"This is what I love about true Neobanks. Turning the banking model, a full 360 degrees, back to when banks were for the community by the community. Entire communities, towns and cities were built with the help of a bank."
Eric Wilson - Xinja.
Eric Wilson is CEO and Co-Founder of Xinja one of a new breed of Neo Banks.
Dexter Cousins talks with Eric about the Xinja journey. It turned out to be the most refreshing and enlightening 30 minutes we have ever spent with a banker!
Eric Wilson: Good question. Let's look at how banking has evolved. Legacy banks, big monopoly banks (or oligopoly banks as we have in Australia) have gradually moved to online banking. More recently we have seen web and phone apps, but Australian banking has not evolved in the last five years.
Online banking in Australia is effectively a last century business model delivered through a different channel, your smart phone. The next evolution of online banking is a bank built specifically for smart phones. This is where Neobanks and Xinja come in to play.
Australia is in catch up mode with Europe and North America. The regulators have just allowed a new type of banking license to help businesses like Xinja get started on the journey to becoming fully fledged banks.
This is the first step. If we look overseas you get a better idea as to how the model can develop. The market ends up with four or five digital banks designed entirely for mobile.
But a digital bank is not a Neobank. Xinja and other Neobanks (Monzo being a great example) aim to revolutionise the banking model. NeoBanks are not only changing how the service is delivered but fundamentally changing the products and services a bank offers.
Sure, a Neobank might still deliver a home loan through your mobile phone but maybe Neobanks come up with alternative ways of sourcing the funding; Peer to peer? Arbitraging across jurisdiction?
Neobanks are designed for the smart phone and can deliver products, services and features a normal bank can't. I am a big admirer of Monzo Bank and we are very fortunate to have a co-founder of Monzo on the Xinja board. When we talk about digital banking he describes the journey as being one per percent complete. I agree. We are just at the beginning of the change.
Eric Wilson: I've spent over half my career in banking. Most recently I was the chief executive for a subsidiary of a big four bank. My father in law was an old school banker. He grew up in the country and was a bank manager for towns out in the bush. In his days, bankers were respected members of the community. They helped people manage their money, helped them get ahead. They did good and didn't lend too much money.
After years of working in the modern banking industry I recognised the banks have little connection to customers and the community. And it didn’t sit well with me. Ultimately, I was lending my strengths and expertise to something I didn’t believe in. My gut was telling me there had to be a better way.
I kept thinking of my father in law and what it used mean to be a banker, very high levels of personal service and humanity in banking. So, I set out to build a bank to deliver a similar level of care, compassion and consideration, but in today's world.
A Neobank has no branches. The shop front is a customer’s mobile phone. And with technology we can hyper personalise the service. A neobank can help people manage finances better by giving them nudges and reminders on spending.
Customers have access to loads of data to help them change their behaviours around money. A Neobank provides tools to make banking fast and hassle free. Why does banking have to be miserable and grey? Why can't it be enjoyable, fun and ultimately work for the customer?
True Neobanks are changing the model by putting customers right at the heart of everything they do. Xinja has a win-win philosophy. Every decision we make must be good for us and it must be good for our customers.
At Xinja, literally every decision we make we put the customer at the heart of it. When we design a product, we don't just come up with a product and launch it. We have real customers coming into the office, sitting with the team giving their feedback and developing product ideas.
The process of allowing customers to design the products they want, the bank they want and have ownership through crowdfunding is wonderful. It's so exciting to build a bank with your customers and for your customers. Let me give you an example. The Xinja prepay travelcard we recently launched, it glows in the dark! When the marketing team first mentioned the concept, I thought it was a gimmick.
However, the card was designed based on feedback we got from our female customers. When they out at night they take a clutch bag. The problem being in the dark they can't see which card which is. By making our card glow, they can see it. Now as a banker sat in an office not talking to people, I would never have known. But because we put our customers right in the heart of every design process, it means we can do these cool things.
Eric Wilson: Mind-blowing is the honest answer. The actual mechanics of getting ready for it were rigorous. I'm reasonably comfortable working with regulators, it is a key part of a banks work. The data you provide must be correct and complete. We found ASIC very helpful and great partners through the process. I can't speak highly enough of ASIC as a regulator. They were rigorous and thorough but very fair.
What really surprised me with the funding round is the appetite from your everyday Australian for a new bank. Our initial goal was to raise $500,000 and hopefully attract a couple of new investors who could become customers as well. The target was hit in four hours. Then passed $1million after three days and finished at $2.7 million dollars, which is a material amount of money in a $15million dollar series B raise. We will be going through another crowd funding raise in early 2019.
There is no better endorsement than having customers as investors.
They want to be involved and are wonderful advocates for Xinja. Our customers are willingly promoting Xinja to work colleagues, friends, family. It's so satisfying to work with customers and shareholders in this way.
A Neobank is built by its customers for its customers. It's for profit of course but it's also for purpose. Treating customers as a profit center is not how Neobanks work. We absolutely want to make money and be profitable. But the only way Xinja can be successful is by putting our customers at the center of every decision.
Australia, for too long has had too many big, oligopoly banks. The alternative has been smaller financial institutions which don't have the resources to react to customer needs. I genuinely hope Australia can have several Neobanks not competing against each other but competing against the big banks.
What we have seen in the UK is the digital banks and Neobanks don't compete against each other for customers. Customers will usually leave an established bank, CBA, NAB, ANZ, Westpac or whoever to move to a NeoBank.
In the UK, once there were two or three Neobanks established in the market customers began moving in volume. (Monzo went from 0 – 500,000 customers in the 12 months since they were awarded a banking license) I am sure we will see a similar pattern once Australians get familiar with the concept of a Neobank.
Eric Wilson: This is a question I ask myself every day. First, I feel a massive personal and moral obligation to our shareholders. Many are mum and dad style investors who have placed a great deal of trust in me and the team at Xinja. I started Xinja because I want to build a highly ethical bank. But me making personal promises isn't enough.
We invested a lot of money making sure Xinja has the right risk and compliance teams and frameworks in place. It is critically important, but it still isn't enough. Just look at the banks and financial institutions currently in court with the royal commission. They have spent millions on risk and compliance and employ thousands of people in risk and it still hasn't worked. Risk management is an essential element to building trust but it's not enough.
In my opinion it comes down to leadership.
The BEAR regulations, whilst a bit scary being a senior executive at a bank, are important because they bring accountability back to the directors and senior executives. Every person Xinja hires meets me at the final interview. I make our stance on compliance very clear to potential employees and our staff. My philosophy is fair and very clear.
If you make a mistake by accident and you stuff something up on compliance let us know straight away and we'll fix it. You won't be in trouble we can get it sorted. But if you try and do something dishonest in this business you will be out of the door and reported to the police faster than you can breathe.'
This message has to be made clear from the offset. You have to make sure there is never any ambiguity.
Everyone at Xinja is there to build an ethical bank. When you walk into an environment where people expect ethical behaviour it breeds ethical behaviour. And don’t reward people in a way that encourages them to behave badly.
Eric Wilson: In some ways we've been very fortunate in the timing of Xinja's launch. The royal commission will leave a scar on the financial services industry in Australia for many years to come. But at the end of the day you just set expectations. We make it clear to our investors and our customers Xinja will make less money per customer than the big four banks. If we're going to look after our customers and we're going to treat them fairly, then naturally we will make less. When customers get something of value we'll charge them for it.
Xinja aims to deliver massive amounts of value and a hyper personalised service using technology. The model is closer to a tech business than a bank. Rather than charging 10 people $10 you build something scalable where you charge 100 people $1.
Eric Wilson: It's been surprisingly easy. There are currently 50 people in the business, all top talent who could easily get a better paying job elsewhere. Xinja presents a compelling career opportunity for outstanding banking professionals who have spent a career working in traditional institutions. As a native Englishman, we have an almost Churchillian rallying call to the people we think can play a significant role at Xinja
'Now is the time you need to step out, make a difference and actually do something for Australia. Help build a bank that looks after people and makes amends for what the banking industry has done.'
It is surprising how many bankers have a big heart and want to do the right thing. I can't think of anyone who has turned down an offer we have made. Most hires have approached us direct or responded to a post on LinkedIn. We usually get hundreds of people applying for roles.
People really want to work for Xinja. I feel deeply honored people entrust their careers to us. But, Xinja is doing something incredibly exciting. It is a fun place to work with no organisational hierarchy. Even our intern is quite comfortable telling me what I should improve.
Xinja offers an unlimited leave policy, employees can take as much time as they need to re-energise and be a success in the business. There is no dress policy. If you're going to trust your staff to deal with people's money, then you don't need to tell them how much leave they can take and what they should wear to work.
We spend a lot of time with individuals in the recruitment process before hiring. It is essential we get to know the person we are hiring. The Xinja fit is someone who really cares about doing the right thing and is committed to creating an incredible customer experience.
A Xinja person is not the type of person who would take 5 months off just to take advantage of an unrestricted leave policy. My challenge is getting staff to take holidays and time out. Xinja is not a job for our people. Sure, they receive a salary but many of our staff are earning a lot less than they could earn in the market. They're at Xinja because they want to do the right thing. We have a cause and a purpose.
