- Australian neobanks are cutting the interest rate on their high-yield savings accounts.
- This move highlights the need to pivot their business model by finding other customer acquisition and deposit incentives.
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Three Australian neobanks—86 400, Up, and Xinja—are planning further cuts to their savings account interest rates or savings thresholds, according to Finder.
Up Bank will cut its interest rate to 1.10% effective November 1, down from its current rate of 1.60%. 86 400 recently cut the amount of money you can earn bonus interest on from $300,000 to $150,000. And Xinja’s Stash account will be cutting its bonus variable rate from 1.65% to 1.50%. Xinja hasn’t taken on new customers since March and hasn’t indicated when it plans to resume onboarding new customers.
Neobanks have cut interest rates several times since the outbreak of the pandemic—and it could stall growth progress.
- Australian neobanks were on track for success prior to the pandemic thanks to their high-yield savings accounts. Regulatory shifts in 2018 that enabled Australian neobanks to compete with established lenders also allowed them to lay strong foundations for growth in 2019. High-yield savings accounts were a key customer draw, and the neobanks’ deposits skyrocketed as a result. But paying out this interest means high costs, which is no longer sustainable in the current environment.
- Ongoing interest rate cuts are undermining one of neobanks’ strongest selling points, which might make it necessary for them to boost offerings elsewhere. Multiple interest rate cuts could damage customers’ enthusiasm for saving with neobanks given that high interest rates were previously their biggest draw. To counterbalance, neobanks need to introduce other value-added features—including money management tools, which are popular with younger consumers—that could help them continue to drive customer acquisition, deposits, and loyalty. And they could diversify their offerings beyond checking and savings accounts: 86 400, for example, has been pushing into the mortgage market, which could be a valuable acquisition tool as it’s presently the only neobank in Australia to offer mortgages.
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