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Australia’s only neobank targets $2b in mortgages

mortgages

Its app-first cloud-based platform offers savings accounts, transaction accounts, term deposits and mortgages while aggregating customers’ accounts with other providers

The only neobank in Australia to offer home loans – 86 400 – has just notched up 12 months in the market and has big plans for expansion, according to CEO Robert Bell.

86 400 is an app-first cloud-based platform that offers savings accounts, transaction accounts, term deposits and mortgages while aggregating customers’ accounts with other providers to give customers a complete picture of their finances.

Named after the number of seconds in a day, 86 400’s most unique feature is its ability to warn customers of upcoming bills and sends out around 33,000 alerts every day.

Unencumbered by legacy systems and the overheads of a physical branch network, the bank is looking to grow its nascent mortgage book from $40 million today to as much as $2 billion by the end of 2021.

We are only just getting started, Mr Bell said. We have built a fully digital end-to-end cloud-based bank with 110 people. That’s roughly the same amount as a major bank spends on its compliance program.

The company won’t disclose how many customers it has signed up but says it has more than 225,000 accounts on its ‘platform’ and is on track to reach 500,000 by the end of the next financial year.

Since being granted its banking licence last July it has attracted more than $320 million in deposits, has processed more than a billion dollars in transactions and has approved around $40 million in mortgages for roughly 100 customers.

86 400’s mortgage offering caters to owner occupiers and investors with principal and interest and interest only loans. Customers can have one or more offset accounts, can split loans and access redraw facilities.

If we were to just do investor loans we would have challenges with the regulator and if we did just owner occupiers we would be ignoring a large part of the market. We are seeking a balance, Mr Bell said.

The neobank is hoping to supercharge its mortgage book by partnering with a major distributor. An announcement is expected imminently.

The bank has only had a single request for a loan deferral to date. Implementing a deferral on the bank’s shiny new system was not a problem and merely a matter of clicking a few buttons.

Our mortgage product was really well designed for the crisis. You don’t have to go into a branch and speak with a manager. If anything COVID-19 has shown just how well positioned we are, Mr Bell said.

With aspirations for substantial mortgage growth the unlisted bank will be seeking to raise capital for a second time after raising $34.5 million in April. Morgan Stanley has been hired for the Series B capital raising.

How much capital we raise will depend on how successful the mortgage product is, Mr Bell said.

The bank also operates a commission-free electricity provider comparison tool. While this seems like unusual territory for a bank, Mr Bell explains it by saying helping a customer save hundreds in utility bills can have a more meaningful impact than offering them a few extra basis points on a term deposit when rates are so low.

We have already saved our customers a couple of hundred thousand, Mr Bell said.

Features like the bill comparison product – soon to be expanded–- and the upcoming payment obligation warning are an important way of helping the bank differentiate the product and help garner word of mouth.

Let’s face it. Nobody rolls out of bed on a Sunday and says ‘I want to change banks’, Mr Bell said.

As for the COVID crisis, what crisis? Mr Bell said the acquisition of customers had not been interrupted and described the transition to working from home as seamless.

He said, our 50 strong tech team has actually delivered products faster. When you put a group of coders in a room free from distraction, it’s amazing what they can do.

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