NAB to snap up rising neobank 86 400, integrate with UBank

NAB plans to buy online bank 86 400 for $220m and merge it with its UBank platform may be allowed by the ACCC, but it will still ‘carefully scrutinise’ the deal.

A customer using a neobank, 86 400, to transact via their mobile phone. Picture: iStock.

The ACCC is set to “carefully scrutinise” NAB’s planned $220m acquisition of neobank 86 400, but has not ruled out the idea of big four banks acquiring smaller competitors, according to a letter seen by The Australian.

On Friday NAB announced it plans to lift its 18.6 per cent stake in the neobank to 100 per cent through a scheme of arrangement that will acquire approvals from the Australian Competition and Consumer Commission, APRA, the Federal Court and Treasurer Josh Frydenberg.

NAB said upon completion of the acquisition it would merge 86 400 into its online bank platform UBank as parts of its broader plan to “deliver a market-leading digital experience and new product propositions to customers,” adding the deal was consistent with NAB’s growth plans.

It comes after ACCC head Rod Sims gave a speech at the National Press Club last October where he pledged to lobby the government for tougher laws to prevent big banks acquiring competitors.

NSW Liberal Senator and chair of the Select Committee on Financial and Regulatory Technology Andrew Bragg wrote Mr Sims a letter in November inquiring as to Mr Sims’ views on a big four bank purchasing a neobank.

In his response, Mr Sims said the ACCC would “carefully scrutinise” such a transaction but would not necessarily block it.

“Acquisitions by the big four banks of small but vigorous and effective competitors in the market have the potential to substantially lessen competition and therefore the ACCC will carefully scrutinise such transactions,” Mr Sims wrote.

“This does not mean however that all acquisitions of fintechs by the big four banks will necessarily raise competition concerns. It will depend on the circumstances of each case, including assessing the barriers to entry for new competitors to emerge.

“While it is recognised that fintechs require significant capital investment to expand to the level where they can compete outside niche sectors of the market, it would be concerning from a competition perspective if this capital investment were to only arise through acquisitions by the four incumbent major banks.

Senator Bragg told The Australian that he welcomed the acquisition and did not anticipate it would hit any regulatory roadblocks.

“Fintech like neo banks and BNPL have already delivered vastly needed choice and competition for Australian consumers,” Senator Bragg told The Australian.

“Australia can’t afford four dinosaur banks so acquisition can be a good way to modernise the four pillars. Equally we don’t want regulatory barriers which would turn the four pillars into four antiques.

“I wouldn’t expect any material problems achieving regulatory approvals.

“It is good, and welcome and why I wrote to the ACCC but I wasn’t expecting a test case so soon.”

NAB chief operating officer, Les Matheson said the acquisition was consistent with the bank’s plan for growth.

“Bringing together UBank and 86 400 is consistent with NAB’s long-term strategy and growth plans and will enable us to develop a leading digital bank that can attract and retain customers at scale and pace,” he said.

“The combined business will deliver accelerated innovation and an enhanced customer experience to create a stronger and more competitive banking alternative for Australian customers.”

CEO of 86 400, Robert Bell, said his customer base will benefit from the acquisition.

“Over the past 18 months, we’ve challenged the status quo of banking through innovative products, services and technology,” he said.

“86 400 and its customers will benefit from NAB’s capital and balance sheet strength and investment spend to support accelerated growth and continued innovation, helping even more Australians take control of their money.”

Anthony Thomson (right) and Robert Bell of 86 400. Picture: AAP

Chairman of 86 400, Anthony Thomson, said with the neobank’s 120-strong team to become part of UBank, market growth will be able to be ramped up.

“Coming together with UBank gives us the scale, funding and capital to dramatically accelerate our growth and reach even more Australians with our smarter approach to banking,” he said.

The board of 86 400 has unanimously recommended that shareholders vote in favour of the scheme.

The merger comes as market speculation over the consolidation of Australia’s neobanks increases following the collapse of Xinja late last year, with all customer deposits moved to NAB accounts.

Following Friday’s announcement NAB trimmed the its bonus savings rate from 0.5 per cent to 0.15 per cent, becoming the third major bank to cut rates in January.

Canstar.com.au Group Executive for Financial Services Steve Mickenbecker said this showed the acquisition is bad for savers.

“NAB’s acquisition of 86 400 comes hot on the heels of its mop-up of small residual savings accounts at exiting neobank, Xinja. I’m sure those savers would prefer the UBank bonus savings rate of 1.10 per cent over NAB’s top savings rate of 0.45 per cent,” he said.

“Today‘s cuts to savings accounts from NAB continue the bad run savers have experienced with interest rates for the last couple of years, with rates now looking precariously close to zero.”

NAB, which commenced discussion with 86 400 in late 2020, said that as of January 15 the neobank had more than 85,000 customers, $375m of deposits, $270m in approved residential mortgages and 2,500 accredited brokers following the launch of its mortgage platform in November 29.

86 400 on Friday said December was the neobank’s largest ever month for home loan applications.

Banks and Insurance analyst at Morningstar Australia Nathan Zaia said it was difficult to determine if NAB was paying a fair price for the neobank.

“On a per customer basis, paying AUD 3,000 is excessive,” he said.

“But the deal depends more on what technology the bank can leverage across the wider group, what cost savings can be extracted (via lower funding and operating cost synergies), and what mortgage growth opportunities can be accessed by leveraging National Australia Bank’s capital base.

“It is a small investment relative to the AUD 80 billion equity value of the bank.”

Mr Zaia said that although the acquisition doesn’t grant NAB a large increase in market share, it does reduce customer choice.

“While the deal hardly moves National Australia Bank’s 14.5 per cent share of the home loan market, it is one less emerging competitor to the major banks,” he said.

“With fellow digital bank Xinja handing back its banking licence in 2020, unable to raise fresh capital required to fund the ongoing operating losses, this will be the second independent digital bank in Australia to disappear within months.”

NAB shares closed lower by around 1.4 per cent.