Fallen neobank Xinja has given shareholders two options – wind up the company and expect a “very small return” or support its relaunch as a wealth business focused on its US share trading platform.
Xinja chief executive Eric Wilson emailed shareholders last Friday to apologise for the lack of information and seek advice on how to proceed.
Xinja has asked shareholders to vote on the future of the company.Credit:
The email, obtained by The Age and Sydney Morning Herald, said the company remained solvent, had a “modest” cash balance and retained its intellectual property assets.
Xinja made a significant portion of staff redundant after announcing plans to exit banking in December but retained a small, technical team to “prepare for the next stage in Xinja’s life”, the letter said.
“Obviously any return will be a long, multi-year path back for Xinja,” the letter said. “If shareholders are willing to support it, the business may be able to reset and rebuild shareholder value.”
Xinja shocked shareholders and customers when it announced plans to close all customer accounts and return its banking licence, 15 months after obtaining the licence and promising to shake-up the industry.
Mr Wilson told shareholders the company’s vision was always to provide “a new, better, ethical place for 25 to 45-year-olds to meet their financial need” and outlined a series of business ideas for the future.
“The most obvious is our US share trading platform, but we also have a personal lending product we have spent considerable time and effort on, as well as our platform that can integrate new and third party products swiftly.
“With your support I would like to try and rebuild our business over the next few years into a wealth platform on app and net, where customers in our target demographic can go to build their wealth through various assets, get great value loans and get access to everything they need to look after their money.”
Mr Wilson said the company would need to obtain financial services licences through the Australian Securities and Investments Commission, rather than APRA, which would reduce the level of capital required to operate legally.
“Our cost of regulation and compliance, while still material, as a non-bank financial institutional will be materially less than that of a bank,” he said.
Xinja’s auditors had previously warned the neobank was at risk of breaching its legal obligation to maintain a capital buffer within APRA’s requirements, as the company offered customers high-interest savings accounts but had no revenue-generating products to counter the outflows.
Mr Wilson told shareholders the company could now build new products from scratch, white label others or offer customers products through a “hybrid” model, before pledging to work without salary for six months.
“I don’t wish to sugar coat this. It will be a long and difficult journey with considerable risk. We will be starting with a small team and limited capital. It will require further capital.”
The other option, Mr Wilson said, is to wind up the company. “This would crystallise a substantial loss for all shareholders, but it would ensure at least a very small level of return.”
Xinja told shareholders the return could be between zero and 5 per cent of any original investment.
Shareholders will vote on the two options through a series of “non-binding polls” at an online meeting to be held on February 17. “These decisions of course rest with the board, but the directors want to seriously consider the wishes of shareholders,” Mr Wilson said in the letter.
‘Lost my trust’
In an online community, a small group of shareholders voted on three options, with 61 per cent voting for “I won’t trust Xinja to be a customer of them again”.
Thirty one per cent of the poll, which sampled 47 shareholders, voted to launch the share trading platform and 6 per cent supported returning whatever value is left to shareholders. Xinja secured 46 new wholesale investors at its most recent capital raising and has more than 2500 retail shareholders in total.
Shareholder Will Rosewarne said he will be voting in favour of winding up. “Eric [Wilson] lost my trust long ago and that they think their US share trading platform is the best way to launch a wealth business shows they don’t get it,” he said. “I’d rather get something back.”
Max Powah, a 32-year-old web designer, invested $20,000 in Xinja’s early capital raises, the maximum amount possible as a retail investor, and said he won’t be investing more but he doesn’t want to see the company go into liquidation.
“It doesn’t sound worthwhile them wounding it up and giving money back,” he said. “The minimum investment was $250 during the retail round. So if you’re talking about only paying back 5 per cent, does anyone really want to get $12.50 back?
“It’s just not worth it, you may as well leave it and if they can push these products out by the end of the year.”
Mr Powah said he would continue to monitor Xinja’s product development, but has been left frustrated by delays and hoped the directors had learnt lessons from the failed banking experiment.
“We have to see whether they can do something with Dabble, the share trading platform. But they’ve missed the big spike with everything going on in America at the moment,” he said, referring to the historic rally in GameStop shares last week.
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