(Adds APRA Deputy Chair comment, background) March 18 (Reuters)...

(Adds APRA Deputy Chair comment, background)

March 18 (Reuters) - Australia's banking regulator said on Thursday it will set stricter requirements for companies seeking banking licenses and increase scrutiny of new entrants in the market.

The Australian Prudential Regulation Authority's (APRA) move highlights concerns around so called "neo-banks", licensed in recent years to improve competition as the "Big Four" lenders dominate nearly 80% of the banking market.

Several such online banking firms, including Xinja, 86 400 and Volt Bank, have already or are due to disappear, some of them before even starting to lend money to people.

APRA said on Thursday it had begun a consultation process on its new approach, which will focus on longer-term sustainability of firms over the short-term aim of getting a licence. (https://bit.ly/2NvpzvK)

"New entrants will start from a stronger capital position and be ready to attract depositors and earn revenue immediately...and should they ultimately not succeed, they will be better placed to exit the industry in an orderly fashion," APRA Deputy Chair John Lonsdale said.

Last month, APRA revoked Xinja's licence, which had been granted in 2019, after the digital lender said it would shut down because it could not find sustainable funding.

Xinja's customers were transferred to National Australia Bank (NAB) , which is also planning to buy out 86 400. Volt Bank, which received its licence in early 2019 and is still in operation, has not yet lent to customers, official data shows.