Lessons from Xinja's Failure (Australia's First Neobank)

Hey — It's Nico.

This is issue #4 of this 4-email series covering the Stories of Big Failed Startups. This week, the story of the first neobank in Australia, Xinja.​

🙌 Welcome to the 430 founders who joined this week.

The FinTech industry has been one of the hottest ones for some years now, with billions of VC dollars flowing into FinTech startups while their valuations skyrocketed.

Out of the 1,016 existing unicorn companies, 166 are in the FinTech industry, including some of the highest-valued ones like Stripe ($95B), Klarna ($45B), and Checkout.com ($40B).

Within FinTech startups, neobanks (app-based banks) have received particularly significant attention and massive investments.

But while some neobanks have been able to build sustainable business models and expand worldwide, others have had a different fate. Xinja belongs to this second group.

This newsletter is brought to you by Around:

Xinja was the first neobank in Australia, opening its doors in 2017.

Xinja’s first product was a prepaid bank card linked to an app, which tracked users’ expenses and helped them build a better saving habit. As it didn’t provide much value, the market kind of ignored it.

In its search for Product-Market Fit, 2 years later, Xinja launched their star product: “Stash” - a bank account that offered the highest interest rate on deposits across Australia: 2.25% (DeFi folks must be laughing now).

It came as no surprise that Australians started to flock to the bank, injecting over $200M of savings within a few months.

But it quickly became clear that Xinja’s interest rates and business model wouldn’t last long - it was just a matter of time until the $146M they had raised from VCs and were using to pay interests ran out.

The run rate was incredibly high for two reasons:

1. For some time, Xinja had no loan business. They were paying the highest interest rate in the country without receiving any revenue from loans.
2. The company was spending millions on advertising, rents, employees, etc. The budget distribution seemed irrational.

In 2020, Xinja’s interest rate was cut 4 times, meaning the neobank lost its competitive advantage.

Furthermore, just after they closed a $433M round from Dubai-based World Investment, the COVID-19 outbreak happened, and the deal was never approved by regulators.

In December 2020, the company announced they were returning all deposits to customers and shutting down.

Startups often fail at the validation phase in their struggle to find product-market fit, as you can see on our Startup Failure Rate Report.

Xinja, however, stumbled on the efficiency phase, in which startups try to find a sustainable business model that can be scaled.

Scaling operations before you have an economically sound business model is a very risky move, and for the Australian neobank, it proved to be a bad decision.

​Here’s our analysis of Xinja’s failure.​

If you enjoyed this week's failed startup story, you should check this month's first issues:

• Issue #1: What was Atrium & Why Did it Fail?​
• Issue #2: Quirky: What it Was & 3 Main Reasons Why it Failed​
• Issue #3: Shutting Down an Education Non-Profit Organization​

Finally, here are my 3 recommended resources of the week:

• ​Writing Handbook: A mind-blowing article, where Julian, whose articles have been read millions of times, shares how to write (and particularly re-write) nonfiction content, with clarity, succinctness, intrigue and style as the goals.
• ​The Durability Formula: This article proposes a formula to determine your startup's future valuation based on 5 factors: Durability = Network Effects + Economies of Scale + Brand + Embedding + IP.
• ​How to Write Good Job Posts: In the current job market, startups almost have to "sell" their job positions to candidates, particularly if these are related to developers. This Twitter thread shares some advice on how to create great job postings.

That was all for this week's issue. I hope you enjoyed today’s article and curated resources.

Cheers,

Nico