The news: Australia’s first all-digital bank, Volt, is exiting the banking sector and returning its banking license, per Reuters.

More on this: The neobank, which was founded in 2017 and gained an Australian banking license in May 2018, is closing up shop after failing to raise sufficient funds to run the business.

• The company is returning its A$113 million ($84.4 million) in deposits to its roughly 6,000 customers and is selling its mortgage book, comprising A$80 million ($60 million).
• It will also give up its banking license.

Volt had already adjusted its business plan last year by shifting to a banking-as-a service (BaaS) model and partnering with the Australian Mortgage Marketplace (AMM). Around the same time, it also raised A$85 million ($63.8 million) from Australian Financial Group (AFG) and offered white-label mortgages to AFG.

Australian neobanking falters: Volt was one of four original neobanks that Australian regulators approved after misconduct increased within Australia’s financial industry. The misbehavior caused the country to loosen its rules for new banking entrants in 2018. Of the original four neobanks it licensed, only one remains in business today.

• Xinja collapsed in December 2020 after mishandling its spending.
• Neobank 86 400 was scooped up by National Australia Bank in February 2021.

That leaves Judo, which went public in 2021 and posted double-digit growth in net interest income and gross loans and advances for its fiscal H1 2022.

The big takeaway: The pandemic appears to have signaled the start of the neobank contraction in Australia. When home loan demand spiked and incumbent banks embraced a more digital approach, neobanks lost their digital competitive edge and the income they generated through home loans took a hit. As we’ve reported, neobanks already have a tough time turning a profit, and with interest rates rising, capital investment is freezing up. Those two hurdles, coupled with now-stricter Australian banking requirements, could signal the drying-up of neobanks within the country.