Xinja outlines challenges with mortgage play

Online lender Xinja is clear about its plans to become a bank. Last month, it was granted an Australian credit licence (ACL) and CEO Eric Wilson has revealed that the company has its sights set on the home loan market.

The next regulatory hurdle for Xinja is obtaining a restricted ADI licence, or RADI, which is where some of its challenges lie.

In its submission to the Productivity Commission draft report, Xinja said that it wants analysis of the impact of deposit restrictions on RADIs and the impact those restrictions have on a start-up’s ability to compete with existing banks.

“With a credit licence, Xinja can issue mortgages to the extent we have funds to lend,” the group said.

“Our first challenge is access to wholesale funding. The second challenge is that even where we can access wholesale funding, a restricted ADI would limit our ability to offer offset accounts with those mortgages.

“This means we have to make difficult choices around how we split our $2 million cap on deposits between offset accounts to provide a better outcome for home loan customers, which means a small number of mortgage customers would be sufficient to absorb that cap, thereby limiting overall how fast Xinja can grow until that cap is lifted — which limits how quickly we can access wholesale funding and investment funding.”

Xinja CEO Eric Wilson noted in many ways that the group is dealing with regulations that never envisaged the possibility of start-ups being new entrants in the banking sector.

“It will take time to expose and rectify all of the regulatory booby traps waiting for new banks,” the CEO said.

“This review comes at an important time in our national financial history where we are informed by the experience of other markets who have now have thriving neobank competition, especially in the US, [the] UK and Europe more broadly.”

[Related: Crowdfunded neobank receives credit licence]