The rise of digital banking

December is off to a great start for challenger banks after three digital banks around the world either received their regulatory licences or raised significant funds.

Tyro Payments (Australia)

The Australian Eftpos company has secured A$100m  ($72.8m) from Atlassian co-founder Mike Cannon-Brookes, Tiger Global Management and TDM Asset Management to go alongside the banking licence it received back in August. The company as formed in 2003 to enable point-of-sale debit and credit card payments.

The timing of the funding could not be any better as most of the major Australian banks recently suffered digital mishaps.

ANZ launched its brand new digital banking services, which very quickly went crashed.

It also didn’t help that some of the reaction to the service wasn’t very positive in the first place.

Earlier this Autumn, Westpac-owned St George Bank, Bank of Melbourne and BankSA suffered internet banking disruptions. These instances provide Tyro’s CEO, Josh Stollman with a wonderful opportunity to extol the virtues of challenger banks.

“Tyro is coming together with Australia’s 2.1 million small and medium sized businesses, software and fintech companies to build a new ecosystem that is disrupting the established banks by offering better products and experiences,” he said.


Kakao (South Korea)

Moving up to East Asia, the big news coming out of South Korea is that the country’s largest mobile messaging app, Kakao, has been given approval from the government to form the country’s first internet-only bank. Kakao was one of only two companies given such approval, with the other being the telco KT Corp.

The formation of such internet banks “should inject healthy competition in the local financial market and improve the financial industry,” Yim Jong Yong, chairman of FSC, said in the statement.

The new bank also said that it will be able to offer services that traditional banks cannot, including providing easier access to credit for startups and small businesses.


Tandem (UK)

Over in the UK, the digital-only bank Atom is about to get a companion. Yesterday, Tandem, the digital retail bank, was given its licence by the Bank of England, and will now commence the process of meeting all the regulatory requirements.

It will now offer services such as current accounts, credit cards, savings and loans – all on mobile channels. There will also be a call centre operating from the bank’s London headquarters.


Is the future digital?

Tandem becomes the second challenger bank to come out this year after Atom Bank. More importantly, it becomes just the third bank to get a licence in recent times. When Metro Bank received its licence in 2010, it was the first new retail bank in 150 years.

There are now 20 hopeful banks in the pre-application stage discussions with the Bank of England for a high street lending licence and the government is aiming to approve 15 new banks over the next five years, according to City AM.

Furthermore, the UK government has yesterday extended the Funding for Lending Scheme, which aims to increase bank lending by as much as £70 billion. At the same time the government also created a separate programme, which will focus on helping challenger banks. From 16th January 2016, Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) will launch a ‘New Bank Start-up Unit’ that will help the newly formed challenger banks navigate through the early days of authorisation.

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