Avenue Bank ready to tap into overlooked market

Avenue Bank is creating an agile and flexible digital-first business banking experience, tackling what it believes to be an under-serviced market.

Dale Hurley.

The fintech is focused on creating cash flow solutions for Australia’s small and medium-sized enterprises, with plans to optimise and digitise the issuance of banking guarantees, bringing the process down to under 48 hours. 

Chief digital officer and co-founder Dale Hurley told the iTnews Podcast that from its inception, the team wanted to “put digital at the front of what we do”.

“We also obviously want to enable customers to interact with us in the way that they want to interact.

“If someone wants to complete a form online or by themselves that's great, but then, there will be other customers who want to either talk to someone or want to actually see someone.

“Our approach has been to enable customers to interact with us the way that they want”.

In terms of building out its technology, the strategy is to “buy for commoditisation and build for differentiation”.

“The whole idea is that there's a whole heap of systems where you won't get a competitive advantage building yourself," he said.

“Where there is that opportunity to get a competitive advantage, that's when we're building ourselves.”

Hurley said this might be across its digital application form or our credit risk assessment algorithms, where the team has identified ways “where we can improve the customer experience and differentiate ourselves from our competitors.”

Pursuing a cloud-native approach, Hurley said everything the startup has “been built [is] on the cloud in our AWS environment, or we're using our vendors' cloud, such as Force.com [for Salesforce] or Equinix” as well as SAP's cloud-based banking platform.

Banking guarantees 

Hurley said the founding of the company came about following the sale of CreditorWatch to Sydney-based software as a service (SaaS) company, InfoTrack in 2017.

Following the sale, Hurley and Avenue Bank co-founder Colin Porter sought out new opportunities, and “started talking about bank guarantees”.

“The problem that we had in our previous business, we had just under $600,000 of bank guarantees locked away.

“We were out raising venture capital. The process for getting bank guarantees was a horrible process and we've also had issues with landlords losing bank guarantees and thought it was a great opportunity to digitise them.

“In 2018 the new [APRA] restricted licensing regime came out and we thought it was a perfect time to address this problem within the bank guarantee market.”

By August of 2018, working under the name Go Blank, Avenue Bank began slowly putting together its authorised deposit-taking institution (ADI) application.

In September 2021, the bank was granted its restricted banking license before onboarding its first set of customers under a limited banking business authorisation in November 2022.  

The bank now operates under a restricted authorised deposit-taking institutional license, which APRA recently extended beyond the initial date of September 7 this year.  

The Treasury and APRA extended Avenue Bank's restricted license timeframe to March next year.

The restricted license means Avenue Bank has limits on the amount of deposits it can take and has simpler prudential requirements while it builds its business. 

After this time, the plan is to launch to market, “first working with different distributors, brokers, and going direct-to-market trying to attain customers”.

Hurley said the bank guarantee space is “just an area of banking which is really ignored by the incumbents.”

“You've got a $1.4 trillion mortgage market, which is very appealing. Then you've got the bank guarantee market, which is worth about $8.6 billion

“It's a very small part of banking, which we feel is a great opportunity to be able to be a specialist bank.”

He added under its current APRA restrictions, Avenue Bank is only allowed to bring on a total of 15 customers to a total value of $450,000, leading to “a very small introduction into the market”.

However, once the bank attains its complete license, it plans to go to market with its digital bank guarantee product.

Factoring in customer feedback

Hurley said listening to customer feedback has played a part in shaping its technology development.

“One of the things that we're doing is people who have an existing bank guarantee are replacing it with an Avenue Bank one.

“The process is a little bit involved in that the customer, applies, gets their new Avenue Bank guarantee, and then what they need to do is provide their landlord with the new bank guarantee and get back their old bank guarantee and return it to their incumbent bank.”

Feedback received from two customers on this process resulted in the bank developing an “infographic which explains the process” to assist in making the switch.

Continually listening to customers helps create solutions with the team already sending surveys on the sales processes and following up with customers to “really understand, what they liked and didn't like.”

Hurley sees Avenue Bank's business model as having longevity in the financial landscape.

While other neobanks have come and gone over the years, Hurley said its offering plays a key differentiation role that could play to business endurance.

“What we saw with the early neos was a lot of them launched with deposit products at the very beginning.

“For a bank, a deposit product does represent a liability on their balance sheet. We're launching with a revenue-generating product from the beginning so the deposits that we take won't be creating a liability that doesn't have an asset to right side it on the other side of the balance sheet.

“Which is really important because revenue-generating businesses is what's going to make you sustainable in the longer term.”

Hands-on approach 

Despite holding the CDO role, Hurley said his position is “definitely a lot broader than just digital strategy”.

“At the moment I'm heading up distribution as well. Also, [I’ll] assist with the capital raising and help in whatever the business sees fit."

As the team consist of only 17 employees, “everyone is really all hands-on and does whatever they need to do.”

“One of the big things about how we operate at Avenue is every quarter we have planning sessions.

“We force rank everything that we need to do and, it's very difficult as an executive committee to go, 'Your priority's going to actually take prioritisation over my priority'.

“But that forced ranking means that by the end of the two-day planning session, we've got our 25 initiatives”

“Then as we move down the list, we don't work on those items until the higher priority items are being worked on.”

Cautious on generative AI

While the bank leverages some AI that CreditorWatch developed within its creditor assessment algorithms, Hurley stated generative AI will be approached with more caution.

“There's obviously a lot of underlying technologies that power AI these days, but in terms of things like GPT and that sort of thing, we haven't had the bandwidth to assess it and work out how we could best leverage it for our business”.

He added people are quick to look at the technology as a “silver bullet” and “are trying to find problems that it can solve without really appreciating the limitations of GPT”.

“It’s one of these technologies that people really need to understand a lot more and understand how it actually works and operates.”

Hurley added that it's “really got to be heavily supervised” and is not a “solution that you should be rushing into."

“It does open up opportunities, but before you set up chatbots… using GPT, you really want to make sure that what it's saying or allowed to say is actually the truth.”

One year from now

As a new year rolls around, Hurley envisions Avenue Bank will be operating as an unrestricted bank with growth plans around “really to try to gain a strong foothold within the bank guarantee market” before “looking at launching additional products that free up cash flow for businesses.”