Volt Bank, one of Australia’s young crop of digital banks, is pivoting towards “banking-as-a-service” instead of relying on consumer lending and deposits.
Steve Weston, Sydney-based founder and CEO of Volt Bank, says the COVID-19 pandemic put paid to his original plan to launch consumer lending products, due to fears that recession would lead to too many defaults.
The bank has done two things in response. First, it is now involved in a proof-of-concept around mortgage lending. Second, and more radically, it is keen to become embedded in the online activities of consumer-facing corporate partners, to provide either deposits and loans, or facilitate transactions for users of those enterprises.
It turned to Railsbank to provide the infrastructure and the API layers to make this happen; Railsbank is based in the U.K. but for regulatory reasons is branded in Australia as RailsPay.
“Working with Railsbank is a milestone, because we see how the world of banking is changing and this gives us the ability to present a differentiated business model,” Weston said. “Our staff joined to conquer the world, and now we have something we can talk about.”
Lifts and shifts
Justin Xiao, Singapore-based Railsbank COO for Southeast Asia, Australia and Japan, says the deal with Volt represents the fintech’s launch into Australia. This follows opening in the U.S. last year. In Singapore, its flagship customer is SingLife Aviva – it provided the tech to allow SingLife to launch a debit card proposition. It also has a partnership with DBS.
Railsbank doesn’t build core banking systems. Rather it allows fintechs, e-commerce companies and others to manage accounts, help users send and receive money or spend money, manage the compliance around that, and integrate APIs so clients can test and launch products from Railsbank’s platform.
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Xiao says the company’s expanding geographic footprint means it is creating conditions by which clients can “lift and shift” into new markets where Railsbank operates, with a back end and API capability already in place.
What might this look like in practice? Weston notes that Railsbank works with fintechs in the U.K. that provide valuable services. For example, one such firm is WageStream, which allows employers such as the National Health Service to let their staff access earned wages. This could be the sort of use case that a Volt Bank could offer its corporate partners in Australia.
Similarly, Xiao notes, there is a growing roster of Aussie fintechs that are eager to expand to Singapore. They could use Railsbanks’ infrastructure, but they would also find it easier to pitch to Singapore firms that are on the same gauge of track.
New banking models
Weston, formerly head of Barclays’s mortgage business in Australia, says traditional banks lack the capacity to do “banking as a service” and embed seamlessly.
One of Australia’s Big Four is having a go: Westpac has launched its BaaS is teaming up with buy-now, pay-later giant AfterPay and SocietyOne, a fintech providing transaction payments for consumers. Westpac is building its BaaS with the aid of 10x Future Technologies, another U.K. infrastructure fintech.
Weston reckons there’s more than enough demand for BaaS services for both players to grow.
And whereas Westpac is diversifying its traditional lending business, for Volt, going BaaS is core to its business, as it will shift its focus away from direct-to-consumer relationships.
“With Railsbank we can facilitate services to many more businesses than what Volt could do alone,” Weston said.