Neobank Xinja may have raked in some of the biggest funding rounds in Australia, but now it’s blaming Covid-19 and a tough market for its decision to drop out of banking.
The bank announced last week that it would close all banking accounts in Australia, refund customer savings and hand back its banking licence.
“This was an incredibly hard decision,” Xinja said in a statement.
Customers were given seven days to close their accounts and transfer any funds on them to other accounts.
The Australian Prudential Regulation Authority will closely monitor Xinja to ensure it returns funds in an orderly and timely manner.
Xinja now hopes to refocus in other areas such as its US share trading product Dabble.
“After a year marked by Covid-19 and an increasingly difficult capital-raising environment, and following a review of the market in Australia, Xinja has decided to withdraw the bank account and Stash (savings) account and cease being a bank,” the FinTech said in a statement.”
The news comes after Xinja raised a $258m Series D round in March this year, marking the third biggest capital injection enjoyed by an Australian FinTech company in 2020 so far.
Xinja is part of the challenger bank craze that has swept across Australia since 2018, with new startups such as 86 400, Up and Judo Bank being other noteworthy FinTechs innovating in the sector.
The sector has enjoyed success thanks to regulatory changes and dropping trust in traditional lenders following the close of the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which found that the financial industry had become a proverbial breeding ground for toxic cultures nurturing misconduct, poor risk management and sales-driven commissions.
These factors were also behind the fact that the Australian FinTech industry enjoyed record-level investment rounds between 2016 and 2019. Total funding grew at a compound annual growth rate of 75.1% from $215.3m in 2016 to over $1.1bn at the end of 2019. By the end of September, the nation’s FinTech companies had raised $1.04bn in total.
However, deal activity has been declining since it reached a high of 108 transactions in 2017. The trend of increased funding but declining number of deals suggests the Australian FinTech sector is consolidating and investors are backing established companies in the space. This is further supported by the fact that the strong growth in funding has been driven by deals over $50m, which raised nearly 60% of the total investment in the country in 2019.
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