Digital banking startup Xinja wants to disrupt the status quo of banking. Founder Eric Wilson and chair Lindley Edwards share their tips for startup directors.
Eric Wilson can pinpoint a morning a few years ago, when he entered the elevator in the building where he worked and saw an ad on the wall that repelled him. It was an offer to transfer credit card balances at zero per cent interest for a fixed time, after which the charge would revert to normal level — apparently aimed at providing relief.
He rates her
- Commitment to people
- Business skills
She rates his
- Commitment to customers
- Lack of defensiveness
Wilson saw only cynicism. “It wasn’t so much that the company was offering that credit card — all banks do that — it was more that we were so comfortable with that, we were advertising it in the lift where everybody went every day,” he recalls.
To him, those deals, which as he notes, many banks offer, say: “we’re trying to identify the people who can’t manage a credit card, who are debt refugees and then we’re going to absolutely screw them”.
Wilson had spent almost two decades in banking and consulting, and at that time was CEO of NAB’s National Australia Trustees. Now he wanted out. If the ad was the push factor, he was soon to feel the pull of an alternative. “I was on the phone to Jason Bates, an old friend of mine in the UK,” Wilson recalls. “I was saying, ‘I don’t really want to work for these people anymore and I don’t really want to work for any of the others because they’re all the same’. He said, ‘For God’s sake Eric, stop whinging and start yourself a bank’. I said, ‘Don’t be ridiculous, no-one starts a bank’, and he said, ‘Actually, I’ve started two’.”
Bates co-founded Monzo and Starling, two of the UK’s biggest “neo” or digital banks, accessed via mobile phone apps. In short order, Wilson decided to do likewise, despite there being no precedent here and a tighter regulatory regime, requiring a long wait on the Australian Prudential Regulation Authority (APRA) for the restricted licence necessary in order to take deposits.
Xinja — “not a bank yet but we want to be” declares the home page blurb — founded in May 2017, is Wilson’s answer to the culture laid bare by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Ultimately, Wilson says he thought: “You know what? I actually can start a bank.”
It’s an attitude that characterises founders, says Xinja chair Lindley Edwards MAICD, group CEO of corporate advisor AFG Venture Group. “You actually are contrarian,” she says. “You take a contrarian view and say I want to disrupt the status quo — Australia deserves more than the banking system it has now.”
Wilson began to pull together “the best people I had either come across or worked with in the past 20 years in this business” — a team to deliver the technical platform, the app, the right products and the customer experience for the right price. They included a technical architect to manage building the system from the ground up and a chief strategist whose credentials included a stint with APRA.
Wilson had met Edwards, who in more than 30 years in banking had gone from teller at a regional bank to a Macquarie Bank associate directorship, then a Citibank vice-presidency. He identified her as Xinja’s preferred chair and began trying to get her on board. In the end, she was a believer, not only because Wilson adapted his business model until she was satisfied, but because Xinja resonated with her values.
“I thought it was a big, hairy, audacious goal to come into the banking sector in Australia, which is dominated by the Big Four, and say, ‘Not only will I take that on, but I will use new technologies, I will use digitisation. It’s time to transform the system and provide a bank that is really focused on the banking experience for the customer’. Using the latest technologies and data insights to help people, nudge them towards a better outcome, that’s all really compelling to me.”
Wilson also valued Edwards’ commitment to people — she is on the boards of the National Bank of Vanuatu and microcredit provider Grameen Foundation Australia. “I wanted to build a bank that was for-purpose as well as for-profit and this woman embodies that,” he says. “She is a great banker with an enormous heart who wants to make people’s lives better.”
Xinja Tips for directors of startup boards
- The CEO is a contrarian — be comfortable with that
- Share their values. The CEO wants for-purpose as well as for-profit and that appeals to the board
- All hands on deck — starting small means the board’s networks matter to the business
- Be willing to learn as the company grows and to share your skills with your fellow directors
- Be energetic
- Remember, you are setting a new culture
- Be a sounding board
- All roles are “for now”
Other board selections were Wilson’s old friend Bates, another Macquarie Bank alumnus, Craig Swanger, now at Revolver Capital, and shareholder representative Stephen Garner. Xinja announced at the end of October that it had appointed American neobank pioneer and futurist Brett King as a permanent advisor to the board, focusing on innovation and strategic direction. The founder of New York-based Moven — a mobile financial services provider — King is a former advisor on the future of banking to the Obama White House and the US Federal Reserve.
So far the build phase has been successful. Full-time staff now number 40 and original private investor backing has been topped up to $16.8m — including crowdfunding of $2.7m — with another round underway for $10m–$20m, which would value Xinja at a shade under $100m. The aim is to be profitable within three years, with $10m–$12m annual revenue and a $1b loan book with approaching 3000 mortgages — that’s if APRA grants the restricted banking licence. Wilson and Edwards are “hopeful”.
Xinja has launched its phone app, a prepaid card and a home loan. Wilson was pleasantly surprised that the cost of money has been manageable, allowing a variable interest rate of 3.64 per cent fully offset. So far, mortgages have been offered to a handful of friends, family and early investors to test. The prepaid card has been a broader enterprise, with more than 5000 issued and a waiting list of 19,500. “It’s our first way of working with customers, getting feedback,” Wilson says. “It’s a spend card, so it helps you control what you spend — and it’s an excellent travel card.”
It also glows in the dark — the result of Wilson listening to market feedback revealing women prefer to carry cards loose in their bags during evenings out, but in dark environments such as bars or taxis, often can’t see them, or tell them apart.
The human touch
Bringing back the humanity to banking via a mobile phone interface may not be as counterintuitive as it sounds. For people truly at home with their smartphones, the Xinja proposition is simply to be value for money, easy to use and helpful. “The majority of people never want to speak to their bank,” Wilson says. “They don’t enjoy it, have any interest in it or want to be sold stuff. Our job is to make that whole process of money as comfortable as possible and at the same time help customers make good financial decisions. I’m not talking about them racking up debt on their credit card, but getting out of debt as quickly as they can.”
This means fast, efficient transactions, tracking of expenditure and accounts backed by sophisticated data analytics that generate screen prompts to suggest improvements — such as moving money out of a current account to cover a credit card debt. “And not just telling you that, but making it really simple, a little thing that pops up on your Xinja app and says, ‘You’re not optimised today, do you want us to do these three things?’”
Success relies on large numbers of accounts with small margins for the business. Wilson tells Xinja investors, “We are going to make less money per person than probably any other bank in this country.”
Digital banking is catching on and there are fintechs that could also potentially compete. “It’s important to be clear about who is a neobank and who is just a digital distribution strategy,” Wilson says. That’s a swipe at Bendigo Bank’s Up, among others.
Wilson is more generous about Volt Bank, the first neobank to gain a restricted licence in Australia. “Volt is a good business and we don’t think of them as the enemy. The UK experience was that a rising tide lifted all boats, so we’re really keen to see more genuine neobanks in the market because we get the category more established. My competition is CBA, ANZ and Bendigo — not Volt.”
As for the fintechs: “My job is to take deposits and offer home loans, and if there is something outside of that a fintech can do better, then I am all for partnering.”
Five points on Xinja
- Xinja is a public company with several early private investors
- The similarity to “ninja” is intentional — “we’re fast and we’ve got your back”
- No banks have loaned funds or invested funds in Xinja
- Xinja is not yet a bank. Currently it offers a prepaid card with FX refund capabilities
- Xinja uses German software giant SAP’s Cloud for Banking
Edwards says life for the board of such an experimental endeavour is “an incredible opportunity, but also an incredible challenge — to set a culture from scratch. One of the things that the board is embracing is ongoing learning.” So when a little help was needed with its licence application to APRA, Xinja went in search of outside guidance.
“It is critical to have the ability to ask for help,” she says. “We are also focused on people playing to their strengths, so in a board dynamic, whoever has the most knowledge about something tends to lead it.”
That extends to the operational side. “We have had to muck in. We’ll say to a staff member, ‘Who in our contacts and networks [can help]?’ We’re not doing it, but we’re prepared to help. So it’s a very collegiate board because no single person can do this on their own.”
Wilson speaks to the directors weekly and to Edwards more often. “I use them as a sounding board. When you get people of that calibre, to stick them in a room for two hours once a month seems crazy to me.”
Directors of a startup require abundant energy, Edwards says. “Everything takes longer and is harder that you imagined it was going to be. It’s incredibly exhilarating and on another level, it challenges you to the limits of your knowing.”
“We’re developing interfaces and technology, building our team and doing all of our licensing. All those things require that when things look like they might go off-track, you’re actually over the top of it. There is a management role in that, but also a board oversight one. It’s like building a plane while you’re flying it.”
Transparency to all stakeholders is also crucial for Edwards, who proudly recounts the outcome of an extraordinary general meeting Xinja held in Sydney in July. The constitution limited the capital that management could raise without consulting shareholders, which had proved a drag on progress. About 90 people attended. “Eric stood up and said, ‘You can ask me any question you like, I’ll keep answering until you’re satisfied’. That level of transparency is quite incredible. It started at 5.30pm and we had to ask people to leave at 9pm because they wanted to close the building.”
The board had entered the meeting room with the vast majority of shares in favour, so it was a done deal. For Edwards, the gratifying moment came when the motion was carried by ballot — there were no new “No” votes.
One of Wilson’s strengths, in Edwards’ view, is his lack of defensiveness and his ability to deal with dissent. Failure to do this is the downside of a founder’s contrarianism, she warns. “You have to know when to take a lot of notice of people and when to take none. It’s a fine line.”
650 Number of companies in Australian fintech sector in 2018 — up from 100 in 2014
US$675m Australian fintech sector investment in 2016 — up from US$53m in 2012
Although in the thick of the start-up phase, Wilson and Edwards are already in sync about the future. Edwards recalls when Wilson asked her to be chair. “I said yes, until someone better comes along. Eric replied that I couldn’t keep saying that, but it’s true. All of us as directors of Xinja have to be aware that we are the appropriate directors — for now.”
Wilson also accepts the board can fire him. “Whether I am the founder or not, at some point, I won’t be the right person,” he says. “We always say Xinja is bigger than any individual — and that includes me.”
If that day comes, he will at least have had a crack at fixing the problem that crystallised for him that day in the elevator. “There’s also a karmic balance,” he says. “I spent the best part of 20 years working in these financial institutions and Xinja is my way to rebalance that, to build something good that lasts and will help people — something that will be on their side.”
The term “fintech” covers a broad ecosystem of emerging technologies/uses including blockchain, data and analytics, crowdfunding, capital markets, transactions, lending, and middle/back-office functions. Niche “techs” include regtech (regulatory requirements), and insurtech (insurance).
According to KPMG’s Australian Fintech Landscape research, Australia had more than 650 companies in the sector in September 2018, with US$675m invested in 2016. Payments and lending are the biggest sectors.
The H2 Ventures/KPMG 2018 Fintech100 — Leading Global Innovators list ranked Chinese companies Ant Financial (world’s largest third-party payments platform) and JD Finance (online financial services/products) and Singapore-based Grab (transport, food delivery, payments) as its top three.
Australasian companies on the list included:
- AfterPay Touch (instalment payment plans)
- Pushpay (engagement solutions for churches/NFPs)
- Airwallex (forex/international payments)
- AgriDigital (integrated commodity management solutions)
- Look Who’s Charging (transaction ID database)
- Nod (natural language AI platform)
- Power Ledger (P2P solar energy trading blockchain technology)
- Trade Ledger (business lending).
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