Now meet the current generation of neobanks and money apps. Looking back, most people will agree it has been a wonderful transition.
You probably think that neobank is just one of the many buzzwords millennials have fabricated. But no, neobanks are actually a thing, and they’ve been around for some time in countries such as Germany and Japan.
These ‘banks’ have had success in other regions, a factor that massively contributed to their adoption in Australia. Today, neobanks are considered to be one of the most viable wealth management alternatives.
What are Neobanks?
A neobank, sometimes known as a digital bank, is a bank that doesn’t employ existing legacy systems in its operation. This is to say that the bank doesn’t utilize physical infrastructure or operating systems in use by other existing financial institutions. The technology that supports neobanks is built from the ground up.
The most dominant feature of neobanks is that they operate via phone application i.e. app-based banks. These apps have an user-friendly interface, and they’re well designed to make things simpler for users.
Most, if not all, people associate the word ‘bank’ with faulty pens chained to office desks and queues. While that is synonymous with traditional banks, it is far from true for neobanks.
Neobanks neither have no pens nor bank branches. Instead, they offer services at the touch of a button. They typically operate 24 hours a day, so you don’t have to worry about opening hours. Neobanks, just like conventional banks, offer services like savings accounts loans.
History of Neobanks
Neobanks may be new to the Australian market, but that is not to mean they are new. They have been in operation for years now in other countries like the UK, South Korea, Vietnam, Brazil, and Germany.
Their delayed adoption in Australia is because the Australian financial landscape wasn’t receptive to the concept of neobanks until recently. Financial institutions are usually highly regulated, and legislations surrounding their authorization in the country were strict.
In 2017 when the application process to enter the deposit market i.e. become a bank, was reformed to be acquiescent, digital banks started setting up shop in Australia.
Are Neobanks safe?
Let’s face it when it comes to money, it’s understandable to ascertain the credibility of a bank/financial institution where you intend to deposit your savings. That said, you have nothing to worry about neobanks.
Just like traditional banks in Australia, neobanks too, are regulated by the same authorities. Neobanks have to be licensed by the Australian Securities and Investment Commission and the Australian Prudential Regulation Authority before operating in the country.
The upside of neobanks
Impressive apps packed full of features: As you’d expect, neobanks have impressive applications compared to those of traditional banks. This is because they’re entirely or almost entirely app-based, so the apps come with pretty much every functionality.
Competitive interest rates and zero or low fees: Here is another area where neobanks outshine traditional banks. Majority of the neobanks don’t charge any fees for registration or account management. They also have better interest rates
Comprehensive transaction history: Neobank apps give a thorough report on transcations e.g. who you sent money to including the company details and the location where the transaction happened.
Budgeting tools: They also come with features that allow you to create personalised budgets.
Integration with other payment methods: Neobanks support the incorporation of mobile money services like Samsung Pay, Google Pay Apple Pay, and to make payments.
Best neobanks in Australia
The top three neobanks currently are 86 400, Xinja, and Up.
Xinja
Founded over 2 years ago, Xinja has grown to become one of the biggest neobanks in Australia. It initially started as a FinTech company before transforming to a neobank in 2018. The company is headed by its founder Eric Wilson.
Xinja got its banking license by APRA last year and was the second Australian neobank to be recognized as an authorized deposit-taking financial institution. Early this year, Xinja added savings ‘Stash’ and transaction accounts to its offerings. Xinja is reported to have banked a sum of AUD $400,000,000 in ‘Stash’ account deposits just three months after launching the account.
Up
Sometimes known as Up Banking, Up is a Melbourne-based neobank established in 2018 by Ferocia. The bank has ties to the Bendigo and Adelaide bank that’s itself a merger of Bendigo bank and Adelaide bank.
Up had an easier time growing compared to Xinja due to the connection with an already established bank in the region. It was also the first Australian neobank to integrate Apple Pay to its services.
86400
The 86400 bank stands out mostly because of its unconventional name. The name, according to the company’s official website, represents the number of seconds in a day. The bank was founded in 2016 by Robert Bell who is the current CEO.
The company has a partnership with Cuscal, Australia’s biggest and most popular independent payments firm.
Here is how the three banks compare:
1. Registration
Creating an account on each of these platforms is simple and quick. The registration process is mostly similar in all three neobanks. You’re required to provide your personal details. The neobanks then confirm your identity through the medicare card, passport, or driver’s licence.
The process of joining takes under 10 minutes for all the neobanks, although it’s faster in Xinja than the other two. You can then add mobile payment services like Apple and Samsung Pay at this point.
2. Moving Funds
Xinja comes with instant top-up option that allows smooth fund transfer from your bank account to the app. All you have to do is add a debit card and then proceed to add fund up to $2000. No international cards or credit/prepaid cards are supported here.
Up automatically generates a PayID through your username (Upname) by which you can add funds. You have an option to switch to an email address or phone number associated with your account.
If you choose to go with this option, you can quickly deposit to your account in the same way you would to a colleague with PayID. Like Xinja, you can also transfer funds to your account directly by using your Acc. No & BSB.
86 400 falls short in terms of supported transfer method to add funds to your account. The company promised to introduce PayID. Currently, customers transfer funds to their accounts through the Acc. No and BSB. If your bank allows Osko payments, funds will get deposited into your account almost instantly.
3. Banking card offerings
Up, Xinja, and 86400 all have cards that are available within the first 10 business days after joining. However, sometimes they’re made available much sooner between 5 or so days. The cards look decent, and one could they’re better than traditional bank cards.
Mastercard powers Xinja’s and Up’s cards whereas Visa powers the 86 400 card. The card number is neatly shown at the back of the card.
Both Up and Xinja come with an in-app option to lock/unlock your card. Up further gives you more options e.g. turning off/on contactless payment, withdrawals, and even online purchases on the Up card.
4. Payment Options
All three neobanks are compatible with several payment options as you can see in the table below:
| Payment Service | Xinja | 86 400 | Up |
| Apple Pay | Yes | Yes | Yes |
| Fitbit Pay | N/A | Yes | Yes |
| Garmin Pay | N/A | Yes | Yes |
| Google Pay | Yes | Yes | Yes |
| Samsung Pay | N/A | Yes | Yes |
5. Insights
Up has a nicely designed activity section that shows a detailed report of your transactions. The report also includes the company’s name and logo for most transactions, which makes it easier to know how you’ve spent money.
The app also provides a monthly overview where you can see how you’ve spent money per category.
86400 and Xinja have well-structured transaction reports as well. However, lack the same insight present in Up. Even so, they still display more specifics on each transaction than conventional banks. 86 400 takes things a notch up by tracking how you spend across other bank accounts under your name.
6. Interest rates & Fees charged
You’ll like things on the fees end since neobanks are more upfront when it comes to their fees, which are mostly zero and where present, low. They also have more competitive interest rates on their savings account than traditional banks.
| Interest rates | Xinja | Up | 86 400 |
| Base rate p.a. | 1.80% | 0.10% | 0.25% |
| Bonus rate p.a. | 0.00% | 1.50% | 1.45% |
| Total rate p.a. | 1.80% | 1.60% | 1.70% |
| Fees | Xinja | Up | 86 400 |
| Overdraft | – | 11.23% p.a. | – |
| Service | – | – | – |
| International transaction fee | – | – | – |
| Direct Debits | – | – | – |
| Card replacement | 1 free p.a. then $10 afterwards | – | Free (7% for Express Post) |
| Domestic ATM | 0* | 0* | 0* |
| Direct debit dishonour | – | – | – |
| International ATM | 0* | 0* | 0* |
| Account opening | – | – | – |
*some ATM provider have charges may apply here
International Travel Perks
Travellers using any of these neobanks enjoy the benefit of not incurring any of the fees below:
- international card payment
- currency conversion
- international ATM withdrawal
Conclusion
All three neobanks we’ve explored are great options. Up has a well-defined layout and much better insights compared to Xinja and 86400. Xinja has a higher interest rate than all the other neobanks, which makes it ideal for those interested in saving. Your choice here depends entirely on your savings plan and financial status.