But dozens of potential investors solicited by advisors dismissed Rothschild, citing market conditions.
“This raise required us to attract new, larger investors, and the timing just didn’t work for us,” said Volt CEO Steve Weston The Australian Financial Report. “We just couldn’t raise the necessary capital.”
Judo Bank has raised $1.8 billion in capital, including $653 million through its November 2021 IPO. Volt’s fundraising was more modest; All in all, it had raised $212 million in seven private rounds.
“It breaks your heart”
The additional $200 million it was aiming for would have made it this year. But another $1 billion in capital would have been needed to support projected mortgage growth through 2024. Volt expected to break even by the end of next year.
“I sincerely hope we see disruptive competition because we need it, but banking is a capital-intensive game and we can’t turn our backs on it,” Mr Weston said.
“I don’t think this is the end of the neobanking experiment, but we were at a very bad time to raise capital. If you want to become a bank and expand, you need a lot of capital, and if you don’t [raise it]you will not be able to grow.”
Volt’s model differed from the other neobanks in that it also built a “banking-as-a-service” infrastructure to allow it to extend loans and deposits to partners like mortgage brokers AFG and Mortgage Choice and BTC Markets forgive.
APRA will closely monitor the process to ensure funds are properly returned to Volt depositors in a timely manner.
— Australian Regulatory Authority Statement
This required a capital-intensive technology build-up. Volt is believed to be spending $1 million a week on its people, systems and strategy to win new customers.
Mr Weston said demand for the Banking-as-a-Service offering has remained strong, with Volt getting ready to start testing with 12 partners and 100 potential customers. Many of these should go live when the Serie F boost arrived.
“I’ve heard so many times from major global investors that they liked Volt’s story and subject matter, including Banking-as-a-Service and the team, and if we had been in front of them before September of last year, we would have had a different one decision made. ” he said.
“We tried. We traveled the world and talked to investors. It rips your heart out.”
Volt hopes to sell its mortgage-approving technology system to reclaim shareholders’ funds.
“We considered all options in making this difficult decision, but ultimately we made this decision in the best interest of our customers,” said Mr. Weston.
Volt Bank had $113 million in deposits, according to Australia’s Prudential Regulation Authority statistics for April. That number is now reported to be around $106 million, held by 6,000 clients. The deposits were reinvested in other banks.
Deposits up to $250,000 are protected under the government’s Financial Claims Scheme, but Volt is expected to refund all deposits in full, so the scheme won’t be triggered.
“Volt’s decision to exit the banking sector and pursue other business opportunities is a commercial decision for Volt,” APRA said in a statement. “As Australia’s financial security regulator, APRA will closely monitor the process to ensure funds are properly and timely returned to Volt depositors.”
Volt never opened the savings account to the public. It used a waiting list system and attracted depositors to support the lending book. A statement on Volt’s website urged customers to withdraw their funds by July 5.
“Volt has taken steps to reduce all expenses and headcount, except for those needed to support the orderly return of deposits and to track the value of our remaining assets.”
victim of timing
The proposed Series F raising follows a fundraising last year in which the Australian Finance Group participated in a $100 million round of increased funding. In 2020, Volt attracted $50 million in a price hike. Pepper Money was also a strategic investor.
Its plans to offer Banking-as-a-Service became more difficult when Westpac entered this market through a partnership with 10X Banking and was able to attract Afterpay as its first customer in October 2020.
It’s also been a victim of timing — its capital-intensive credit scoring and core banking system it built for years is now available through a range of alternative providers. One of them said Volt made a strategic mistake in building their own system instead of looking for a partnership with specialists.
“Of course, there are many reasons why a neobank’s business strategy can fail, but it’s important to look at the technological choices that are being made,” said Paul Apolony, general manager at Mambu, a cloud-based banking ledger provider.
“Many neobanks are taking a very technologically conservative approach, choosing incredibly expensive core technology that simply replicates the capabilities of existing banking platforms, rather than being open to the possibilities that innovative cloud core banking platforms can offer.
“By replicating the existing technology base, these banks subsequently face similar challenges to traditional banks in terms of an inability to scale effectively, a lack of innovation, and the ability to pivot when needed.”
Volt’s partners expressed shock at the closure. Parpera, a money management app, used Volt to provide deposits to its customers and said it is now looking at alternative banking-as-a-service providers to maintain its service.
“We take this matter very seriously and apologize for the inconvenience caused and understand the impact this will have on you and your business,” said Daniel Cannizzaro, CEO of Parpera, in a letter to clients.
Volt is the second neobank to fail after Xinja, which quickly amassed deposits through an ambitious marketing campaign and an attractive interest rate but struggled to deploy the funds through lending products. It has been the subject of controversy after claims of raising $433 million from investors in the Middle East in mid-2020. APRA Chairman Wayne Byres called it a “successful failure.”
Mr Weston said Australia’s prudential rules and capital commitments for new banks were appropriate and he did not blame APRA’s failure. “APRA couldn’t raise capital for us,” he said.
He said the requirement that no single investor at a bank could own 20 percent was an aggravating factor during the latest attempt at a top-up, and some shareholders are concerned they could hit that cap if they were forced to make higher allotments in future top-ups .
“The entire Volt team is deeply disappointed to have reached this point,” he said. “We are extremely grateful to everyone who believed in what we wanted to achieve and worked tirelessly to make Volt a success.”