Xinja Bank Submission Select Committee on Financial Technology and Regulatory Technology January 2020 Table of Contents 1 Introduction to Xinja 3 2 Benefits and opportunities for Australians 4 2.1 Enhance customer and consumer value 4 2.1.1 Opportunities for better experiences 4 2.1.2 Competition 6 2.1.3 Financial education & financial capability 7 2.2 Increased productivity 7 2.2.1 Data Sharing 8 Sharing Transaction, product, account and other Data with customer consent 8 Government Property Data 8 Digital ID 8 AML / CTF 9 2.2.2 Integrating Fintech 9 2.3 Job creation 9 2.4 Create export opportunities 9 2.5 Attract and maintain investment in technology 11 3 The operating environment for a Neobank startup in Australia 12 3.1 Competitive Environment 13 3.1.1 Entrenched Oligopoly at market and industry infrastructure level 13 3.1.2 Switching is hard 13 Porting Bank Account Numbers 13 Porting / Redirecting Payment Authorisations between bank accounts 13 Lack of competition and data sharing metrics 14 3.1.3 New ADIs being regulated in ways existing ADIs haven’t 15 3.1.4 ADI lenders more strictly regulated than non bank lenders 15 3.2 Demand for ethical bank behaviour 16 3.3 Capital & Funding Environment 16 3.3.1 Banking is capital intensive 16 3.3.2 Capital is hard to find; Fundraising is resource intensive 17 Connecting to investors and investment communities 17 Attracting international investment 17 Crowd-funding 18 Lower limits than UK 18 Chapter 6 Implications 18 Government Grants 18 Reallocation of industry fines to fintech startups 19 Fundraising from institutional investors (e.g. superannuation funds) 19 3.4 Tax framework 19 3.4.1 Access to the R&D Tax Incentive 19 3.4.2 Tax incentives for early stage venture capital limited partnerships (ESVCLP) and venture capital limited partnerships (VCLP) 20 3.4.3 Reduce GST payable by early stage companies 20 3.4.4 Other tax initiatives 20 3.5 Being a tech and being a fin 20 3.6 Challenging Labour Market 20 3.7 Changing, Complex & Fragmented Regulatory Environment 22 3.7.1 Regulatory Complexity and Change 22 3.7.2 Fragmented Industry Reforms & Strategies 23 3.7.3 Costs of lack of regulatory guidance in an evolving regulatory environment 24 3.8 Industry & regulation lagging behind technology 25 3.8.1 AML regulations 25 Outdated and not technology neutral 25 Inefficient use of data between institutions creating suboptimal consumer outcomes 25 3.8.2 Regulator nervousness on technology innovation 25 3.8.3 Legacy Payments infrastructure 26 Need to integrate with, and build on top of, existing payments infrastructure 26 3.9 Barriers to connection / access to the NPP 27 3.10 Barriers to CDR Accreditation 28 4 Thank You 29 Page 2 of 29 1 Introduction to Xinja Xinja Bank (‘Xinja’) welcomes the opportunity to submit a response to the Senate Select Committee’s Inquiry on Financial Technology and Regulatory Technology. Xinja is a brand new neobank, delivered to customers via the Xinja App on their mobile phones, designed to help customers to get more out of their money. We fundamentally believe that if we make it fun to manage money, people will naturally become good at it. Xinja is creating new digital banking experiences that combine data, technology and fun, where customers are motivated to develop and maintain good financial habits. Xinja is a ‘FinTech’ as defined in the issues paper i.e. technology and a business that enables, enhances and disrupts traditional financial services. We architected and built one of the most advanced end to end digital banking tech stacks in the world. Xinja is an example of technology designed for customer centricity, bringing personalisation and automation into day to day banking. Xinja’s event driven architecture enables a ‘Netflix’ – like experience for customers, providing immediate contextualised responses to their financial activities, nudges towards their desired financial outcomes and recognition and reward for good financial behaviour. Xinja seeks to provide secure and streamlined mobile banking experiences, new ways to securely transfer funds and share information, whilst making new choices more readily available to customers than what is provided by the big four banks. Our retail banking services became available to Australians in September 2019 with the launch of the consumer mobile bank account, and further extended in January 2020 with the launch of the savings account, ‘Stash’. Xinja’s services include banking, deposits, savings, and lending, and will expand to include non-conventional products and services such as digital wallets, multicurrency wallets, investments and technology services. In September 2019 Xinja also became the first and only independent digital bank in market in Australia with the launch of the consumer mobile bank account, delivered via the Xinja App for iOS and Android devices. Xinja has significant brand equity with a prior customer base of 15,000+ from its first beta travel card product. Xinja uses no legacy systems and operates no branch networks to ensure low overhead, low operating costs and great value to customers. Xinja is led by a unique and highly skilled team of bankers, experience designers, technologists and former regulators. On its startup journey Xinja launched Australia’s first retail equity crowdfund. Xinja has since raised more than $5 million across two record-breaking equity crowdfunding campaigns in January 2018 and January 2019. Xinja has raised a further $45 million from private and industrial investors around the globe to provide an alternative way of banking for Australian consumers. Xinja recently achieved its full, unrestricted Australian banking licence in September 2019, joining a highly profitable cohort in a sector with an oligopoly of 4 banks repeatedly listed in the Top 5 most profitable banks in the world. This also coincides with a time of great consumer dissatisfaction with and distrust for incumbents. With one exception all other successful new entrants to this market are owned by existing Australian banks. Xinja’s mission is to build a bank with our customers, designed in their interests, that helps them make better money decisions without the angst, and is delivered through a brilliant mobile experience. Since entering the market Xinja has also seen numerous industry and regulatory developments including the 2018 National Financial Capability Strategy, the introduction of the National Payments Platform, the Restricted ADI licensing framework, Open Banking and the Consumer Data Right, The Royal Commission and the Productivity Page 3 of 29 Commission Inquiry into Competition in Financial Services, and the introduction of the Banking Executive Accountability Regime. Xinja fully supports the objectives of the inquiry, in particular: • promoting the effective and sustainable growth of Australia’s FinTech and RegTech industries • ensuring the best Australian ideas can be taken to market in Australia • attracting global capital to generate future employment. • uptake of new technologies in the financial sector • opportunities for the RegTech industry to strengthen compliance but also reduce costs • promoting a positive environment for FinTech and RegTech start-ups • creating employment and technology • creating new opportunities • enhancing customer and consumer value • increasing productivity • job creation • creating export opportunities • attracting and maintaining investment in technology Xinja offers its views as an Australian FinTech start-up and Neobank that has taken the entire startup journey from capital raising to public product launch for the purposes of informing this inquiry. This submission specifically focuses on two overarching themes relating to fintech and neobanking in particular: 1. The benefits and opportunities for Australians; and 2. The current operating environment for Xinja (inclusive of challenges and opportunities). 2 Benefits and opportunities for Australians Xinja would like to highlight a number of benefits and opportunities that fintechs, neobanks and Xinja in particular offers Australians. 2.1 Enhance customer and consumer value 2.1.1 Opportunities for better experiences Neobanks are a world-wide phenomenon, disrupting traditional banking structures and systems and providing innovative alternatives to consumers who are looking for more from their banks. Consumers across the globe have embraced neobanks as digital game changers and products and services are improving every day. In fact, all consumers benefit whether or not they choose to use the product, as neobanks are increasing competition and putting a downward pressure on fees and charges in the markets within which they operate. Xinja is designed to give customers a real choice to be able to bank with a financial institution who looks after them. We see a significant role for data and technology to reduce service and product complexity and allow customers to make better, faster money decisions without the angst. We believe it’s time Australians had access to this kind of technology already available in other parts of the world, especially pertaining to the use of data for more personally relevant, real-time, event driven services. We want a better Page 4 of 29 banking experience for Australian consumers and see a thriving neobank market that is ripe with innovation making customers’ lives better. Xinja is particularly interested in using customer data in new ways in the credit assessment and lending origination processes so that customers with good financial behaviours can be rewarded with access to credit at lower than standard interest rates. Key enablers for these propositions are real-time access to customer financial behavioural data – which in turn requires more regulatory certainty and cost effective access to customer data with customer consent. See the discussion below at section 2.2.1 Page 5 of 29 Data Sharing. Xinja notes that there are dependencies on industry infrastructure and innovation which essentially limit the experiences that any new entrant can provide, no matter how new or innovative their technology.