Volt charges up AFG’s mortgage platform

Volt and AFG are kicking off their foray into the burgeoning banking as a service sector, as interest swells globally and retailers including Walmart and Ikea wade in.

Volt CEO Steve Weston expects banking as a service will take off in Australia. Picture: Britta Campion / The Australian

Digital bank Volt and ASX-listed mortgage broking group AFG are kicking off their foray into the burgeoning “banking as a service” sector, as interest in the space swells globally and retailers such as Walmart and Ikea wade in.

Volt and AFG said a pilot study had begun, involving 125 mortgage brokers, who would have access to a personal finance app and a AFG-branded standard variable rate mortgage product.

The banking services – which will be expanded in coming months to include other products including fixed-rate home loans and deposit accounts – will be rolled out to 3050 AFG brokers in early 2022.

The pair say it’s the first banking as a service platform – whereby a bank powers products and services for another company in the background – to be launched for personal customers in the domestic market.

It comes as Westpac prepares to unveil its banking as a service offering for buy now, pay later group Afterpay in coming weeks.

Westpac announced the partnership with Afterpay a year ago for digital banking products, which will be called Money by Afterpay. Westpac is also providing banking as a service to other players, including personal lender SocietyOne.

Global banks JPMorgan, Citibank and Goldman Sachs are among players ramping up their efforts to provide banking services to third parties and retailers, and non-bank finance companies are also getting more involved.

Volt founder and chief executive Steve Weston expects banking as a service will also take off in Australia.

“This (AFG partnership) is the first step in the dance, and there is a level of pent-up demand from fintechs through to large corporates to access banking as a service,” he said.

“The supermarkets in Australia are all thinking about it. Anyone that’s got a lot of customers is saying, ‘How do we get closer to them and increase revenue?’ ”

AFG chief executive David Bailey said: “We think there is a changing dynamic in the marketplace over time where customers are going to be demanding something different from their lenders.

“It’s a first step to getting our brokers digitally closer to our customers. It’s a nice way of ring­fencing those customers from other financial institutions introducing personal finance manager (tools) as well.”

Mr Bailey said commissions paid on the new AFG mortgages would be at the “market rate”, ­removing any perceived conflict.

AFG and Volt inked a strategic partnership in June, with the broker also taking a stake in Volt. AFG’s latest accounts value the Volt investment at $15m.

The banking as a service sector is generating a lot of interest in offshore markets. In January, US retail giant Walmart created a fintech to develop financial services products in partnership with Ribbit Capital, while European furniture group Ikea is moving further into banking services after acquiring a stake in partner Ikano Bank.

But while banking as a service is getting traction, Google this year retreated from plans to enter the space with a mobile bank ­account through Citibank.

AFG chief executive David Bailey.

AFG’s Mr Bailey said while he wasn’t disclosing targets on the new banking services, he was optimistic they would prove popular with customers across a range of age brackets.

“We think there’s a growing sector of the market that’s demanding this,” he added. “The market will evolve to demanding this as a minimum standard.”

Westpac chief executive Peter King on Monday said the bank wanted to attract customers via its core brands as well as through banking as a service partnerships.

“We are seeing around the world embedded finance, where finance is becoming embedded with other players and non banks, so if that takes off we want to have a foothold,” he said.

“The last major requirement has been delivered (on the Afterpay partnership), so that was the ACCC sign off for open banking, so we’re pretty much ready to launch. Consumer deposits is the offer, and you’ll hear more soon.”

Partnerships between retailers and banks have, however, had a patchy history locally.

In late 2005, Woolworths and CBA dissolved arrangements for their Ezy Banking venture, which was set up in 1999 and was supposed to run for 10 years.

But Mr Weston believes the banking as a service trend will continue as companies strive to get closer to customers, and as open banking changes give customers more control of their data.

Volt is also pursuing more tie-ups via alliance partner UK-based Railsbank, known as Railspay in Australia, and last month they launched money management platform Parpera’s banking as a service offer for their business customers.

Volt in June appointed corporate stalwart Graham Bradley as chair and has been touted as an ASX listing candidate.

On plans for an initial public offering, Mr Weston said: “We are naturally looking at the different sorts of liquidity events for shareholders and there are a range of those, but certainly given that Judo and Volt are the only two that are independently owned fully-licensed banks, we are tracking their progress with interest.”

Judo Capital – which debuted on the ASX on Monday – posted a second day of strong gains on Tuesday to close at $2.48, versus a $2.10 listing price.