Fundraising woes cause Australia’s first online-only bank, Volt, to shut down

Volt Bank Ltd, Australia’s first exclusively online bank to gain a banking license in the country, said it would shut down, return deposits and sell its mortgage book after failing to raise sufficient finances to fund the business.

Volt’s collapse is a further blow to a business model that the Australian regulators and government promoted heavily after a 2018 investigation into misconduct in the finance sector led to a loosening of rules for new banking entrants.

Rising interest rates and inflation this year have made it harder for online-only banks, called neobanks in Australia, to compete with established lenders, making fundraising much more difficult.

Though the pandemic and COVID-19 restrictions triggered massive demand for home loans in Australia, the shift to working at home also prompted traditional banks to embark on a digital arms race, narrowing approval times for loans and eroding the competitive advantage of neobanks.

The firm had A$113 million ($78 million) in deposits and A$80 million of home loans as of April, according to government data, a tiny fraction of the A$3 trillion mortgage market. The firm said no customer would be left out of pocket.

Volt is the third of four prominent neobanks approved in an initial wave by Australian regulators to fold or be sold, leaving just privately held Judo, which had $5.5 billion in mortgages in April, government figures show.

A year ago, Volt raised A$85 million, with mortgage broker Australian Finance Group (AFG) paying A$15 million for an 8% stake. Volt returned to the market this February with hopes of raising another A$200 million.