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Digital lender issued restricted ADI licence

The regulator has granted a restricted ADI licence to a digital personal lender, making it one of two restricted ADIs in Australia.

The Australian Prudential Regulation Authority has granted a licence to Alex Bank Pty Ltd to operate as a restricted authorised deposit-taking institution (ADI), and Alex Corp Ltd as a non-operating holding company, under the Banking Act 1959.

APRA’s granting of the restricted licence to Alex Bank has followed it extending the restricted ADI of challenger bank In1bank, while digital bank Volt was the first to receive a restricted ADI in 2018 (but it now has a full ADI licence).

The restricted ADI path provides eligible applicants with a restricted licence for a maximum of two years before they must meet the prudential framework in full.

The licence permits them to conduct limited banking business while developing their capabilities and resources, and allows them to enter the banking industry without “materially” reducing entry standards, according to APRA.

Restricted ADIs are subject to a deposit limit of $2 million on the aggregate balance of all protected accounts, and a deposit limit of $250,000 on the aggregate balance of all protected accounts held by an individual account holder.

They are also subject to limits on the level of tier one capital, assets and liabilities, and the assets held on the licensees’ balance sheets.

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Those who are unable to meet prudential framework requirements within two years would be required to exit the banking industry.

Alex Bank does not yet meet APRA’s full prudential framework for an ADI under its restricted ADI licence.

Alex Bank was founded in 2018 by former Suncorp banking professionals Simon Beitz and Craig Fenwick, with board members including former Judo Bank co-founder Alex Twigg, non-executive director of various public companies Kathy Ostin (who is the non-executive director of Alex Bank and chair of audit committee), and former banking executive Greg Moynihan.

Alex Bank’s personal loans are available for a minimum of six months to a maximum of five years, with interest rates ranging from 5.45 per cent to a maximum annual percentage rate of 19.99 per cent (comparison rate of 5.45 per cent to 19.99 per cent).

Based on the bank’s average interest rate of 12.99 per cent per annum (comparison rate of 12.99 per cent per annum), the total repayments of a loan for $30,000 over a five-year term would be almost $41,000 (including no establishment fee).

The bank uses a 100 per cent digital model, which it said reduces overheads associated with traditional banking and branches and lowers fees. It uses its proprietary decisioning platform Alex Intelligence to enable automation.

Through the technology, the bank has processed over 10,000 loan applications in the past six months (which it said takes three minutes to fill out), and aims to provide a decision on loan applications within one business day.

Its arrears rate for 90 days and over is currently at zero.

Identity verification for applications is done automatically through a photo capture of the applicant’s identification and a selfie of the customer using a biometric verification process. Artificial intelligence technology is then used to ensure that they are the same person.

Alex Bank said that it has approved more than $8 million in personal loans to date, and raised more than $35 million from Australia’s largest and “wealthiest” private investors.

It has aimed to secure around 3 per cent of the prime consumer lending market in Australia by targeting credit consumers, and will then scale and build out key products, it added.

Alex Bank’s digital business model has aimed to achieve above industry average margins by targeting consumer lending funded by deposits, Mr Beitz said.

Following the restricted ADI period, deposits from customers would fund loans and credit for other customers, while interest generated from borrowers would fund the interest paid to savers, he added.

Mr Beitz said that this strategy has fuelled growth of other global lending-led institutions.

[Related: APRA to review approach to new bank licensing]

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