NAB lands approval for 86 400 acquisition despite competition concerns
National Australia Bank’s (NAB) AUD 220 million ($169 million) acquisition of 86 400, a Sydney-based digital bank targeting retail consumers, has landed approval from the Federal Court of Australia.
The latest win marks the final greenlight NAB needs to seal the deal. It landed approval from the Australian Competition and Consumer Commission (ACCC) last month.
86 400 bagged its own banking licence back in 2019
The regulator found the acquisition would not diminish competition, despite Rod Sims – ACCC’s chairman – telling The Sydney Morning Herald in January it was “on the lookout” for Big Four acquisitions which violate competition.
“You’ve got four big banks with a fair bit of market power. They are a very well-established oligopoly,” said Sims.
“The most likely form of challenge is going to come from innovative fintechs coming up with new ways of doing things. […] What we are on the lookout for is the big four […] buying anything that has the potential to be a vigorous competitor.”
The ACCC then said two months later: “Market feedback suggested that while 86 400 is innovative, particularly in reducing the time and effort in completing home loan applications, there are a number of other businesses with similar offerings […] these other competitors continue to bring a similar disruptive influence to the market.”
Australia’s Treasurer and the Australian Prudential Regulation Authority (APRA) have also approved the deal.
Competition?
86 400 is known for its home loan products. Fellow Aussie challenger Judo Bank also offers home loans, while local fintech Volt Bank has yet to launch its mortgage product, still in the testing phase.
Both Judo and Volt have landed banking licences. Volt landed Australia’s first restricted banking licence in May 2018. Whilst Judo landed its own nearly a year later.
Newcomer Nano Home Loans, formerly known as Verteva, is gearing up to focus on the low-risk end of the market. It wants to use pre-existing data to deliver its loans.
The start-up recently landed a new chief product officer (CPO) from Volt, Shaun Lordan – who served as Volt’s head of payments and partnerships for three years. Volt landed Australia’s first restricted banking licence in May 2018.
In March 2020, major Australian banks introduced a blanket six-month pause on home loan repayments. But according to ABC News last October, smaller repayments meant interest jumping from 3.58% to 5.42% for some customers.
The rises in interest charged by incumbents following the pause on loans means products offered by the likes of Volt, Judo, Nano, and – until recently – independent fintech start-up 86 400, seem far more appealing.
The deal
NAB originally held a 18.3% stake in 86 400, having invested in the start-up’s Series B. The bank then decided to purchase the remaining shares for $220 million – a premium compared to the price new and existing investors paid during 86 400’s Series B.
Upon its acquisition, NAB says 86 400 has some 85,000 customers and 320,000 accounts. It holds AUD 375 million ($288 million) in deposits and AUD 270 million ($207 million) in mortgages.
86 400 launched the first digital mortgage for brokers in November 2019. It claims to house more than 2,500 accredited brokers.
Having bagged its own banking licence back in 2019, 86 400 will now combine with NAB’s digital offshoot, UBank.
UBank offers a host of savings features and provides home loans, claiming to serve some 600,000 customers, according to its CEO, Philippa Watson.
For NAB, the deal is likely tech related, as developing in-house is both timely and costly for incumbents.
Implementation will happen on 19 May 2021. Until then, 86 400 and UBank will continue operating as separate businesses.
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