The banks with no branches taking on Australia's Big Four

Imagine being able to apply for a home loan, and get it approved, in under 14 minutes.

Or have an app that prompts you to look at everyday behaviours that may be costing you money; or receive a smiley emoji when you reach your saving goals; or get a reminder to review your car insurance; or be alerted to a better energy deal because your bank reckons you're paying too much.

If that all sounds exciting, then you'll be sold on what non-banks are selling - super-slick technology.

As Eric Wilson, CEO and founder of neo-bank Xinja, says, "think Netflix or Airbnb for banking".

Despite the lack of products from some of these new-breed fintechs, the hype around what they will offer and their cutting-edge technology is gaining serious traction.

The big question, though, is can they match the big banks on price and, if so, will their offers be sustainable?

While they're driving innovation, comparison site RateCity says it will be hard for them to undercut some of the current players.

"Australians are notoriously cautious about who they bank with," says RateCity's Sally Tindall.

"Around 75% of homeowners have their loan with one of the big four banks and almost 80% of our savings are with the big four and their subsidiaries. That's a big mountain to climb."

So what exactly is a neo-bank and how different is it from a digital bank?

Wilson says it's important not to get the two confused.

"A true neo-bank has no old-style banking technology, no legacy banking systems and no bricks-and-mortar branches. It's not a digital front, refreshed and stuck on front of an old-style established bank," he says.

So far more than 25,000 people have signed with Xinja, which isn't too bad considering it has only two products still in the beta (development) stage: a prepaid card that doubles as a fee-free travel card and a home loan that was tested at 3.4%.

On the back of the new licence framework introduced in May 2018, Xinja has received what Wilson describes as L-plates in banking.

"You can call yourself a bank as soon as you have a restricted banking licence and you require a lower level of capital to get a restricted licence."

Under the changes, eligible entities can seek a restricted licence (a RADI), which allows them to conduct a limited range of activities for two years while they build their capabilities and resources.

The RADI means that the combined value of deposits held by the bank from all account holders cannot exceed $2 million.

Volt Bank was the first start-up to receive a RADI as part of a government plan to boost competition. It has since been granted its full licence. Unlike Xinja, it didn't launch any products until it received the full licence.

But now you can expect it to launch prepaid cards and debit cards while lending on its own balance sheet.

Judo Bank was granted an unrestricted licence in April, while Xinja expects its full licence in the middle of the year.

While it may seem scary to put your money in a start-up, it's reassuring that neo-banks go through the same regulatory processes as traditional banks. The government's $250,000 deposit guarantee also applies.

Despite the firepower of the big banks when it comes to price, the good news for non-banks is that they could be beneficiaries of the Hayne royal commission.

As Josh Sale, a senior analyst at Canstar, points out: "Commissioner Kenneth Hayne has lifted the lid on some of the less scrupulous practices of traditional Australian deposit-taking institutions, leaving consumer sentiment with the traditional banks at an all-time low. Neo-banks are well placed to position themselves as an attractive alternative to consumers."

The key to success for neo-banks is not so much competing on price (we already have fee-free accounts and cheap home loans) but innovation. Even though they have the heads up on innovation, it won't be an easy road, according to Tindall.

"They are likely to catch the attention of younger generations who are fixated on doing everything with their phone but these Australians are unlikely to be making any big banking transactions anytime soon. Neo-banks will have to play the long game if they want to succeed."

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