How a NeoBank in Australia today, can fit into your financial setup

By the end of this article you will have a solid grasp of what a NeoBank (also known as a digital or challenger bank) is and which best suits the way you spend and save today.

NeoBanks are essentially banks without a physical presence and their technical capability to offer a banking product is not dependant on pre-existing legacy infrastructure.

Source: The Nielson Company (US), LLC. 2018 — NeoBanks vs. Digital Banks: The Differences

Of the NeoBanks targeting Australian consumers, two have launched with a product offering focused on savings – to me it makes sense. With a smaller footprint, NeoBanks 86400 and Up Bank are able to offer a competitive 2.25% p.a. on their savings accounts, compared to 2.2% p.a. offered by ME Bank, the highest interested rate offered of all banks reliant on legacy systems. These figures have just been updated in response to the RBA’s cut off the official cash rate from 1% to 0.75%.

So why aren’t we all jumping over to NeoBanks?

1. If trust is your concern, don’t worry. All banks are required to have a full banking licence, which allows them to operate as an authorised deposit-taking institution, this means the Australian Government’s Financial Claims Scheme guarantees any amount up to $250,000 if things turn sour on the banks side.
2. The newest NeoBanks offering the highest interest rates are currently not offering loans, credit cards, and in some cases the capability to carry out simple money management, such as future dated and recurring payments. This subsequently makes selecting the “best” digital bank is subjective based on your spending and savings habits. Interesting!
3. Lack of education. The financial empowerment survey by CUA found that found that 50% of Australians between the ages of 18 and 24 opt for the institution that their parents bank with, while almost the same percentage of Aussies (46%) overall felt their upbringing did not make them financially savvy (this is the whole point of this article 😉).

This article isn’t here to tell you what products NeoBanks are offering, this write up does the job just fine. What this article will do is help you decide which NeoBank suits your spending and saving behaviour.

Let’s explore four typical banking behaviours (these aren’t some well-known persona types; I’m just naming them how I see it);

• The new starter. Money comes in the form of pocket money, salary or gifts and sits in an account waiting to be used. When the time comes, it turns into spending money. Best suited to use Up as Up requires only 5 Debit transactions to ensure a reflected interest rate of 2.25%. It’s great for those who have less than $50,000 in savings. Upsiders can also receive payments from friends or family through PayID.
• The young renter. Banking behaviours include paying for rent, putting aside money for a new purchase or for weekend partying, and transferring what is left over into savings. Best suited to use Up. Up has the ability to plan future or recurring payments, split pay into multiple “Savers” by $ or % amounts and receive money from friends through PayID.
• The credit card rotator (or simply prefers to use a credit card to make purchases). Everyday spending is primarily focused to maximise points generation, this eliminates Up (due to the bonus interest criteria of 5 debit transactions a month). Best suited to use a bank of your choice (to receive your salary) and 86400 to store savings (transfer in $1000 a month – if you aren’t saving that much a month, you can transfer out and transfer back in! Do keep in mind 86400 requires you to have less than $100,000 in savings to ensure a reflected 2.25%.)
• The sophisticated borrower. This person has a home loan and more than likely an offset account with the same bank. They maximise the interest savings by using a credit card for all of their expenses to leave as much of their income to offset mortgage interest for as long as possible. In this type of scenario, I suggest waiting out until one of the NeoBanks launches their own home loan products. I was on the phone with 86400 Customer Support and was told that by the end of 2019 we should be seeing a home loans launched!

You may have noticed neither Xinja, Revolut, Volt, Archa or Wild Card haven’t been mentioned or recommended. Xinja doesn’t offer a savings account and tends to focus only on transactions (why would you store your salary in a transaction account?) While Revolut does offer a savings account, it doesn’t come with an interest rate! They do both offer perks such as zero ATM fees. Although, zero ATM fees are offered by traditional/digital banks such as ME Bank, ING or Macquarie Bank. Volt and Archa have yet to launch in Australia. Wild Card has a unique concept of slowly releasing your money on a daily basis and doesn’t publicly offer savings accounts.

What are some questions you need to ask yourself to help you decide which NeoBank is best for you?

• What do I do with my money once I get paid? Spend, Save, Invest, Give to Charity or Pay Fees?
• How do I spend my money? Cash, Debit or Credit?
• How do I like to save? Consistent amounts or whatever is left over?
• How do I like to manage my money? Simple don’t, automatic transfers, or handle each case individually.
• How do I like to interact with my bank? In-person, over the phone, or through txt message?

I hope this helped you understand what a NeoBank is, and of the ones launched in Australia which most benefits your spending and savings habits. Let me know in the comments below if you are or are planning to use a NeoBank in the future or what is holding you back in making going Neo.

Article published on 22 October 2019, and will not be updated.