The long-awaited initial public offering (IPO) of shares for a neobank in Australian equity markets is expected to occur as early as next week.
According to a report in the Australian Financial Review (AFR), fintech company Douugh launched a pre-listing capital raise of $750,000 via the online platform Equitise late last week.
The AFR reported that the pre-IPO funding was secured within an hour of being shared, making it the quickest crowdfunding effort seen by the Equitise platform to date. This sensational backing by investors suggests a heap of excitement around the neobank and its unique features.
What is a neobank?
For those unfamiliar, neobanks perform almost identical functions to traditional bricks and mortar banks like the big four in Australia, but do so exclusively online without physical branches.
For some people, the inability to go into your local branch and do your banking is a deal-breaker. Neobank proponents believe the inevitable cost-reduction of being purely online represents a slimmer and more profitable business model.
Many would have heard of 'Up Bank', which is owned by Bendigo and Adelaide Bank Ltd (ASX: BEN). Up Bank was the first neobank to hit Australia, and provided snazzy features like a bright red debit card and a decent savings interest rate of 1.5%.
These innovative features draw in millennials and younger customers who find the benefits of a local bank branch negligible and would rather choose minimal fees and maximum savings.
How is Douugh different?
According to its webpage on Equitise, Douugh is taking "a proprietary artificial intelligence (AI) first approach to disrupting the business model of banking". This to be achieved by helping customers spend wisely, pay off debt, save more and build wealth through a smart bank account and debit card.
It is believed that Douugh and a washed-up telecommunications company already listed, Ziptel Ltd (ASX: ZIP), will in effect merge in a complex deal known as a reverse takeover. In layman's terms, the neobank will start as Ziptel but relist almost immediately as Douugh Ltd under the ticker ASX: DOU .
Douugh is predominantly a US-focused company. It has launched its mobile app to the US app store and partnered with American institution Choice Bank. Notably, Douugh has formed a global strategic partnership with payments powerhouse Mastercard, an alliance which is potentially adding to the hype of its pre-IPO popularity among investors.
Should you invest
It is widely known that the 'GOAT' investor Warren Buffet has never been much of a fan of IPOs. But at the end of the day, whether you should invest boils down to if you think neobanks are the future.
On one hand, neobanks attract minimal fees for customers, provide innovative budgeting tools and lower overheads, and often facilitate higher interest rates to encourage savings.
Overall, part of me thinks neobanks are the future – that they will incrementally chip away at the market share of the big 4 banks due to their popularity among millennials. For now though, the Douugh IPO is a bit too spicy for my risk appetite so I'm staying on the sidelines a little longer.
Keep an eye on Douugh when it launches in the coming days. If it performs well, I wouldn't be shocked to see a few more neobanks listing on the ASX in the future.
