The future of banking

Believe their claims of disruption or not, there is no doubt that neobanks are rising up. Disruption may be a bit of a buzzword losing its meaning, however, the impact that neobanks could have on financial services may not be overstated. The UK market is often referenced as the benchmark for Australia. The process of getting an unrestricted banking licence is onerous, but some neobanks are circumventing this altogether. 

Listen to the podcast or read the full transcript below:

I thought it was time to do a special on new banks and new financial competitors, and we've got two ends of the spectrum. One is Volt Bank, which has actually got an unrestricted banking licence, the first of the start up banks to get one.

The other is a business that's just an idea at this point, but it's quite interesting. It's called Hamlet, and the entrepreneur that's trying to get that off the ground has some interesting ideas, but he's a fair way off and far from getting a licence, in fact.

The interesting thing about both of them is that they're using particular things as loss leaders to grab customers. Volt Bank is going to have free transactions with the idea of making money from loans. Hamlet, the idea is to have free wealth management, and that's the first of those that I've heard of. But their idea is to manage money in funds management for free and sell other products such as loans, insurance, and so on to the customers who are attracted to that.

Two ideas, two different business models, obviously Volt is way down the track and it looks like having a $1 billion loan book fairly quickly, that's certainly what their capital will allow. Look, $1 billion is a minuscule share of the Australian market, but there's a queue of these start-up digital banks trying to get licences. There will be a few of them, and no matter what they get of the market, they will certainly put some pressure on pricing, that's for sure, because their costs are going to be so low. 

Here's Steve Weston, the Founder and CEO of Volt Bank, and Kane Jackson, the Founder and CEO of Hamlet.

Steve, you've just got an unrestricted banking licence.  Can you tell us how hard that was to get?  What did you have to do?

SJ:  I described it recently, Alan, as saying, it sounds really, really difficult.  The truth is, it is far, far more difficult than what it sounds.  You can imagine the banking regulator, APRA, Australia has a very proud reputation of having a very safe banking industry, and it wants to ensure that that reputation is maintained.  By the time you get to a, being granted a full banking licence, you have absolutely no relief from meeting all of the criteria that any bank in Australia does.  And of course, being a start-up business without an established business is very rare, so you're doubly get put through your paces, and that's exactly the right thing that should be happening.

Yeah, of course.  But can you give us a sense of what being put through your paces actually means?  I mean, what, just filling in forms?  Do they go into your background?  What do they do?

SJ:  Yeah.  It's quite intensive.  Firstly, you need to have a business plan that is plausible, that the regulator believes makes sense.  You need to be able to demonstrate that you have management and full capability to run a bank.  You need to have a full suite of risks and controls in place.  You need to have all of your technology up and running and having been tested thoroughly.  You need to have all your cybersecurity controls in place.  You need to have your three lines of defence, external auditors, everything that any other bank has.

The difference for us is that we had no customers at the date of the licence.  So that's a very different thing, typically when AFRA will licence a new player in Australia, they're an established business, either overseas, an established bank wanting an Australian presence, or they're an existing Australian business who is wanting to get into banking.  Very unusual, indeed, for a start-up to be granted a banking licence like Volt has just had.

Yeah.  There's a few start ups, I think, lining up to get licences.  Did you get a sense, or do you have a sense of how many of those are likely to get licences?

SJ:  I don't know exactly how many, but those that are in the public domain, Judo, 86400 and Xinja certainly have been in the licence process for some time.  We know those banks very well.  We know their management very well.  We co-operate where it makes sense.  We need to, there's plenty of market dustup without us being competitive, so we do speak regularly on issues that are common to all of us. 

There are others that are saying they want to get a banking licence.  We regularly have visitors into the office who are these firms who are saying, look, we want to have a banking licence.  And whilst you don't want to pop their balloon, when they are saying they are going to do it with 10 or 20 staff and they are a technology background or they were an M&A practitioner somewhere else, and they don't have the full breadth of both banking, risk, technology, operational experience, they're not going to get a licence in their current shape.

There were a lot of people that say, look, getting a banking licence is a good idea.  It is incredibly difficult, and if people make it through to a full licence.  You can rest assured they have earned it.

So just looking at it, and thinking about the future and the business, and as you say, there's plenty of market share to go around.  However, assuming we get between four and six new start up banks, how many of those do you think will make it?

SJ:  Look, it's interesting.  The best measure we have probably is the UK market where they have had digital banks licensed initially at the back end of 2015, so going strong for three years.  They're getting really solid customer traction, now a quarter of millennials have a bank account with one of these digital banks.  Most tellingly, though, is that customers of all ages, more than 60 percent who were surveyed said they believed that they would have a bank account with one of these new digital players within the next three years. 

Of course, that has to play out.  But that is a very telling step.  In the UK there probably is half a dozen players now who are in their early stage of evolution, but they're acquiring customers well.  Who knows how that is going to play out, whether they'll stand alone forever, whether they will expand globally, whether they will be gobbled up by one of the big incumbent players, time will only tell.

But we are not that far behind, and we are very similar markets to the UK, and I expect that we will end up with four or five or six digital banks in time.  You don't need to have massive market share to have a very viable and a very valuable banking business.

Do you know what sort of market share they've got in the UK?  The start ups?

SJ:  They're, well, they're getting a very good chunk of new account openings.  I don't have the exact stat.  They're taking a slightly different approach to what Volt Bank will do in Australia in that they have mainly moved into the transactional banking space, current accounts, as they call them.  Volt Bank will be from a product perspective, very traditional look, we'll have transaction accounts, savings, term deposits, personal loans, home loans, in the consumer space, and then move into the business space in the future.  What we haven't seen with the UK neos is them moving into the full range.  That's what they intend doing next.

We have a much more profitable banking market in Australia, which means that there is more of an incentive to start a full-suite banking business that really that incentive didn't exist as much in the UK

Well, I didn't realise that, so they're not lending on mortgages and so on in the UK?

SJ:  One of them is.  A bank called Atom, ATOM.  But the rest are mainly focusing on transactional banking, really good foreign exchange rates, really good functionality.  In fact, if any of your listeners are in London and they're going through a tube station or they're in a coffee shop or they're at a pub, you will often see people now getting through the tube turnstiles or buying their goods with a pink or an orange card.  Those cards, they belong to two of the new neo banks, Revolu and Monzo in the UK, so they have got much better traction than I think most believe they would in a very short space of time.

Well, let's just drill into your business plan a bit, if possible.  I'm just wondering whether, are you going to use transaction banking as a loss leader to pick up customers and to make money mainly from interest margins?  Is that the plan, or have you got another plan?

SJ:  Yeah, no.  It is.  What I first would say is that we have a very low cost operating model compared to incumbent banks, so no branches, no legacy technology.  Our technology is all in the cloud.  It's Software as a Service, so it is much more affordable, and the capability of the technology has improved in leaps and bounds, even in the last few years.  So with that low-cost operating model, we can afford to be very competitive on our pricing and still generate reasonable returns for our shareholders.

Right, so is that the case, it's going to be free transactions?  Is that the idea?

SJ:  It's likely to be.  We are toying with the idea of having a premium account as well.  So rather than just having a bank account, we will leverage the latest technology to make opening up an account really easy, and then start solving for customers' pain points.  And I'll get back to you answering your direct question in a second.  People don't switch bank accounts today because I've got all my payment records stored, and it's just too hard to move them.  We have the technology to enable customers to instantly transfer all of their payment records to Volt Bank directly if they want.  Then with customers...

Do you mean, sorry, do you mean their direct debits?

SJ:  Direct debits?  Payee details, where you pay people, that you can move those all directly, and at the moment, people don't move bank accounts because that is just too difficult to do.  It's too hard.  The technology exists, and it was built by one of our executive members, and it works, so we'll be bringing that to the market.  When customers say, look, it's so hard to switch here.  It is.  But the technology exists today to take some of the pain out of that switching process.

Even opening an account, Alan, rather than needing to sit on the phone or go to a bank branch, you'll be able to take a photo with your smartphone of your driver's licence or your passport.  We'll get you to take a selfie where you blink twice and open your mouth.  That's called a liveness test to show that you're real.  Biometrically match the person who just took the selfie and the passport or driver's licence.  And then we'll go off to the government and say, was that passport or driver's licence a real one?

You can open an account really quickly, and then trying to overcome those pain points that stop customers from switching their transaction accounts, enabling them to switch those pay details very quickly.  But it's really once the account is up and running that people will see how much better banking can be done. 

Most of us will have multiple bank accounts.  We'll have a credit card with one player, a transaction somewhere else, a loan somewhere else.  You have to go to different places to see that.  You'll be able to see all your bank accounts, credit cards, and loans in the one place through your Volt Bank app.  We'll show you your transaction history, your balances, and most importantly, we'll show the interest rates you're being paid or charged compared to what Volt could give you.  That's something, I expect, the major banks will be reluctant to do because generally their rates aren't that competitive.

We'll arrange discounts at more than 20,000 retailers for our customers.  Those discounts will be credited back same day to either the transaction account or if the customer has pre-nominated, we'll put it into a savings account for a specific reason, pay it off a loan, pay part of it to a charity.  All of those sorts of things are now possible using the latest technology and data analytics.

Are you saying that your app will display my NAB accounts, or someone's Westpac accounts as well as the Volt account?

SJ:  If you would like us to, that's correct.

And it will also display the interest rates that I'm charged or I'm getting or being charged, and in real time compare those with your interest rates?  Is that right?

SJ:  Initially it won't be real time, but it'll be several times a day, so close to real time, seeing all of your other balances and interest rates.  That's correct.  Right now, you're seeing major banks are heavily reliant on inertia for their profits.  If we look at just the two main consumer products, a savings account and a home loan, the savings account, if you're a new customer to a bank, you can probably get yourself 2.5% for three to five months.  Then it will drop back to half percent or .01 %.  Now that is banks taking advantage of their asymmetry of power.  They realise that some customers will forget about the introductory rate, and then they will stay in a suboptimal rate. 

What we want to show customers, in case they forget it.   Hey look, you're getting a very poor rate there, and ditto, for mortgages.  We’ve seen the ACCC Review that was published in the Mortgage Competition late last year, that showed any customer who had taken a home loan out more than three years ago is paying significantly more than if they walked into that same bank today, borrowed the same amount to buy the same house, everything being the same.  What has happened is that banks have been increasing existing home loan rates out of cycle with the RBA and not passing those increases on to new customers.  They're helping out and building their own profits, but they also want to keep introducing new customers. 

What we're saying is, that is not right.  If your justification had been, we had to put up rates out of cycle with the RBA because funding costs have increased, well, a lot of your existing home loan books, your funding costs are actually locked in.  But your new customers, where funding costs have gone up, they actually should be paying more.  So by giving transparency to customers to show them what they are paying compared to what they could be getting, we think will be well received by the community at large.

And how will your loan interest rates compare?  I note that I think the average major bank net interest margin is 1.9% at the moment.  What would your rate be and what will your margin be?

SJ:  Our rates will be very competitive.  They simply have to be, being a new player, both deposits and loans, and typically they will be better than the major banks.  Our net interest margin will be lower than the major banks because we are more competitive.  But we will have similar net interest margins to other branchless banks, not too dissimilar to the likes of ING.  We probably will be a little sharper on pricing than them, but we will have lower costs than them given that we're leveraging very new technology.  But in many ways, if your listeners were looking at how do you compare to another Australian bank in terms of products and interest margins, ING is probably the closest comparison.

What's their margin?

SJ:  The net interest margin 1.5% versus about 2% or just over 2% for the four major banks.

Yes, that's right.  What's your capital now and what do you expect it to be when you're running, when you're operating?

SJ:  So we are like any other bank apart from Macquarie and the majors.  They are called advanced banks and they can use their own models to determine how much capital they need to hold to a certain degree.  The rest of the banks operate under what we call a standardised approach, and that is the regulator tells us how much capital we need to hold for a personal loan or a credit card or a home loan or a business loan, and the amount of capital that we will need will simply be a factor of our lending growth, primarily.

Right.  But you've raised $45 million in equity, right?  Is that what you'd call Tier 1 equity?

SJ:  Yes.  Some of that has already been spent in terms of building the bank up to this stage, paying wages and all those sorts of things.  As a bank, we will require material amounts of capital in the future as we grow.  We currently have a capital raise underway, and probably for the next five years or so, based on our projections, we'll be going to the market a couple of times a year on average to raise capital to support our lending growth, very much like any other bank does.  Once we get to the profitability, we will then be retaining some of those profits, so won't need to raise as much capital from the market and in time then begin paying dividends.  We'll look, from a financial structure, very similar to most of the listed banks.

Will you be listed?

SJ:  In time.  In time.  Our plan is that once we break even, which we expect will be around the back end of 2021, then our investors typically will be looking for liquidity.  As an unlisted business, it's difficult for people to sell their shares, and typically investors will want liquidity.  We have differing advice from different firms about what is the optimal time to list.  But typically, the view is that once you get to break even, that probably is the time that you should look to list.

I suppose your profitability is going to some extent depend on your ability to raise capital, because that's going to determine your scale.  Is that a fair comment?

SJ:  Very much so.  From the day that we conceived the idea of building a digital bank, we've been in discussions with the investors who will become our logical long-term investors, so superannuation funds and other institutions.  We are a bit early for most of them at the moment, but in time, as we require more regulatory capital to support our growth, that is something that the superannuation funds are very familiar with and so we keep them informed about our progress, what our proposed milestones are.  As we hit them, we go back and say, yep, okay, we’ve ticked another one off.  Here's what you can expect to see from us next.  Such that when the time comes that we fall within their investor mandate, they are familiar with our story and we're not turning up cold.

You haven't got any industry superfunds on your share register yet, is that right?

SJ:  No.  We could very soon.  If not this round, it's likely to be next round, the next capital raise later this year.

Because they've got their own bank.

SJ:  They have ME Bank and there's a lot of competition in the market place, as they know.  They also know that there is going to be a disruption to the incumbents, and it's likely to come in the form of the digital banks and they are watching us very, very closely from two perspectives.  One is, is Volt Bank a good investment in and of itself?  And the second thing they're looking at is, being big shareholders in the major banks, what is the disruption likely to look like and is it real?

What is the regulator telling you, you need to have as capital against, say, a home mortgage?

SJ:  Typically, a home mortgage that's less than 80% of the value of the property or if it's above 80%, if it's in mortgage insured, then your risk weighting is 35% of the value of the property.  So if a home loan is $100,000 then you hold capital against $35,000 in that case.  If you were lending a personal loan, the risk weighting is 100%, so you would hold your capital on the full balance of their home loan.

What APRA is proposing is that from the beginning of 2022, there will be changes to those risk weightings such that there will be lower risk weightings for lower loan to valuation ratio home loans where the customers are living in the property and they're paying principal and interest compared to an interest only or an investor loan.  We very much will be early on, Alan, targeting customers who have had a home loan for a while.  They're paying more than they should.  They have a good chunk of equity in their property, and we'll do that on the basis that we will be getting capital relief on that particular loan in 2022.

Right, it's like 10% capital against $35,000 of the loan, right?

SJ:  Exactly.  Each bank will have its own percentage of capital that it needs to hold.  You can see that from the annual reports of most of the listed banks.  But actually, it's very formulaic then to work out the amount that you have to hold capital against.  It's called risk weighted assets, and the higher the risk of the asset, typically a loan, the more capital you will need to hold.

Save me the trouble of figuring it out.  What's the size of loan book you could have on your current capital base, if you're lending less than 80%?

SJ:  I said that's a 35% risk weight.

Yes, so what's the loan book you could have now?

SJ:  So maybe...  We haven't disclosed all our numbers.  But if we said we had a million dollar loan book and...  a billion dollar loan book, you would have risk weighted assets of $350 million and you would need to hold capital...  Let's just pick a figure for the industry rather than Volt Bank, of 12%.  You would need to have $42 million worth of regulatory capital and you would also need to have some additional capital to fund the growth of the bank, pay wages and the like until such time as you break even.

We have raised $45 million dollars now, are looking to raise another $20 million at the moment, and rough orders of magnitude, we could grow close to a billion dollar mortgage book on those sort of capital numbers.

Yeah, right and so on a 1.5%...  I'm just trying to figure it out...  1.5% interest margin...

SJ:  You've got $15 million a year net interest margin.  Then you have your staff to pay and you have...

How many staff have you got?

SJ: ...an agent cost, mortgage broker cost, all of those sorts of things that you would...  funding costs that you would...  I'm sorry, servicing costs that you would need to incur, provisions for bad debts, and all those things exactly like other banks.

Sounds like mortgage broking might be a bit cheaper in the future.

SJ:  Well, it's an interesting one.  I see that the opposition has come out and said that potentially the view will be to pay a higher upfront, which kind of makes sense mathematically.  If you're getting rid of the trail commission because you don't think it makes sense, then it's being rolled up potentially into a higher upfront fee.  Certainly, what isn't helpful for competition is if customers have to pay upfront fees as opposed to the lender paying the broker on it.  That is not good for competition.  Go back to the early 90s before the likes of Aussie Home Loans when Rams and Wizard came along.  The net interest margins on mortgages have fAlan by over 2% in that time.

Interesting.  Well, glad to talk to you, Steve.  I appreciate it and look forward to staying in touch.

SJ:  Thanks, Alan.  All the best.

That was Steve Weston, the CEO and founder of Volt Bank.

I'm joined now by Kane Jackson who's the CEO and founder of something called Hamlet.  G’day Kane.

KJ:  Alan, how are you?

Tell us what Hamlet is.  Let's start with that.

KJ:  Hamlet is a full service, financial services platform that approaches money from the view that the retail consumer has and that is that it's not this great big bad industry of sub-industries, of insurance or banking or lending.  It's this great big problem of money, and the everyday investor doesn't have anywhere to go where they can get independent advice that's not influenced by commissions or alignments.  Hamlet tries to bring back that advocacy through to the retail sector.

I suppose the point is that platform is the operative word because you're not going to have a banking licence.  You're not going to be a fund manager yourself.  You are just going to...

KJ:  We will actually be a fund manager ourselves.  We will run our own diversified funds.  We have five organics products that we run ourselves and a portfolio that we've created ourselves through a chap we work with who's been pretty active in the super space for about 15 or 20 years now.  But there are other products within the platform that we will use other people's frameworks to run.

You'll have a bank which is...

KJ:  Partnership with a bank.

...Macquarie.

KJ:  We would like to work with Macquarie at the moment.  Publicly, we don't talk about who our partners are until we launch our platform.  We have a number of partners we're talking to at the moment and Macquarie is one of them. 

When you have these partnerships, whoever they might be, will you white label them?  Will they be under your brand?

KJ:  No, definitely not.  We believe in supporting the existing brands of financial services operators in the space, making sure obviously that we work with the best in category providers.

Are you different to iSelect?

KJ:  Yeah, definitely.  iSelect run a pretty simple model.  They make a commission on placing products, and obviously that incentivises them to place the products that pay them the most.  Across our platform, let's just take an example of travel insurance.  If we're going to offer travel insurance that we've selected as best in class, we'll make sure that on each product that we place with a user, we don't make any more or any less irrespective of which product they choose.  We're not influenced or, I guess, incentivised to push one product over the next.  It's about which is the best for them.

Just to be clear then, the plan is when you provide insurance or banking products, they'll be someone else's products.

KJ:  Correct.  Yeah. 

But with investing, you do it yourself.

KJ:  For now, we're planning on doing it ourselves.  The question we'll always be asked is how is the best way that we can deliver a product to our user.  It may just be that, at some point, we are not the best person to deliver that product.  There's obviously a lot of discussion around active versus passive management at the moment and that's a discussion that we'll continue to have ourselves, as well.

Is it going to be active or passive?

KJ:  There may be a mixture of both.

Is it a superfund?  Or will there be a super fund or just...

KJ:  No.  At the moment we're not launching our NVP with a superannuation product.  We're staying out of that space.  Obviously, there's a lot of change going on.  It's something we're interested in pursuing.  But at the moment, it will be a retail investment fund.

I'm just trying to get a sense of what your vision is for how a customer will use your platform.

KJ:  Yeah, certainly.

Is it that they come aboard, if they sign up for you, do they automatically, therefore, get an account with the bank that you've signed up for?  And do they qualify as a share trader with whoever your share trading partner is and so on?

KJ:  Yeah, so, for example, when you onboard with us, and everyone's onboarded with a bank or a lender or whatever it might be, and you go through an identification verification process.  Our concept is, once you've done that once, you shouldn't have to then do that across multiple products.  We treat that as a portable ID verification within our platform.  We are a virtual community, so we actually centre around a virtual village.  If you want to walk into the treasury building, for example, within treasury, that's where you handle all things money.  It might be bank accounts.  It might be investing, but everything within that platform is done on that ID verification.  If you want to open an account, it's free.  Many of our products are free. 

You go into that building and you click Open an Account so you don't have to go through the process of applying to open anything and every partner that we work with will come on to our platform on that basis.

Right.  I'm just trying to get a sense of what you think is happening to the financial services world, post-Royal Commission, that you think provides the ground for what you're doing.

KJ:  Yeah, so I think we're starting to see a discussion go on in the community around the way that financial services operate, as well as how it should operate.  If we have a look at banking and finance over decades, it's an industry that hasn't seen a lot of change.  We're seeing open banking coming to the fore.  Open banking is a reality in the UK and next year, it will be a reality here.  Open banking is a regulated push by the government to incentivise banks and finance to open up and, I guess, operate a little bit more commercially, in terms of innovation.

We're seeing a push towards technology being able to innovate in banking and finance in a way that regulations have never allowed.  We're starting a conversation of, "How's does that look?  How does this banking and finance landscape look when technology advancements that we're used to in every other field start becoming available to that space?"   The example of brokers, which is obviously being discussed quite a lot at the moment, is a good example.  Should we be paying a large commission or a brokerage fee for the provision of a service that technology allows to be done potentially better, but also a lot cheaper.  And that's the kind of question that we start to ask and the kind of answers that Hamlet delivers.

What's the answer?

KJ:  The answer is we need to allow technology to improve on processes.  But also, we need to look at the human element.  What is the best outcome for a user?

I presume, you're going to live on commissions, aren't you? 

KJ:  Not necessarily.  We may live on revenue from our partners.  It might be a stockbroking platform that exists within our community might make $10 a month off a user and we might say then, "We would like 10% of that for you operating within our system."

Well, that's a commission. 

KJ:  Yeah, essentially.  Or it's a fee for active users.  It does, however, bring the question of cost of acquisition into play.  And if we can provide a lower cost of acquisition for a large industry of segmented fintechs that all exist within this space and lead to a better outcome for people who either didn't know they existed before or had to go through rigorous processes with a number of providers, then there's a benefit in doing that. 

Right.  Would it be fair to say that your play, then, is cost of acquisition?

KJ:  Yeah. 

You're a customer acquisition tool for these outfits. 

KJ:  Definitely, but our focus...

And the plan is to be a lower cost of acquisition. 

KJ:  Yeah, definitely.  But also, our focus is on the consumer.  We're seeing a lot of innovators in this space at the moment who target existing big business, banks for example.  But we look at servicing the needs of the consumer.  What do they want?  Who's advocating for them?  Who's looking out for their interest?  If we put a product on the platform, it goes through our community panel.  It gets voted on by normal, everyday users of the platform.  It’s not just about how we monetise that model.  And a number of the products on our platform are free.  The investment fund, for example, we don't charge admin or management fees on any of those managed products.

And we use that as a gateway product.  We say to people, you want to invest money.  You want to save.  You want to round up in your investment accounts.  Why should we try and make money off that when we can offer this service that's as good, if not better, than those in the market at the moment and we can use that as the basis to build a community where we start looking out for your interests across all things. 

Are you going to do free investment management?  You didn't say that.  That's interesting. 

KJ:  The approach we have taken to managed funds is to look at...  There's a lot of fintechs out there that are looking at wealth management, wealth advisers, robo advisers, things like this.  They're all looking at how they monetise this model and they're charging anywhere between .25% or 1% of funds under management.  It's not a profitable business model in its own right.  We thought, why try and charge these small fees and make money from it when we can do away with the fees and add this greater service to our consumer. 

And we can open up doors to investing for them and we can use that as a gateway product to get them to come into our platform and have a look around.  And go, "Wow, there are other things I can do with my money and there is this place where I can get advocacy and advice that is not influenced by commission."  And as I said, we don't make any more or less for pushing you in any or either direction. 

Now I’m starting to get an understanding of what you're proposing.  It's a free funds investment management tool, or service, and the idea would be that you will then sell other products to them.

KJ:  Yeah, so we run a very similar model to...  You can call it a ‘freemium model’, but I use the Google example.  We all use Gmail, because it's free and it's a pretty good service.  But we've become more familiar with Google's other products as a result.  Things like Google Documents and Google Drive.  And if you've got a lot of data to store, you're happy to pay to store that with Google Drive as an additional service but you don't have to. 

You might come into our platform and use the free investment products, the round-ups from your transactions.  You might use the free bank account or the very cheap stockbroking.  And there may be other products like insurance or credit cards that you can get advice on, but we don't force you to take them, you don't have to take them and using the platform doesn't have a fee.  We make small amounts, very small amounts, of revenue off a number of things but we let you choose which products you engage with. 

You said free banking. 

KJ:  Yeah. 

What are you talking about? 

KJ:  In terms of the products we want to launch at the beginning of next year, in terms of our NVP, we're talking this approach to banking as banking as a service.  Banks make money in a number of different ways.  But fees is not the predominant revenue stream for banks, so we take the approach, there shouldn't be fees on a transaction account for everyday investors.  When you come into our platform, just like our investment fund is free of admin and management fees, we don't look to charge fees on our bank products. 

If a bank wants to work with us and we want to partner up and offer a bank account for our users as part of the onboarding process, or as an add-on, it has to be a free product. 

Why would a bank work with you and let you have a free transaction account?

KJ:  Well, free transaction accounts are not a new thing.  Most banks run a free transaction account of some kind. 

But they're upselling...  They're using it to generate business elsewhere.  You'd need to offer the bank something along those lines, wouldn't you?

KJ:  They're intending to use it as an upsell, or a gateway product.  The reality is, I guess, today's generation of customer are you, because you transact with a particular bank, are you buying their other products?  And the answer is increasingly no.  We are looking to our innovative fintechs, we are looking to other marketplaces of these products.  Obviously, loyalty is changing in terms of should it be customer loyalty or should it be provider loyalty?

The banks aren't seeing the kind of upsells they used to see and so, they're becoming more open to saying, "Well, we don't necessarily know how this landscape's changing.  It is going to change.  We're seeing it change all around the world and we don't know how it's going to look."  There are questions being asked of me from banking execs around Australia.  How do we make money from millennials?  And they don't know.  But what they do know is they do want to have users when they know how to monetise them. 

Now, it might just be the way the monetise and the amount they monetize changes and I think they're starting to get their head around that.  But they do want to make sure they don't lose users. 

Have any banks agreed to this yet?

KJ:  At the moment, we're speaking with a number of banks and again, I can't talk about those discussions.  But...

Has anyone agreed to it?

KJ:  Agreed to it in principle, yes, several.  Agreed to it in terms of seeing that this is a changing landscape and that the consumer may have a little bit more influence over the business models of the banks, yes, definitely. 

You're a millennial, I guess this is all about millennials, right?

KJ:  Definitely, yeah.  I take the approach that...  If you have a look at where banking and finance started, banking used to be done in temples in ancient Greece.  It used to be a place you could come together and borrow money from people.  It started with grain merchants.  You would borrow grain to plant more and next year, you would pay them back with more grain.  Now, the fact that banking was done in temples, which is where you also prayed, is an interesting concept. 

There was this addition of morality to banking and it wasn't until the Renaissance when a couple of wealthy Italian families worked out that they could make a lot of money off this business that we really saw what is the modern system of banking and finance.  Now, if you have a look at the way the world is innovating and changing, traditional business models are being undermined.  And we're in a lucky position that regulation's allowing us to start looking at how that innovation and change can start affecting banking and finance in a way that it has never affected it. 

Right, so the plan, then, is to collect up a bunch of millennials.

KJ:  Yeah, definitely.

And offer them to the financial world, kind of?

KJ:  Definitely.  But also, there's obviously a big disconnect at the moment between what have been traditional drivers of both professional advancement and life choices.  You used to study and you'd say, "Oh, well, I'll choose these subjects in year 10.  And I'll go to uni and I'll become an accountant.  I'll become a lawyer."

And millennials have lost that a little bit.  Because by the time they finish that degree, a lot of the time, the industries have changed.  And these jobs that were around for decades, or centuries, are all of a sudden disappearing.  They're starting to lose focus with, or connection, with, I guess, the motivation to make long-term decisions.  We're seeing a massive disconnection between their money and the choices that they make. 

We're trying to, I guess, bring back into play the things that you didn't get taught at school, the things that we don't really understand these days, and that's where we see the value of Hamlet. 

Have you raised money yet for your business?

KJ:  Yes, so we're currently in our seed round, which we're about to close out and then, we're planning a series A towards the end of the year. 

Can you tell us how much you've raised, or you’ve got commitments for?

KJ:  At the moment, I'm not able to.  I've got commitments just to touch over a million for our seed round and we'll be looking at somewhere between 6 and 10 for our series A. 

And when do you expect to launch?

KJ:  We'll go through a beta testing phase towards the end of the year and we'll launch to the market next year. 

Great to talk to you, Kane.  Thank you. 

KJ:  Thanks, Alan.

That was Kane Jackson, the CEO and founder of Hamlet.