Xinja

What did it do?

Xinja was an Australian digital bank with no branches that ran entirely through a mobile app. The second Australian neobank to obtain a full banking licence, it offered a transaction account and a high-interest savings account called Stash.

Why did it shut down?

When Xinja opened its accounts in January 2020, it paid 2.25 per cent interest on its Stash savings account and gathered AUD 100 million in deposits in the first three weeks. But the bank had no lending product to put that money to work; it was paying more than 7 million dollars a year in interest without generating any matching income. The rate was cut repeatedly, down to 1.5 per cent, and the cap on interest-earning balances was lowered from 150,000 dollars to 50,000 dollars. An AUD 433 million investment from Dubai-based World Investments, announced in March 2020, did not arrive as expected because of the pandemic and foreign ownership limits. In December 2020 Xinja announced it was exiting banking, and APRA cancelled its licence on 26 February 2021.

The story

When Eric Wilson founded Xinja in Sydney in 2017, it was a fintech offering prepaid cards and a money management app. After a crowdfunding campaign in 2018, the ambition grew: Xinja wanted to become a real bank. On 9 September 2019 it obtained a full banking licence from APRA, the Australian Prudential Regulation Authority, becoming the second Australian neobank to do so.

Accounts opened in January 2020. The Stash savings account offered 2.25 per cent interest, which drew AUD 100 million into accounts in the first three weeks. In March 2020 it was announced that Dubai-based World Investments would invest AUD 433 million spread over two years. Xinja was also preparing Dabble, a product for trading US shares.

But there was a gap at the heart of the model: the bank did not lend. It was paying more than 7 million dollars a year in interest on deposits gathered at high rates, without earning any matching income. The rate was cut repeatedly, down to 1.5 per cent, and the cap on interest-earning balances was lowered from 150,000 dollars to 50,000 dollars. The money expected from Dubai, meanwhile, was delayed by the pandemic and foreign ownership limits. The launch of Dabble was also postponed while it awaited regulatory approval.

On 16 December 2020 Xinja announced that it would exit banking. CEO Wilson said that, because of COVID-19 and an increasingly difficult capital environment, giving up being a bank was the right step. More than AUD 252 million in deposits belonging to 37,884 customers was returned quickly, and the remaining accounts were transferred to NAB. APRA cancelled Xinja's licence on 26 February 2021. A group of shareholders objected, saying the decision to cancel had been taken without consulting them. Xinja's story shows how quickly gathering customers without a revenue engine runs out of road in banking.

Lessons for founders

• If a bank starts marketing deposits before it has a lending product ready to put them to work, every new customer deepens the loss; sequence your products around your revenue stream.
• A capital plan that rests on one large investor can stall under external shocks and regulatory limits; in licensed industries, do not spend your capital buffer before the deal is final.
• In regulated industries, an exit plan that returns customers' money in full protects your reputation; Xinja's ability to return more than 252 million dollars in deposits quickly is a case in point.

Sources

1. Xinja (Wikipedia)
2. Xinja is officially no longer a bank (Startup Daily, 2021-03-01)
3. Xinja exits the neobank scene: What happened, and what does it mean for the competition? (SmartCompany)
4. Neobank Xinja collapses, surrenders banking licence, and returns deposits (Stockhead)

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