86 400 cut the maximum interest rate on its high-yield Save account

• 86 400 cut the interest rate on its high-yield savings account again.
• Neobanks are sacrificing one of their strongest selling points in cutting interest rates amid the pandemic.

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The Australian neobank reduced the maximum interest rate on its high-yield Save account from 1.70% to 1.60%, in a follow up to its 15 basis point cut in July, per Mozo. 86 400 is one of a number of Australian neobanks — including Xinja, Volt, and Up — that have slashed savings account interest rates in recent months, following the Reserve Bank of Australia cutting interest rates to a record low of 0.5% in early March.

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These interest rate cuts come at a precarious time for neobanks globally as they feel the impacts of the pandemic-driven economic slowdown. Neobanks largely generate interchange revenue through their debit cards, and that will be squeezed during times of lowered spending, such as we’re experiencing now.

And even more-established neobanks are facing uncertainty: UK neobank Monzo, for example, is a frontrunner in the space in terms of customer base, but its losses doubled in its previous fiscal year (ended February 29, 2020), and it now faces “significant doubt” about its ability to continue operating.

Neobanks might need to reevaluate their operational structures if they can’t rely as heavily on high-yield savings accounts to attract new users.

• Australian neobanks were well-positioned for success prior to the pandemic thanks to their centering of high-yield savings accounts. Xinja, Volt, 86 400, and Judo laid strong foundations for growth in 2019, fueled by regulatory shifts the previous year that enabled them to compete with established lenders. High-yield savings accounts were a key customer draw, and the neobanks’ deposits skyrocketed as a result. But paying out this interest means high costs, which is no longer sustainable in the current environment.
• Neobanks are sacrificing one of their strongest selling points in cutting interest rates, which might make it necessary for them to boost offerings elsewhere. Neobanks should identify new incentives as multiple interest rate cuts could dampen customers’ enthusiasm for saving with neobanks. Introducing other value-added features — such as advanced money management tools — could help them continue to drive customer acquisition and deposits for their savings accounts. And they should also diversify beyond checking and savings: For example, 86 400’s push into the mortgage market could be a valuable acquisition tool, as it’s currently the only neobank in Australia to offer mortgages.

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