Xinja emerges as potential startup bank after federal budget reforms

Australian Federal Treasurer Scott Morrison stands outside Australia's Parliament House in Canberra May 4, 2016 following the announcement Australia's 2016-17 Federal Budget. — Australian Federal Treasurer Scott Morrison stands outside Australia's Parliament House in Canberra May 4, 2016. Reuters/Sam Mooy

In the wake of the government's announcement about reforms in the federal budget to facilitate the entry of startup banks in Australia, Xinja has reportedly completed a seed raising of up to $3 million and is reaching out to regulators in relation to gaining a restricted banking licence. It is attempting to build a new bank for digital natives from the mobile phone.

Eric Wilson, Xinja's founder and chief executive, confirmed that they are currently building a full-service retail banking into mobile phones. The former head of National Australia Bank's public trustee business and head of NAB's Future of Financial Advice implementation program formed a team that includes three former Macquarie bankers.

Lindley Edwards, who worked for nine years in Macquarie's corporate bank, and Craig Swanger, Macquarie's former chief investment officer, were picked to be among the board of directors. Verity Ford is tasked to be the startup’s treasurer.

Co-founder of Starling and Monzo, two startup banks in the United Kingdom, Jason Bates is also part of the Xinja board. The Australian Financial Review notes that Monzo currently has 175,000 customers. Wilson and Bates reportedly worked together at professional services firm Accenture.

Xinja is going to target customers in the 25 to 45 demographic. The startup will start by issuing 5,000 technologically savvy customers a pre-paid debit card that does not require a banking licence. Once licensing is approved, it would move to deposits then mortgages.

Fortuitous timing

Wilson expressed his views about the recently announced budget policies, saying the timing has been “fortuitous.” After the announcement of budget 2017, the Australian Prudential Regulation Authority announced its plans to create a "new centralised unit tasked with ensuring APRA's licensing activities are suited to the increasingly diverse range of applicants that wish to engage with APRA.”

In the past ten years, only one bank, Tyro, was given a licence. Moreover, budget 2017 also endorsed recommendations by the committee chaired by Liberal MP David Coleman to eliminate the 15 percent ownership cap for substantial shareholders in banks as well as the requirement that banks must have at least $50 million of capital before they could be labelled as a “bank.”

For Wilson, the removal of the 15 percent cap "is a huge step forward for startups.” While he was confident that Xinja would be able to gain a license under the old regime, he recognised that the new measures would help. He told AFR that he hopes the company gets a restricted licence in the next 12 months.

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