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NAB acquires Aussie bank: What it means for banking

Lucy Dean
·5-min read
This photo taken in Sydney on November 30, 2017 show the logo of National Australia Bank (NAB)
Image: Getty.

NAB has been cleared to purchase small lender 86 400 in a move the banks hope will accelerate innovation in the sector.

The Australian Competition and Consumer Commission (ACCC) approved the $220 million deal on Tuesday, meaning NAB can now buy the four year old 86 400 and integrate it into its UBank digital platform. The two banks hope the transaction will be complete by mid-2021.

“It will really raise the bar for banking in Australia, it will mean we’re able to grow quicker and we can innovate faster,” 86 400 chief financial officer Belinda Hogan told Yahoo Finance.

“We’re really proud of the innovation we’ve brought to the Australian banking market. [The deal] helps us fast-track that innovation, and obviously with the strength and the resources and the size and the scale of NAB, that lets us move faster than we’d planned to before.”

Belinda Hogan. Image: Supplied.
Belinda Hogan. Image: Supplied.

86 400 currently had 85,000 customers and $375 million in deposits as of January 2020, with $270 million in residential mortgages. NAB already owns 18.3 per cent of 86 400, after participating in its Series B funding round.

NAB’s UBank and 86 400 will operate as separate entities until the transaction is completed. It’s not yet known what savings rate 86 400 customers will receive following the merger, or whether the 86 400 brand will remain.

Competition concerns

Approving the deal, the ACCC said it is prepared to block future transactions if it considers they pose competition concerns.

“Innovative fintechs play an increasingly critical role in the market, challenging the established banks, leading to more innovative and cheaper banking for consumers,” ACCC chair Rod Sims said.

“We therefore examined the proposed acquisition particularly closely, including extensive consultation with industry participants, given the important role of that innovation.”

The ACCC said feedback indicated that while 86 400 was innovative in reducing the time and effort that goes into completing home loan applications, NAB’s acquisition didn’t pose a competition risk.

86 400's selling point is that customers can open an account within two minutes and apply for a loan, and have it approved, within two hours. 

“Whilst in this instance we found that the removal of 86 400 is unlikely to substantially lessen competition in the market, we will continue to closely scrutinise proposed acquisitions of emerging competitors, particularly by major banks,” Sims added.

“The ACCC’s home loan price inquiry reports of 2018 and 2020 show competition between the big four banks has been muted at best. They tend to accommodate each other rather than competing strongly to win market share.

“Therefore any acquisition of a rival or potential rival by any of the big four needs to be very closely considered.”

Does this spell the end of neobanks?

86 400’s acquisition comes amid concerns Australia’s neobank sector is on its way out, following Xinja’s collapse in late 2020.

However Hogan said the small lending and fintech industry remains a big industry in Australia, and that there’s a broad variety of organisations in the sector.

“Now there’s a lot of fintechs, so it’s always been a very varied sector and I think it will continue to be so,” she said.

“The fintech community is absolutely vibrant and well-placed to succeed into the future. Obviously we see our situation as very positive, which is that NAB is recognising our fantastic technology and services that we’ve brought to the market, and are seeking to amplify that across the community,” she said.

The Australian Prudential and Regulation Authority (APRA) on Tuesday revealed more than a dozen new bank applications are currently underway, with Hogan describing this as encouraging.

APRA chair Wayne Byres also refuted concerns neobanks’ days may be coming to an end.

“With apologies to Mark Twain, their death has been a little exaggerated,” he told the Australian Financial Review Summit.

“With the resumption of licensing at the start of this month, we are now considering upwards of a dozen applications from aspiring ADIs (authorised deposit-taking institutions).

“These applications cover both the direct and restricted ADI pathways, and many incorporate innovative technologies and business models...Not all will be licensed, but there is no lack of interest.”

APRA earlier this month updated its proposed requirements for companies aiming to achieve banking licenses, including higher capital requirements and compulsory revenue-generating products.

The banking watchdog said these requirements mean new entrants will be focused on broader sustainability, rather than just achieving the licenses.

New entrants also need to have more planning around their exit strategy, and how they would return deposits to borrowers should they need to leave the market.

Xinja successfully returned all deposits to borrowers.

Volt founder and CEO Steve Weston believes the future of neobanks is bright, and that the new requirements for ADI licenses make sense. 

"The changes, compared to the process that we went through... that doesn't sound like a whole lot but it is going to be more challenging," he told Yahoo Finance. 

"For some applicants who will be in the application process, that will be a step too far, and the model that Volt has built, for example, may be able to provide those firms with the access to the banking products, rather than them going down the ADI path themselves."

Image: Yahoo Finance
Image: Yahoo Finance