Australian banks face heated competition as first digital-only player enters fray

The country’s regulator has granted fintech bank Volt license to operate.

The entry of digital-only Volt bank into Australia’s financial services scene is poised to heap pressure on smaller banking players, according to Moody’s Investors Service, as new tech entrants are increasingly contesting the dominance of traditional lenders in the provision of banking services in the country.

The Australian Prudential Regulation Authority approved a restricted banking licence to fintech bank Volt Bank Limited which will leverage technology and data as the platform for its banking services.

Community banks, building societies, and credit unions remain highly vulnerable to the new entrant as limited technological expertise and low profitability levels curb tech R&D budgets that can possibly match Volt’s capability, said Moody's vice president and senior credit officer Frank Mirenzi.

However, the same cannot be said for Australia’s largest lenders as they can stand their ground against the new player.

"Australia's four largest retail and commercial banks are well placed to meet the challenges of digital disruption, given their sizeable budgets for technological innovation and digital transformation," Mirenzi added.

The license by the country’s regulator which the ground rules for volt’s operations also caps volt’s ability to raise deposits and build assets meaning it can only accumulate total deposits of A$2m, and the aggregate balance of individual account holders must not exceed A$250,000. The bank's total assets will also be limited to A$100m.

This represents a measly 0.002% of banking system assets as of end-December.

“Nevertheless, the granting of a banking licence, under the regulator's Restricted Authorised Deposit-taking Institution framework, marks the first steps towards enhanced competition to traditional banks from newer, technologically driven entrants,” Moody’s notes. “This development comes at a time when traditional banks have been required to improve their own technological and digital capabilities to meet customer expectations.”