It’s survival of the fittest in digital banking

Volt CEO Steve Weston has big plans for 2022, but it will be a tough slog.

The local digital banking and lending sector confronts a fresh test in 2022, after a shakeout in the market last year.

Only the fittest will survive and be able to secure the backing of ­investors, as broader scepticism of unprofitable companies – beating the drum on their technology credentials – grows.

On the consolidation front, two players that were making strides were acquired in 2021, with NAB buying 86 400 and Bendigo and Adelaide Bank purchasing Up. Others have been unable to make it work, with Xinja dramatically shutting its doors late in the year after experiencing funding issues and delaying the launch of its mortgages.

Volt – which secured the first digital bank licence under a restricted regime in 2018 – has an early mover advantage but needs to significantly scale up this year.

It now has an unrestricted licence, and ASX-listed mortgage broker AFG bought a stake in the bank last year.

Chaired by corporate stalwart Graham Bradley, Volt is conducting a $200m capital raising which will beef up regulatory capital and fund growth. The bank is flanked by Rothschild on the raising.

“The next piece of the jigsaw before we really put the accelerator to the ground is the regulatory capital. And this raise, the $200m will get us beyond a $1bn lending book,” Volt CEO Steve Weston told this column.

The latest raising will add to the $212m already raised and deliver Volt a valuation of $490m, if successful.

Britain’s Starling Bank last year also had Rothschild on deck as it raised £272m, which delivered it unicorn status.

Fidelity, Qatar Investment Authority and Millennium Management were among those that participated in Starling’s raising.

Newer entrants to the local banking market include consumer lender Alex Bank and small business bank Avenue, which is backed by lender Liberty. They will also be closely watched this year to see if they can scale up.

Both are targeting particular areas of the market, which may help if they execute well.

Volt has ventured into the “banking as a service” sector, which gives it a point of differentiation along with its technology platform. Banking as a service sees a bank’s power products and services for another company in the background.

Westpac, for instance, has unveiled its banking as a service offer for Afterpay, and global retailers Walmart and Ikea made strategic moves last year to get involved in the market.

Volt and AFG started their banking as a service foray last year through a pilot study involving 125 brokers. They were given access to a personal finance app and an AFG-branded variable rate mortgage.

Volt and AFG are now training AFG’s 3050 brokers for the broader rollout. But Volt still faces a tough slog ahead. The latest accounts lodged with the corporate regulator show it posted a loss of $42.2m in the 12 months ended March 31, 2021, compared to a loss of $41m the prior year.

Mr Weston estimates that Volt will break even in the first half of next year.

On the potential ASX listing, he said there were a few milestones that had to be achieved.

“Liquidity for our shareholders is very important and we look at a range of options,” he said.

Business bank Judo Capital, which listed last year, has been hitting or exceeding its prospectus forecasts, but the stock remains below its initial public offering price.

In the non-bank space, consolidation has also been a theme with SocietyOne agreeing to a takeover by MoneyMe and Latitude acquiring Humm’s consumer ­finance arm.

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Zurich’s sale retreat

Zurich’s global CEO Mario Greco appears to have called off the sale of the firm’s Australian general ­insurance unit.

German magazine Versicherungswirtschaft-heute last week quoted Greco as saying Zurich wanted to retain the Australian unit. The decision may have been made for him, though, given wavering interest.

This column understands Suncorp withdrew from the auction weeks ago, leaving little if any competitive tension for the asset.

Suncorp and global firm Chubb were separately through to the final round of the sale process, while QBE fell away earlier.

The Zurich Australian Insurance entity swung to a loss of $47.3m for the year ended December 31, 2020. That compared to a profit of $61.04m in 2019.

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Resolution buy

Sir Clive Cowdery’s Resolution Life has executed its first local acquisition after buying AMP’s life business in its entirety. Resolution mopped up a residual stake in AMP’s life insurance unit for $524m in November, and flagged scope for further acquisitions.

The group has now agreed to purchase AIA Australia’s superannuation and investments business in a deal that will see its assets under management swell to about $37bn.

Resolution, which has about $30bn in assets under management, will add AIA’s $6.7bn to its books, while there is an additional $1.5bn in assets under administration also changing hands.

The parties did not disclose a purchase price but the deal is said to be worth several hundred million dollars. There are still hoops to get it through, though, with the deal subject to regulatory approvals and a transaction closure expected within 12 to 18 months.

For AIA, the business being ­divested was purchased as part of its acquisition of Commonwealth Bank’s life insurance and investments arm. That was part of a flurry of deals that saw the major banks exit the capital-intensive life insurance sector.