Xinja is the banking Christmas present we didn’t need

A customer using a neobank Xinja debit card. Picture: Supplied.

It’s not ever yday we get a bank closing its doors and handing money back to those unlucky enough to have placed faith in it.

But the closure of Xinja, one of our much-hyped digital banks, is a major development and not one to be welcomed.

It’s going to cast a cloud over all new arrivals in the “digi-banking” sector and it’s going to strengthen the stranglehold the big four - ANZ, CBA, NAB and Westpac - already have on the system.

Moreover, it should prompt some serious revision at the regulators who signed it off as a fully licensed, government-guaranteed “bank” when the operation clearly lacked elementary banking skills such as matching assets with liabilities.

Xinja’s 44,000 account holders are about to find out just how “traditional” the local financial service scene remains as they try to track down and untangle direct debits and other arrangements they may have made with the neobank in recent months.

Despite the extraordinary circumstance of a bank shutting up shop, Xinja depositors have been given very little time to find alternative arrangements.

At a very difficult time of the year, everyone is going to have to find another bank within a week. From December 23 Xinja says all inbound payments of any kind will no longer be accepted.

What a mess and what rotten timing!

Xinja chief executive and founder Eric Wilson.

We badly need new competition in the banking system - ideally independent and able operations that can fully exploit the low hanging fruit offered in the digital banking era.

Instead we’ve had Xinja Bank, which told investors in the same communique it needed to “pivot” away from being a bank towards share trading!

It has only become clear in recent times that Xinja paid depositors higher interest rates than it could ever afford. The problem only became evident in October when the bank said it would not pay interest on deposit amounts above $150,000.

As it struggled to build a loan book, it then told its faithful online customer base it was to be rescued by a group from the Middle East. But the deal, like the bank itself, failed to materialise.

The regret here is not that this particular operation floundered, but that the local banking system still appears so difficult to crack. Foreign banks have never cracked the mainstream banking system despite dozens of offshore banks trying at different times.

“Rest assured, your funds are completely safe’ said Xinja in its statement. And fortunately, that statement can be taken seriously, though nobody ever wants to see the government guarantee of $250,000 per customer per bank referenced in this manner.

Xinja’s tale of woe seriously questions how far any small independent operation can go in our market. There is, of course, Afterpay but that is not a bank.

Our handful of smaller banks have taken a very long time to create modest operations. In fact most of them had originally been building societies, with long track records in their respective communities.

One by one most smaller banks have been submerged inside the big four oligopoly; St George, Advance Bank, Bank of Melbourne, Bankwest ... they are now just brands held by the big four.

Hopefully, the raft of new names in the banking system get to do a better job as start-ups in the era of so-called open banking: we could certainly do with some new players who last the distance.