logo

Alex Bank’s Simon Beitz on developing a digital bank in Australia

Written by TABLive  
  • Jan 01, 1970
  • 16 min read

Simon Beitz, CEO and co-founder at Alex Bank, talks about their business model and the technology that they use to address the challenges and opportunities of digital banks in Australia. Alex Bank became the newest digital bank in the country that received the authorised deposit-taking institution (ADI) licence from the Australian Prudential Regulation Authority (APRA) in July 2021.

 

Below is the edited transcript:

Tell us about Alex Bank. What is your business model?

Simon Beitz (SB): We are a lending-led neobank. For the time that we've been around, Alex Bank has been focused about building our credit business which required us to get an Australian credit licence and establish the technology and systems to build that credit business. We have a credit business operating and it is live. We took our time to build that out, at the same time while applying for our banking licence. At the time of receiving our banking licence, we also received the Australian Financial Services licence. Alex has all licences required in Australia to operate a lending or deposit product.

What has been the traction until now?

SB: We've built a world class lending product where customers can apply in three minutes. We can have our artificial intelligence (AI) or Alex intelligence, as we call it, decision deals for a customer in three seconds, and we can fund within a couple of hours. That's extremely fast compared to legacy banks here in Australia.

What are the biggest challenges that digital banks face in the Australian market?

SB: I don't see the Australian market challenging at all, I say it, and I've been quoted a couple of times in saying “it's quite a lonely space”. Xinja is no longer around. They had some challenges that they didn't know how to navigate. 86 400 has been a tremendous success. As far as NAB, it’s seeing it as a real threat and acquiring that business at quite a high price for an early-stage business, that's fascinating.

What that means, though is the market in Australia in this space is quite lonely, and it really has, as the two genuine players Judo Bank, who I think we can all agree is doing a tremendous job with the asset growth I've seen, and then ourselves as Alex Bank. The people that know how they are building a bank and understand the fundamentals of banks need to lend you money to make money and then take deposits, after that help fund that lending business. There’s opportunity for banks in that space to do that.  Challenges for bankers, banks are capital intensive, and require good people and good technology. Alex Bank is well capitalised. We've got great technology, technology partner in Temenos and some other partners. We've got some fantastic people that are helping make Alex the success that it's becoming.

How are you building your technological capabilities and delivering the cost efficiency?

SB: We're using Temenos T-24 in the cloud, and that's in the Azure cloud or the Microsoft Cloud. We also replicate that across the other clouds as well. Amazon Web Services (AWS) and Google from a redundancy or backup point of view. Alex uses a mixture of our partners and talented team in-house to build the front end and then the customer experience. The shop front or the product suite is developed and built in-house here and plugged into that Temenos system which makes that experience for our customer such a fantastic experience, where we're beating the banks at their own game on that space, though, that's also covered with a military grade security to ensure that our customers are safe and secure. Alex Bank is resilient through the benefits that get passed on both to the customers and ultimately to Alex Bank is a significant reduction in costs. In the long term, we target cost to income ratios certainly below 40% and then ultimately below 20%.  If you compare that to any of the other big four banks in this country, the most efficient ones in the mid 40s or high 40s. It just shows the efficiency that you can take out by using technology to deliver on the requirements of what your customer is looking for.

How are you using data availability more effectively vis-à-vis other banks or other fintech in the market?

SB: We don't have access to any special data that other people don't have access to. Our skills or our special bit of magic that we have at Alex Bank is we've been able to work out how we can consume it in a system in real-time, because we don't have the legacy challenges that mean that we can't consume it properly. We've also got some really exciting intellectual property around using different data sets to help attribute to character which is one of the most important C in the four Cs of credit.

It's also worth adding that whilst Alex started with consumer lending or personal loans, we're continuing to build out the Alex product set as well. One of the additional superpowers we've been able to build at Alex Bank is straight through processing. We're able to process most loans in the speed and time that we talked about before which is a real game changer from an opportunity there of removing all those points of friction and being better for customers to interact with. That means, as we roll-out lines of credit or other deposit style products, or even move into the small part of SME, looking after those moms and dad businesses, and Australia has over two million of those, sole trader type businesses.

Since you received the restricted ADI licence, you will be able to raise deposits from public as well. How do you plan to fund your operations? 

SB: The restricted framework doesn't allow us to generate any more than $2 million of deposits in Australia, but it does allow us to call ourselves a bank and offer the Australian government guarantee to deposit holders. The $2 million won't shift the needle match for us as a business. We will continue to fund our growth through wholesale markets. As Craig mentioned before, ensure that we've secured a long runway of wholesale funding to grow that because we're growing our lending book aggressively at the moment. We'll continue to do that through the restricted phase, all the way out the other side of the restricted phase until we can generate a deposit ratio of circa 70% to 80% deposits. We'll have the remaining wholesale funded to make sure we can operate through cycles.