraging innovation through neobanks, is monitoring the return of Volt’s funds.
APRA chair Wayne Byres said last year the failure of the first neobank, Xinja, was a “successful failure” because all the deposits were returned.
Weston sums up the banking competition issue with a few comments about deposit rates and the alleged efficiency of Australia’s major banks.
“Australia has a reputation from afar of being a really efficient banking market and often the assessment is made on the high return on equity and the low cost to income ratios the major banks have,” he says.
“But people forget the calculation has income and cost – we are not as efficient as people think because the income is relatively higher thanks to lack of competition.
“I was so looking forward to getting out there and just being fair by offering savings accounts offer an interest rates that are fair and not a rate you just get for four months.
“We heard the banks apologise for what happened in the Royal Commission and that they are now putting customers at the centre of what they do.
“Well, what is it that you don’t want to give a decent rate on a savings accounts? Why is it that a customer walking into you branch to borrow a home loan are paying more than your loyal customers for the same home loan to buy the same property?”
Weston says he is sad about the bank’s demise and the fact 140 people will lose their jobs. He says he will try and sell the Volt technology platform.
