Interesting to know the following:
- A full license can be achieved in 6 month time frame (i think Peter said recently said they want to achieve well within 12 months)
- Loan book target in +12 months post full license will be $500m (showing just how quickly it ramps up)
- Series C funding round in Aug/Sept 2022 valued Alex at $120m (pre full licence)
Currently IBOA is valued at $0 in Nov Market CapAPRA grants Alex Bank full deposit-taking licence, amid turbulent period for digital banks
The prudential regulator has granted digital player Alex Bank a fully-fledged banking licence, facilitating a push into term deposits and business lending as it targets a $500m loan book and similar-sized deposit portfolio by 2023’s end.
The Australian Prudential Regulation Authority granted Alex Bank the licence on Wednesday, allowing it to operate as an authorised deposit-taking institution without restrictions under the Banking Act 1959.
Alex Bank had been operating under a restricted licence, which allows only a small amount of deposits, as it worked through APRA’s regulatory process to become a fully-operational bank. The restricted licence came into effect in July last year.
But Alex Bank’s move to full licence status follows a turbulent period for digital players in the local market in the past two years.
Volt began returning deposits to 5730 customers in June after announcing it would cease being a bank. Volt’s decision came amid a tough climate for raising capital and followed the demise of digital bank Xinja, in part because it started accepting deposits well before loans such as mortgages.
Other digital players 86 400 and Up have been acquired by National Australia Bank, and Bendigo and Adelaide Bank respectively.
Alex Bank chief executive Simon Beitz, formerly of Suncorp, said the company had a different strategy to other digital banks and had been writing personal loans for two years, making its model more viable.
“We think that our strategy is one that makes sense. From a bank point of view you need to lend money to make money,” he added. “We’ve removed fees and points of friction for customers.”
The APRA licence allows the bank to expand into new products including term deposits, and it will also push into lending for micro and small businesses next year as it considers a move into mortgages. Alex Bank currently has more than 2500 customer accounts, and focuses on personal loans and savings accounts.
“We see there’s a real opportunity in the small business sector where there’s over two million mum and dad businesses that are not necessarily seeing the support they need, and there are opportunities for Alex Bank,” Mr Beitz said, noting the mortgage market was very competitive and required scale.
A Covid-19 freeze on restricted and new APRA licences slowed Alex Bank’s progress in becoming a bank, but Mr Beitz noted the company’s plans were back on track.
“It (the banking licence) represents the culmination of several years of hard work and enables Alex Bank to acceptdeposits and scale our business leveraging our investment in new generation technology that enables fast and efficient straight-through processing,” he said.
“This is only the beginning for Alex Bank. During the past three financial years we have grown our revenue by a compounding annual growth rate of 717 per cent.”
Investors in the fintech sector are, though, increasingly looking for emerging companies to have a clear pathway to profitability.
Asked about Alex Bank’s path to profits, Mr Beitz said that was in sight if the company achieved a $500m loan book and similar-sized deposit portfolio by this time in 2023.
“If we hit those numbers we think we’ll start to see month-on-month profitability toward this time next year,” he added.
That suggests Alex Bank will be entirely profitable in fiscal 2024.
The company had to navigate a tougher process to achieve its APRA licence, following the difficulties encountered by other digital banks.
In 2021, APRA revised its approach to licensing banks including “stronger requirements” and closer supervision of new entrants.
Under that approach, new players had to have “more advanced” contingency plans to respond to financial stress.
Banks with APRA licences are covered by the government’s deposit guarantee for deposits up to $250,000.
Alex Bank also highlighted that it was developing its broker partnerships during this year, and had access to “the majority of brokers” in the market. It has agreements with aggregator groups including AFG and Loan Market.
Novatti - The $1 party, page-4029
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Alex Bank chief executive Simon Beitz said the APRA licence would help the bank expand into new products.
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