Last year, Xinja became a bank. Last week, it broke its first promise.
First published 7th March 2020.
Spin — It doesn’t matter whether you’re the PM wanting to go to the footy and shift your public gathering ban until after the match, or whether you’re a new bank trying to convince the country you’re not like all the other banks — spin is kind of important.
We’re used to spin. We live in a spin kind of world. Without spin presidents can’t grab women by the pussy, government ministers can’t give free money to their gun clubs and company’s cannot break promises.
It’s a sad truth, but it is the truth. Almost everything the lay person hears is spin.
Last week I wrote some truth about a sensitive subject and it got some people hot under the collar. Some were pro-truth, others were lemmings. Either way, arousal was definitely achieved. However, as Harvey Weinstein recently learned, not all arousal is good.
Perhaps referring to a marketing campaign as a ponzi scheme isn’t the best way to start an article.
Well, anyway, I’ll try again. I’ve learned my lesson.
“Tell me how Xinja’s marketing campaign fails to meet the definition of a Ponzi Scheme”? I asked a Sydney Journalist.
“It doesn’t”, He replied.
Okay, maybe I don’t learn too good. But this time I will explain it better; I promise.
Journalists, professionals, and even just boring old fashioned honest people are sick of this stuff. So, let’s talk about it.
The problem with giving people money to do what you want is that you need money to do it. When it runs out, you can’t give it to them and they stop doing what you want. They also get rather pissy when it all falls over, or, in Xinja’s case, when they ‘pause’ said campaign. Charles Ponzi discovered this first hand. Madoff also discovered it, but he looked much nicer in a suit and people believed him for longer.
On 4th March 2020, Xinja announced a capital raise (rather hastily, through the path of least resistance, because well, shit, they need more money — because they don’t make any, and hemorrhage it to buy customers).
They were asking members of the public to invest (again). But the funny thing is, members of the public only ever see the deals that the smartest and wealthiest investors don’t want — we all know that, it’s always been that way. But that’s for another article.
Unfortunately, they weren’t allowed to take money from ordinary people this time, they’ve taken too much already, but they told the same ordinary people that they could invest if they proved they weren’t ordinary but were in fact sophisticated investors. They even defined what a sophisticated investor is in case someone qualified but didn’t know so they could take their money. If they have to teach their investors what words mean, perhaps they are not the best people to invest in a startup; the riskiest investment since….well, old mate Charles.
It’s a bit like asking a bus full of school children if anyone has a fake ID to buy you your fifth bottle of vodka because you’re ashamed to ask an adult and worried they might say no.
I listened to Xinja’s Co-founder and General Counsel state at a fintech summit in Sydney in 2019 that they did their crowdsourced equity raise (taking investment from ordinary people) to “give back to their customers”…. yep, they took money from lay people, to spend, on a high risk company, and he said that was about giving back. And, he didn’t even wince. Though, there were a few sideways glances and chuckles in the audience — okay, more than a few. The largest VC firm in the country wasn’t interested, but taking money from ordinary people was about doing the right thing…. okay. Spin?
On 5th March 2020, a day after announcing their wonderful new investment opportunity, Xinja ‘paused’ new account openings on their savings account with high interest rate that they launched with the promise that they were “offering a market-leading rate without the usual restrictive conditions….offering a new way to bank”.
Spin, then. Spin, now.
“We’re pausing new accounts to protect customers” said the CEO.
C’mon guys. You’re doing it because you stuffed up. Which, by the way, is completely okay. But just say that. We’ll love you for it. Don’t lie. Don’t spin it. Just say it.
What isn’t okay, is telling us you’re different, a “new way to bank”, “not like the other banks”, and then throwing spin at us like we won’t notice.
If everything went to plan and your goal really was $300m in deposits, why are you pausing new accounts after reaching it but until you raise more money? Surely you planned for this? No? That’s okay, but just tell us that. Don’t spin it. Don’t lie.
Xinja have said the new money being raised is for lending products, but my bet is they launch the savings accounts again when they have the new money, and break their second promise. Though, I’d be thrilled to be wrong.
A few people with lots of money milked them for the interest rate and not enough people with small amounts of money opened an account. Xinja were paying a handful of rich people to be customers instead of heaps of average people who they need to be customers for when they start lending money. Wealthy people don’t tend to go borrowing money from startup’s, you see.
The problem with banks is that they assume we are idiots, and it seems that the newest bank, coincidentally run by a career banker, is no different.
They launched a campaign and then killed it because they stuffed up the rules and clever people gamed the system. Instead of saying that, and admitting lower than expected customer numbers, they told us they were seeing unprecedented growth and that they needed to pause new accounts to protect existing customers — true, from the company going bust or having to stop paying people they promised they’d pay. Doesn’t make it any better.
The likely truth? They ran out of money to pay people the interest rate. So, if new people joined, they wouldn’t have been able to pay them and then someone might have traced the family tree right back to their 18th Uncle thrice removed, Charles Ponzi.
Xinja likely hoped that the average people who invested early, and who feel special to be involved, would be enough of a buffer for the more critical observer. And, if they’d given shares to those people for nothing, instead of bleeding them of hard earned cash that no large investor wanted to part with, then perhaps that plan would work. Perhaps we’d believe that the bank run by a banker wasn’t like all the other banks. Or, perhaps now I’m coming up with some spin…
Why does all this matter so much?
Xinja is a bank. It chose a weird name, made a bank app and let people open a bank account. That’s it. They haven’t reinvented the wheel here. Hell, they’ve barely painted it a different colour.
Because nothing they do is materially any better than the Commonwealth Bank, to acquire customers, they have to pay them, through a high interest rate on money in a customers account.
They raised money from ordinary people to build the bank, then they pay those ordinary people to put money in the bank, which they already paid to build — did I make that clear enough?
Xinja are funding their campaign for new customers with money from investors who they already pay to be customers, then, they’ve sent an email to all customers, asking for more money to acquire more customers who they can pay.
This does not oooze ‘successful business model’ — it’s actually kind of scary.
Shouldn’t people become customers because you’re better than a competitor, not because you pay them to?
What happens when you stop paying new people?
What happens when investors no longer want to play the rather unpleasant game of shifting money under cups on a table?
There are so many ‘what happens if’ questions that could have been avoided with one simple question many many months ago, way before they took money from ordinary people and long before they decided to restrict an account that “doesn’t have restrictive conditions”.
Where was the one question that mattered, the ONLY question of any value….
‘Why will people want to be our customers?’
Xinja clearly couldn’t answer this. If they could they wouldn’t have relied on their investors becoming customers to artificially increase the value of the company, then ask for more. Yet, they built that bank, took money from ordinary people and have started breaking promises. All because they want to make money for themselves, not because they want to help the customer.
I know we live in a world of spin, and that isn’t changing soon, but I’m about ready for someone in this industry to actually be different, someone who is actually good and who doesn’t resort to spin, false promises and paying us to believe them.
For all of those concerned early investors of Xinja. Don’t stress. You’ll make money before the music stops. Your bank is run by a banker, and if you haven’t heard, bankers never lose. It will be the people who come after you who pay the ultimate price.
Well, maybe I didn’t learn. But, I did try and explain things better. And below, I’ve clarified a few important points.
Xinja have publicly said they do not use investor money to pay interest. The CEO also said the bank would have been forced to lower the deposit rate if it continued to accept new savings — So, why is their interest rate limited if it isn’t limited by investment money raised?
They have not publicly said how they do pay that interest. Despite being asked multiple times by multiple journalists. I know this because journalists text me the answers to these questions — or lack of.
I am sure the ladies and gents at Xinja are wonderful people, I’m sure they mean well…. actually, I’m not. And you shouldn’t be either, no matter how much they pay you.
If anyone is paying you to be a customer of a financial services firm, or a bank, ask why. They arent doing it for you. They are doing it for a reason. Your name on a spreadsheet improves their value more than the amount it costs them, then they ask for more money.
Don’t be a name on a spreadsheet. Look for the bank that’s actually different.
I’m sure there will be one. One day.