First, APRA. Next? Loans
Zeller, a payments provider for businesses, has raised a further $50 million in capital and outlined plans to become an APRA-regulated bank.
The company was founded 18 months ago by Ben Pfisterer, the former Australian head of payments provider Square, which in turn was founded by Twitter boss Jack Dorsey. Zeller also sells cheap devices that allow businesses to accept credit card payments, according to a report by The Australian Financial Review.
Zeller has built a payments switch and gateway and offers payment terminals for $300. It also offers a transaction account and a credit card for making and receiving payments. The account and card are provided by ASX-listed EML Payments, AFR reported.
Pfisterer told AFR that Zeller would “start looking at the official application process” for an Australian Prudential Regulation Authority banking licence next year.
“From the outset, we have prepared to be regulated, and have built our risk and compliance systems with the aim of being the ‘main financial institution’ for businesses,” he said.
Zeller was founded in January of 2020. It raised $25 million in March, and this week reported that it had received an additional $50 million in funding from Spark Capital, a US-based venture capital firm that also backed Twitter and Slack. Zeller has now raised $81 million in the last 12 months, AFR reported. The company said that some of the funds will go towards 18 new engineering jobs.
Zeller is diving into a highly competitive sector. Major banks have $550 billion of the $800 billion market for business loans, according to AFR. Non-banks are also becoming major players in the space. American Express has announced that it will start lending to SMEs, as has Square. Stripe, another US payments company, said last week that it planned to expand its Australian presence, and Amsterdam-based Adyen is also entering the payments space, AFR reported.
Pfisterer told the publication that more than 1,500 businesses joined Zeller in its first month of operation. He said that 80% of them were “disgruntled customers” of a big four bank.
Zeller is a bit of an outlier in pursuing its own APRA licence as an authorised deposit-taking institution. Many tech companies, such as Afterpay, simply rent the licences of big banks.
“We want to own as much of our own infrastructure as possible,” Pfisterer told AFR. “We don’t want to be reliant on a third party and get stuck behind a prioritisation queue, or behind bigger clients.”
Pfisterer said that becoming an unrestricted bank – a process that could take until at least 2023 – was “more capital-intensive in the short term, but in the longer term, it’s the better model as you can control your destiny and it becomes cheaper with scale.”
Pfisterer acknowledged that the major banks were improving their business lending processes. Commonwealth Bank says that its BizExpress online tool can approve and deliver loans of up to $100,000 to customers in as little as 12 minutes.
“You can’t enter the market and not look to take them on,” Pfisterer told AFR. “But if you look at the big four offering, they are very commoditised and we can offer a faster and simpler solution. We don’t underestimate them, but we need more competition.”
Pfisterer admitted that it takes a long time to establish a presence in the payments sector.
“Square is 12 years old, and PayPal is 22,” he told AFR. “They seem like overnight successes, but they have taken a fair while to get established.”