By Paulina Duran
SYDNEY (Reuters) – Australia authorized its first banking license to an internet-only startup on Monday, a step the banking regulator said it hoped would improve competition in a sector dominated by four major lenders.
The Australian Prudential (LON:) Regulation Authority (APRA) introduced the new “restricted” accreditation for new retail banks on Friday and granted the first such license to volt bank Ltd, an online platform.
The APRA’s move comes just months after it was criticized for failing to stimulate competition and contributing to an environment that promotes record profits for the dominant Big Four: Commonwealth Bank (AX:) , National Australia Bank (AX:), Australia and New Zealand Banking Group (AX:) and Westpac Banking Corp (AX:).
With about A$1.8 trillion ($1.35 trillion) of mortgages on their books, the Big Four dominate the market and hold the lion’s share of deposits and consumer credit loans such as credit cards.
The license allows volt, which has raised A$15.7 million in equity for research and platform testing, to raise A$2 million in deposits via its online platform, a spokesman for the company said.
Restricted licensees can call themselves a “bank” but cannot “actively” conduct business and have two years to become fully licensed, according to APRA’s guidelines.
Licensees can seek permission to operate and grow assets to up to A$100 million while they engage with the regulator to obtain their full credentials, according to the guidelines.
APRA had received several other applications from companies seeking the new restricted license, APRA said on Friday.
“volt bank will show Australians how banking can be done in a simpler and better way,” said volt Chief Executive Steve Weston.
“The trust between many Australians and their banks has been broken and the path to repair starts with new market entrants who are willing to do things differently,” Weston added.
Australian banks are the target of public anger after a string of scandals in recent years led to a powerful investigation into misconduct in the sector which has exposed even more abuses of power and unethical conduct by the banks.
The investigation, however, has also revealed unscrupulous practices by smaller financial companies.
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