Volt Exits Banking Sector; Will Return License, Funds

Australian challenger bank Volt is returning more than $100 million to its estimated 6,000 customers next week and handing its banking license back to regulators after the FinTech startup failed to raise enough capital to keep growing.

“Volt is doing everything possible to return the deposits in an orderly and timely manner. The Australian Prudential Regulation Authority (APRA) is closely monitoring this process,” read a blog post on Wednesday (June 29).

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The startup said it had enough liquid funds to return the deposits without having to lean on the support of the Australian government’s deposit guarantee insurance, which protects savings up to AUD$250,000.

“Nobody wants to stump up any capital,” Andy Schmulow, a banking expert and lecturer at the University of Wollongong Law School, told Financial Times. “Inflation is up, the share market has come off dramatically, we’ve had a significant correction. Investors across the board are holding on to cash and do not want to invest.”

Headquartered in Sydney, Australia, Volt was founded in 2017 and was the first company granted a restricted full license in May 2018 to operate as an authorized deposit-taking institution (ADI). Volt was also the first new institution to be licensed as a retail bank in the country since the Australian Bank in February 1981, which ceased operations in 1989.

The restricted ADI licensing scheme was established to attract newcomers to enter Australia’s banking system.

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Volt is the second Aussie challenger bank to fail following Xinja, which was granted a license in 2019. Funding complications spurred by the pandemic led to Xinja returning its banking license to APRA in 2020, though it still operates as a FinTech.

Four challenger banks were created following a 2018 inquiry into Australia’s banking sector, Financial Times reported, and Judo Bank is the lone survivor. Neobank 86 400 was acquired by Ubank, an Australian direct bank owned by National Australia Bank (NAB).

Schmulow said high capital requirements made it difficult for new entrants to compete with incumbents in Australia’s banking market, even in the best of market conditions.

Commonwealth Bank of Australia, Westpac, National Australia Bank and ANZ are the dominant players in Australia’s banking industry.