Unprecedented Move: in1bank Returns Deposits and Surrenders License
In a surprising turn of events, in1bank, a relatively new banking institution, has announced that it will voluntarily return all deposits and surrender its banking license. The plan is to close all accounts by the end of next week, marking a swift end to a venture that only began in late 2019.
Background of in1bank
in1bank first obtained a license to operate as a bank in the closing months of 2019. However, in a brief statement to its customers, the bank noted, “in1bank has decided to discontinue its banking business”. This decision, while abrupt, is not entirely unexpected.
High Liquidity Levels and Low Lending: An Inevitable Outcome?
in1bank had been reporting alarmingly high levels of liquidity, most recently 178 per cent. Such remarkable liquidity levels typically imply a lack of lending activity, leading industry observers to deduce that the bank was doing very little lending. The decision to return deposits and surrender its license might be a direct result of this unbalanced financial strategy.
The Wider Context: Neobanks and APRA
The rise and fall of in1bank occurs within a broader context of the neobank industry. A series of neobanks have exited the industry since the Australian Prudential Regulation Authority (APRA), under pressure from the former government, began to consider applications for banking licenses from fintech firms. This move was seen as a way to encourage competition within the banking sector, but has led to mixed results.
Neobanks Exiting the Industry
Among the neobanks that have voluntarily exited the industry are Xinja Bank, 86 400, Volt Bank, Islamic Bank of Australia, and International Bank of Australia. The trend suggests a lack of a viable business model within the neobank sector, or at the very least, a need for a major strategic rethink.
Lessons Learned: Lending First, Deposits Second
One crucial lesson that emerges from the experiences of these neobanks, including in1bank, is the importance of prioritizing lending over deposits. A bank’s profitability is largely determined by its lending activities. Therefore, a bank that reports high liquidity levels but minimal lending is likely struggling with its profitability. The hope is that sooner or later, a neobank will figure out the right balance and thrive in this competitive industry.
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