- Neobank Xinja has made the unusual move in banking to stop customers opening up new savings accounts.
- Xinja said it made the decision as it faces pressure from the latest RBA rate cut and deposit inflows in excess of $350 million.
- It comes as the latest RBA cut puts pressure on competitive neobanks to back down from leading rates of 2.25%.
- Visit Business Insider Australia’s homepage for more stories.
Xinja doesn't want your damn money right now.
"When faced with higher than expected deposit flows, and an RBA rate cut, most banks would just drop deposit interest rates, hurting existing customers while chasing new ones. That’s not what Xinja is about," Xinja founder Eric Wilson said in a statement issued to Business Insider Australia.
The digital bank announced on Thursday, two days after the RBA's rate cut decision, that it would stop opening new 'Stash' accounts, carrying its 2.25% interest rate, for now. It's an unusual move for a new bank chasing market share, but while Wilson acknowledged Xinja may be forced to lower the variable rate still, freezing out new accounts would allow it to hold firm for now.
"Right now, in what are turbulent times, we want to stand by the rate we have offered," Wilson said, who wouldn't indicate how long the pause will last.
Customers are still able to open a transaction account with Xinja – only the 'Stash' account is affected.
The decision comes with Xinja having raised more than $350 million in deposits in a few short months, more than even it even expected. No doubt many of its 25,000 new customers were attracted by its interest rate, which is on par with its neobank rivals but without the conditions.
But while those that got in early may be chuffed with the rate, it also suggests an obvious issue with Xinja right now: profitability. Given it is yet to launch loans or credit products and also doesn't charge fees to customers, there's a steep price tag attached to Xinja's fast growth.
"There are three things we have to balance," Wilson said. "The RBA rate cut makes it more expensive for Xinja to hold deposits at the same rate before the launch of our lending program; there has been an unprecedented uptake of Xinja Bank by Australians; and now, how we - as a new bank - manage the costs of those deposits."
If you assume the bulk of customers' $350 million is in 'Stash' accounts, then Xinja is paying in the ballpark of $7.5 million in interest a year for their loyalty (and their deposits) at the current interest rate. It's a figure which far exceeds the $5 million it raised in two record-breaking crowd equity funding rounds pre-launch. With no revenue coming in, that's a significant loss before you even factor in operating costs.
In sum, it puts Xinja, which now has the largest deposits pool of any neobank, in a unique position. Consider the example of rivals 86 400 and Up. Both offer the same interest rate, albeit with conditions, but both are also able to make a margin on their deposits. Up can lend customers' savings out via partner Bendigo Bank while 86400 has offered home loans since November. Neither has reduced their savings rate yet either, although both have confirmed to Business Insider Australia a review is underway.
Just how long all three can hold out is unclear, but all will now face pressure to go lower. While CEO Robert Bell has emphasised 86 400's commitment to creating a sustainable bank, the company only holds around $10 million in loans to offset its deposit rate. Bendigo, like other traditional banks, has two prevailing factors with which to contend. On one hand, it has a far more substantial loan book, but on the other far higher operating costs than neobanks.
As the RBA looks set to cut yet again in April, all banks, digital or otherwise, may soon have to make some cuts of their own.