In addition, the Australian market is relatively small and the huge number of neobanks emerging is likely to make it difficult for them to achieve the mass required to deliver an adequate return. "
Volt is the first of the so called "neobanks" to advance through a new start-up banking licensing regime established by the Australian Prudential Regulatory Authority in the wake of the federal budget in 2017.
The government wants new banks to compete rigorously against the big four to improve customer experience and the treasurer Josh Frydenberg said on Tuesday he welcomed the APRA's approval of Volt.
"Increasing competition in the banking sector to give consumers more choice, lower prices and better service is part of the government's plan for a stronger economy," he said.
Customer deposits up to $ 250,000 at Volt will be guaranteed by the federal government, like they are for other banks.
Co-founded by Mr Weston, the former head of mortgages at UK bank barclays, and former St George and Challenger executive Luke Bunbury, Volt was awarded a restricted license in May last year, allowing it to test its systems with a small number of customers .
Volt will roll out its first savings account in March through partnerships, including with Paypal and ASX-listed Collection House.
Collection House invested $ 8.5 million into Volt on Tuesday for a 4.5% stake – suggesting Volt's current valuation is around $ 180 million. Collection House will work as a strategic partner with new customers and analyzing data to assess vulnerable borrowers.
Volt also plans to grow via internet marketing to millennial customers to its digital-only offering – it will have no branches. It plans to offer better interest rates on the majors due to its low fixed costs. These are yet to be published. It also targets institutional deposits, and savings from retirees.
Volt plans to break even three years from now as it targets customers from the big four. It will need to continue to raise regulatory capital to back loan growth. Mr Weston said he remained confident that the bank would not be constrained by the supply of capital.
A source in one of the major banks said that the arrival of Volt and other neobanks will be closely watched but it is expected it will take time – and plenty of capital – to build their brands.
"It's not going to be easy for them, but we can not ignore them," the banker said. "One or two might break through, but the question is how much that will cost."
Volt is one of many start-up banks seeking to take on the majors. Xinja was given a restricted license in December and is hoping for a full license mid-year. 86 400, backed by Cuscal, and Judo Capital, which will focus on business lending, have applied directly for full, unrestricted licenses, which are also expected to be awarded by APRA this year.
Another new neobank – up – has already launched. It is using the banking license of Bendigo and Adelaide Bank, which will also hold regulatory capital against Up's lending. Up has already opened 20,000 savings accounts after last year, it is open to 1000 new accounts a week, and is negotiating various partnerships to help it scale.
It is understood by other applicants for new APRA licenses include Pelikin, Wildcard, Douugh, Archa and Bene.
Volt said on Tuesday a $ 35 million Series C raising, first flagged in The Australian Financial Review's Street Talk column, remains open with around 40 per cent filled. Part of these funds will be the regulatory capital and part will support growth. This comes on top of $ 32 million already raised in earlier rounds.
"We're very pleased with the early-stage investors we've got our full license, we will look for more strategic investors to partner with us and support our future growth," Mr Weston said .
Initial debt funding will come from institutional deposits, including from the superannuation funds, that will be accepted from Tuesday. Once it starts to make loans, there are plans for a mortgage-backed securities warehouse facility, which could be supplied by one of the major banks.
Volt is also in discussions with ratings agencies to get a private rating to provide more funding options from wholesale debt capital markets.
The license also provides it with access to RBA open market operations to manage liquidity.
Volt is running on banking systems on technology supplied by Temenos and the Microsoft Azure Cloud.
This is the first unrestricted new bank since Tyro was authorized to conduct business banking in August 2015. It is the first new retail license awarded since MeBank's in the early 2000s.
Robert Bell, CEO of 86 400, said its full license application "is progressing as expected and we look forward to making our own announcement in early 2019".
"While currently fully funded by Cuscal, Australia's leading independent payments company, we are opening our doors to new investors in 2019," he said.
UK sets the path
Volt is basing its strategy on Monzo and Revolut and similar neobanks in the UK. There are now 2.5 million customers using the five biggest UK neobanks – Monzo, Revolut, Atom, Starling, Tandem – up from 600,000 a year earlier.
Neobanks are gathering momentum in other global markets. In the US, Chime has opened more than 2 million transaction accounts; In Asia, Kakao has 6 million sign-ups in less than a year.
One of the biggest UK players, Revolut, has plans to open in Australia this year; It is understood to be talking to APRA about a licensing and potentially tagging on the existing player like Up has done. It said 20,000 potential customers had joined its waiting list as of last October.
Volt's board comprises former Foxtel and News Corp CEO Peter Tonagh, former Tabcorp CIO Kim Wenn, former Macquarie banker Tony Fehon, Magellan Financial Director Paul Lewis and ING Australia board director John Masters.
Mr Weston said getting approval by APRA was not an easy process and the standards applied to assess the fintech start-up were just as rigorous as any other licensed lender, as they should be.
"Australians can take comfort in the robustness of APRA's licensing process as it is thoroughly examined every aspect of our business to ensure that we are prepared for the demands and challenges of running a bank," he said.
"It is very, very difficult to get a full banking license. If you've got six staff and want to take over the world, we will see people giving up because its not easy. it's very, very difficult, and we are glad that it is, "he said.
Mr Weston also said the banking royal commission could help neobanks win customers from the majors.
"It's about giving Australians a fundamentally different banking experience, one that is honest and fair."
"We are building a bank that works by only digital and smartphone, focusing on the 'speed bumps' too often experienced by Australians, like long wait times and excessive fees. "
"We'll roll out cutting-edge technologies, embrace data and analytics and create a highly personalized offer that can be tailored to the specific needs of individuals."
with Lucas Baird