Track Record of Success
Anthony Thomson is a serially successful banking entrepreneur who has built two successful banks. He joined 86 400 as the Chairman to help build Australia’s first smartbank. 86 400 is a “neobank” that tells customers what’s actually going on with their money, so they feel in control every second of every day. All eighty-six four hundred of them.
After securing over USD1.5bn in deposits in his first two successful banks, Metro Bank and Atom Bank, Anthony’s guidance has seen 86 400 amass over AUD120m in deposits within 3 months of receiving a banking licence in late 2019. Also, 86 400 has become the first Australian “neobank” to offer home loans, which gave it a first mover-advantage in a AUD16.4bn addressable revenue market.
How did Anthony avoid the most common entrepreneur mistake of building a product or service that no one needs?
Anthony saw the opportunity to satisfy the demands of millions of Australians who wanted a completely digital bank (no branches and legacy systems). So when the government opened up the market to new entrants, he pounced. By having an app only offering, 86 400 charges no fees and passes on savings to consumers through an on-going savings rate approximately 5x the average rate of legacy banks.
Australia is a particularly interesting case-study when it comes to banking because there was, up until 2019, only 4 banks with banking licences. This meant that there were only 4 banks that could take deposits from 25m Australians. The rationale behind this was to create financial stability because when the banks are backed by the government they cannot fail. This resulted in an oligopoly with little competition and poor customer satisfaction.
As a result, customers were very dissatisfied but the big 4 banks in Australia remained amongst the most profitable in the world. Usually when you have an open market, the government does not protect you from competition, so you cannot deliver a poor experience and still remain hugely profitable.
Compare this to say the United States, where there are thousands of banks with lots of competition, choice and differentiation (one of those being the ability to use a completely digital bank).
How has technology impacted the Australian banking market?
As digitisation continues to create an increasingly digitally-native society through Netflix, Spotify, etc, the effects have trickled down into the banking sphere.
In a 2020 survey, 2 in 5 Australian’s (40%) between the ages of 18 and 34 do a majority of their banking on a smartphone app. However, they still receive little to no interest on their deposits despite never visiting a branch. Essentially, they do not use the high-cost services that these legacy banks provide (e.g. branches) but still pay the price for them. The younger generation are subsidising the cost of a legacy business model without getting any benefit. This is where digital-only banks, “neobanks”, like 86 400 come into the picture. They have a low-cost business model (no branches and high-cost legacy systems), which allows them to pass on the cost savings to consumers through higher on going saving rates.
Anthony saw the ‘digital banking’ opportunity, and the Australian government’s willingness to introduce competition by granting new banking licences. So, he pounced at the opportunity.
In 2019, 86 400 was granted a banking licence and now offers a 2.25% interest rate on deposits of over AUD1000 compared to the average 0.50% of the big 4 banks in Australia (approximately 5x). It is able to provide this rate because it is completely digital (app only), so the cost savings (no branches and legacy systems) are transferred to customers.
In the same study 25% of Australians have switched or are considering switching to a neobank.
As the data suggests, a large number of consumers (approximately 5m Australians) want a higher ongoing savings rate and are willing to have an app only experience to get it.
How big is the market opportunity for 86 400?
Anthony is looking to capture a portion of the AUD57bn addressable revenue pool by executing on his proven process for successfully building digital banks by giving consumers what they want.
How is Anthony beating out the competitors, something most startups crash and burn trying to do?
Legacy banks have lost the trust of a majority of Australians due to their exploitative conduct. They charge high fees and give consumers low savings rates because they were protected from competition by the Australian government. Under Anthony’s guidance, 86 400 is now viewed by consumers as more trustworthy than the legacy banks.
According to a 2019 survey, Australian banks had lost the trust of consumers by exploiting their oligopoly position. The big 4 banks charge their customers as many fees as possible and pay them the lowest interest rate on their savings.
However, trust in the eyes of the consumer is 2 fold. Firstly, knowing that their money is guaranteed. Secondly, that their bank is acting in their interests (charging the lowest fees and highest ongoing savings rates).
So, if trust is the opportunity, then how is Anthony building trust with consumers and moving ahead of competitors?
Firstly, by securing a banking licence, 86 400 is subject to the Federal Government’s deposit guarantee scheme that covers deposits up to AUD250k per person. This means they are governed the same way as the big 4, so there is the same level of risk because if 86 400 goes under their customer’s deposits are guaranteed by the government, which is exactly the same as the big 4 banks.
Secondly, consumers know that by removing branches and legacy systems by providing an app only service for consumers, 86 400 can continue to charge no fees and provide one of the highest on-going savings rates.
Anthony knew that legacy banks exploiting consumers was an opportunity for a neobank to provide consumers with an app only banking experience and the trust they want. Consumer trust is evidenced by the fact that more than AUD120m has been deposited since September 2019.
How is Anthony implementing the correct business model, which is a problem that kills most startups?
86 400 became the first neobank to offer home loans in Australia. This means it has first mover advantage to capture a AUD16.4bn total addressable revenue pool.
The Credit Suisse analysts also believe that of the AUD57bn addressable revenue pool, AUD16.4bn is in consumer home loans (29%).
Anthony is laser focussed on the most valuable revenue area, which is consumer home loans. While other neobanks are focussing on the entire market, 86 400 is the first and only neobank in Australia to offer home loans (first mover into a AUD16.4bn revenue opportunity).
Anthony knows that by offering no fees and giving each customer on average AUD240 per year through ongoing savings rates, consumers will flock to 86 400 (more than AUD120m was deposited by consumers in the 3 months following the granting of a banking licence).
Also, he knows that by giving more value consumers will deposit more and more. He is driving this by offering customers a complimentary hassle-free way to switch and save on their electricity bill, called ‘Energy Switch’.
Why is Anthony so focussed on getting deposits?
So, the more money deposited by customers the more money they can lend out as home loans, and the more revenue they make from the interest on those home loans. It’s a win-win, the consumer who deposits gets huge value and 86 400 makes money by lending out the deposits to those consumers who want to buy a house.
After securing over USD1.5bn in deposits in his first two successful banks, Metro Bank and Atom Bank, Anthony’s track record suggests that he can get the initial AUD120 in deposits to 10x.
So, what does this mean for you as an investor?
As you can see from the 86 400 example, successful entrepreneurs make investors more money, more often because they are able to overcome the major reasons why startups fail. This is reflected in the statistics, which found that first-time and failed entrepreneurs had a 20.9% and 22.6% chance of success, respectively, whereas already-successful entrepreneurs had a 30.6%.