Aussie neobank Xinja crumbles under unfeasible interest rates

Written by Ruby Hinchliffe
17th December 2020

Xinja, one of Australia’s neobanks, has crumbled under the pressure of its high interest rates. Unable to pay the returns on the rates, it has finally pulled the plug on its operations.

It will hand its licence back and return most of its deposit holders’ money back to them before the year is out, as first reported by the Financial Review.

The neobank landed a full banking licence last year

With no lending product to make up the cash it was burning to uphold its interest rate – which began at 2.25% and then dropped to 1.8% – the start-up has struggled to keep its banking operations afloat.

The wind down

“Xinja has decided to exit banking business and return its ADI licence,” the bank said on its website. “As such, the Xinja Bank Account is being discontinued and the Xinja Stash account will be discontinued on 23 December 2020.”

The bank stopped paying interest on its 1.8% savings accounts on 14 December. The Australian Prudential Regulation Authority said it will “closely monitor the return of deposits”.

Xinja’s bank accounts won’t accept inbound payments as of 23 December. From 30 December, Xinja will begin closing all empty accounts.

Customers need to withdraw their money by no later than 6 January. Xinja cards and direct debits will stop working entirely from 15 January.

Uncontrollable growth

The neobank landed a full banking licence last year. In January, it launched its 2.5% Stash account. Just 19 days after it launched, Xinja’s deposits hit AUD 100 million ($75.6m).

“We expected to do about $120 million in deposits in a year, we’ve done $100 million in 19 days,” Xinja’s founder and CEO Eric Wilson told The Sydney Morning Herald at the time.

The new numbers came just two weeks after the challenger announced it had hit AUD 30 million in deposits.

But the interest rate soon became too hard to maintain. As well as dropping the rate to 1.8%, it also closed the account to new customers.

The start-up blamed the Reserve Bank of Australia’s (RBA) cuts to interest on 3 March to 0.50%, and then to 0.25% on 19 March, as reasons for the product’s modification.

Xinja’s CEO Eric Wilson

Last month, the start-up said it would cap the amount of interest paid out on these high interest cash accounts to the first $50,000 only. It seems none of these measure were enough to keep its banking operations going.

A huge investment on hold

In March, Xinja said it had landed a notably large $255 million (AUD 433 million) capital injection from Emirates’ World Investments (WI), an investment group based in Dubai.

With an immediate initial investment of $94 million, Xinja said it would receive the remaining $161 million over a period of 24 months as it grows.

But according to the Financial Review, this investment was delayed by COVID-19. According to its latest financials, Xinja lost $36 million in the year to 30 June. Which means reserves were likely running very low.

Trading business will stay open

In July, the start-up said it was launching a US share trading platform for Aussie investors.

Called Dabble, the platform offers easy access to more than 3,000 US shares and exchange traded funds (ETFs) via the Xinja app.

The fintech charges a AUD 8 ($5.74) monthly subscription fee for Dabble. Its foreign exchange (FX) fee stands at 1%, and there are no brokerage fees.

Xinja intends to keep this business in operation, if regulators allow it. But at present, the CEO’s social media accounts have been deactivated.

Seen as genuine competition to Australia’s big four – ANZ, Westpac, NAB and Commonwealth Bank – earlier this year, it’s taken less than a year for this competition to fall flat on its face.