Was Xinja designed to fail?
By Hamilton Jones | Chief Digital Officer
Most content I’ve read about neobank Xinja’s fall suggests they didn’t stick the landing on Banking 101 (taking only customer deposits, but deriving no revenue from loans). It made me think about the conversations they must have had in the planning and design of the business. How did they not anticipate this?
If you think about the role for innovation and neobanks, the ones still going strong have revenue through loans. This gives them the oxygen they need to evolve and sustain growth. Judo is a great example of this. With these important commercial factors in place, you can certainly argue these successful neobanks have achieved the ‘viability’ aspect of the Desirability-Viability-Feasibility (DVF) trifecta.
Looking overseas, those neobanks who have successfully gone the customer-focused route also look at how to drive viability differently. Of these, N26 (www.n26.com) offers premium subscriptions that allow customers to access a range of insurances, additional tools and retail discounts.
At STCK, we examine businesses using the DVF trifecta with an additional fourth factor, Purpose (but that's a discussion for another blog). When addressing viability, we think it’s important to consider who you can add to design discussions to help bolster viability. Subject matter experts who focus on business design and modelling, revenue and pricing specialists, operation and finance people: find the people inside or outside your business who can help build a robust and viable answer to your revenue woes. Just don't move forward until you have the right answers to test, validate and evolve.
Reflecting on Xinja’s case: they got customers, had a fun brand, stakeholders wanted to get on board, and that got them a banking license and money. They went hard on desirability and feasibility, but missed the most important thing to their potential: being viable in the short and long term. They didn’t have a strong revenue stream to sustain the business over time.
Alarm bells always go off whoever I see models scaling with customers and not revenue, and with Xinja’s collapse, it’s clear to see the time for this practice has passed.
Late-breaking additional thoughts:
Last Friday’s news about NAB’s purchase of 86 400 throws more light onto the purposeful consideration of viability in designing neobanks. It makes me ponder the kinds of viability discussions 86 400 had. Surely their plan at the outset was to grow as big as they possibly could: no-one who goes through the hoops and expense of getting a banking license would hope for less.
Which brings us to their exit: I wonder if they perhaps couldn’t see a future with the scale they’d anticipated and adapted their design to give them more commercial options. If that’s true, then exiting the market with a $220m sale which delivers a triple-return to investors was certainly an astute pivot.