June 29 (Reuters) – Volt Bank Ltd, the first exclusively online bank to gain an Australian banking licence, said it would shut down, returning deposits and selling its mortgage book as it had been unable to raise sufficient funds to support the business.
Its collapse is a further blow to a business model that was promoted heavily by the Australian government and regulators after a 2018 inquiry into misconduct in the finance industry led to a loosening of rules for new banking entrants.
Rising inflation and interest rates this year have made it harder for online-only banks, called neobanks in Australia, to compete with established lenders, making fundraising much more difficult.
Though the pandemic and COVID-19 restrictions triggered huge demand for home loans in Australia, the shift to working at home also prompted traditional banks to embark on a digital arms race, narrowing approval times for loans and eating into the competitive advantage of neobanks.
“We have considered all options but ultimately we have made this call in the best interest of our customers,” Volt founder and CEO Steve Weston said in a statement.
“The entire Volt team is deeply disappointed to have reached this point.”
The bank had A$113 million ($78 million) in deposits and A$80 million of home loans as of April, according to government data, a tiny fraction of the A$3 trillion mortgage market. The company said no customer would be left out of pocket.
Volt is the third of four prominent neobanks that were approved in an initial wave by Australian regulators to fold or be sold.
In December 2020, Xinja Bank returned its licence citing problems raising money, while another startup, 86400, was sold to high street lender National Australia Bank Ltd NAB.AX last year. Only privately held Judo remains as a standalone business. It had A$5.5 billion in mortgages in April, government figures show.
Just one year ago, Volt raised A$85 million with mortgage broker Australian Finance Group (AFG) AFG.AX paying A$15 million for an 8% stake.
AFG said in a statement it was disappointed about Volt’s collapse but added its future earnings were not impacted.
Volt returned to the market this February with a plan to raise another A$200 million, local media reported. A company representative was not immediately available to comment on that outcome on Wednesday.
Australia’s prudential regulator said in a separate statement it would closely monitor the process to ensure funds are returned to Volt’s depositors.
($1 = 1.4468 Australian dollars)
(Reporting by Byron Kaye in Sydney and Navya Mittal in Bengaluru; Additional reporting by Alun John in Hong Kong; Editing by Edwina Gibbs)
