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British fintech Revolut says National Australia Bank’s intention to acquire 86 400 will stifle short-term competition within the country’s emerging neobank sector.
Matt Baxby, the chief executive of Revolut’s Australian subsidiary, says the major bank’s decision highlights the power larger players have in influencing competition in the banking industry.
“This is a market that is characterised by the major banks holding more than 80 per cent across core banking sectors,” Mr Baxby said.
“In the short term it is hard to see that this is good for competition.”
NAB announced on Friday it would acquire full ownership of 86 400, primarily to improve the technology interface of its existing digital subsidiary UBank.
NAB chief operating officer Les Matheson said the move would attract younger customers to UBank and “create a stronger and more competitive banking alternative”.
The major bank’s acquisition is the latest consolidation in the neobank sector, after Xinja folded late last year.
Mr Baxby said the Australian banking landscape was still attractive for fintech investment in the long-term, but smaller players needed to exploit gaps in the market and not compete head-to-head with the majors.
“We are building a payments business that has a feature set broader than most banks,” he said.
“In some ways, NAB buying 86 400 demonstrates that fintechs actually have something the established players want and probably can’t build themselves from scratch.”
Revolut has confirmed it intends to acquire an Australian banking licence to roll out its full suite of services available in the UK.
The company’s cryptocurrency, commodity exchange and budgeting platforms are available to Australian consumers.
Swiss investment bank UBS said on Monday NAB’s decision was likely driven by its need overhaul its technology.
UBS said NAB’s intended $220m bid for 86 400 was 11 times the cost of building a new platform internally.
“While it may have been possible for NAB to build a similar platform itself, history has shown that IT projects within the major banks tend to be overly engineered and complex and end up costing many multiples of acquiring a completed platform,” UBS said.
The 120 staff at 86 400 will become part of the NAB workforce, however UBS believes retaining these staff will be a challenge due to “cultural differences”.
Mr Baxby said there were few instances where an existing business folded into a major bank had thrived.
Meanwhile, the Australian Competition and Consumer Commission has confirmed it would review NAB’s acquisition proposal and expected to make its decision in April.
Mr Baxby said markets such as the UK and Europe had large capital pools where venture capitalists and private equity were more open to investing in small banking start-ups.
“The reality is that (banks) are long tail products and they take time to make a return,” he said.
“It takes a lot of commitment and frankly pretty patient investors to climb over that and build sufficient scale.”
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