It plans to work with brokers in 2024
It has taken almost five years to be granted a full banking licence but Avenue Bank is now the first and only bank in Australia to specialise in bank guarantees.
The Australian Prudential Regulation Authority (APRA) announced on Monday, March 4, that it had granted Avenue Bank a licence to operate as an authorised deposit-taking institution (ADI) without restrictions.
The Sydney-based bank aims to carve out a niche for itself in the banking industry by offering a streamlined process to provide bank guarantees for commercial property leases.
While focusing on SME owners and referrer channels including leasing agents, landlords and tenant advisors, Avenue Bank also plans to partner with mortgage and finance brokers some time in 2024. The bank’s largest strategic shareholder is non-bank Liberty Financial Group.
Speaking to MPA, Avenue Bank CEO Peita Piper (pictured above) said the bank had been on its APRA licensing journey for four-and-a-half years, since 2019.
“APRA, as to be expected, has an extremely thorough and rigorous process to obtain a banking licence, but there's been a few other hiccups along the way – COVID hit and APRA put a moratorium on the issuance of banking licenses for a period of 12 months, which delayed us somewhat,” Piper said.
“But I’m thrilled to be able to announce today that we’ve got our full licence and it’s enabled us to launch in market with what we believe is a very innovative offering – our Avenue Bank guarantee.”
Avenue Bank’s focus on bank guarantees
Piper emphasised that in terms of its status, Avenue Bank is a bank, the same as any other. It is APRA-regulated and backed by the federal government.
But it did differ from other banks in terms of the products offered.
“We’re a niche, specialist bank … we’re very much focused on revolutionising the underserviced multibillion-dollar bank guarantee market,” Piper said.
Bank guarantees are required when businesses lease rental properties and protect the landlord should the tenant break any of the terms of the lease.
“Bank guarantees have been underserviced, overlooked and are ripe for disruption,” said Piper.
She said current bank guarantee procedures were onerous, predominantly paper-centric, and could take up to two months, but Avenue Bank had reinvented the bank guarantee, providing fast, fair, and fuss-free service to Australian businesses.
“We’ve digitised the bank guarantee offering for small businesses, but it also benefits other members of the commercial leasing ecosystem as well,” she said.
With Avenue Bank customers would be able fill out a quick online application in under five minutes and have a bank guarantee issued within 24 hours, which Piper said was a “powerful offering”.
“It gives any Australian business peace of mind and removes the uncertainty from the process, which can often hold up lease negotiations,” Piper said.
The bank had built “robust, safe and scalable cloud-based technology infrastructure” from scratch, which featured AI and could be adapted rapidly to meet customer needs.
Avenue Bank’s research showed that 29% have had to defer an office move and a further 46% had their moves disrupted because of the process of obtaining a bank guarantee.
“Despite nearly half of business owners believing the bank guarantee process takes too long, there has been little innovation in this roughly $9 billion segment,” Piper said.
The bank’s target market is an estimated 94,000 commercial, retail and industrial leases in CBDs across the eastern seaboard, with an average bank guarantee of $125,000.
To secure a bank guarantee, the tenant typically deposits nine to 12 months of rent into a term deposit (also known as a security deposit), which earns interest from the Avenue Bank. Customers are also charged a bank guarantee service fee.
“We get income from the fee, but we also get income from investing the deposit in investment assets … such as Treasury bonds, ADI floating rate notes,” Peita said.
She said the bank paid a competitive interest rate to customers on their security deposits which are 100% government-guaranteed (up to $250,000 per account holder). For a limited time, it will also waive application fees.
Expansion plans, working with brokers
While commercial leases were currently the focus, Piper said Avenue Bank also had plans to move into bank guarantees for other purposes and bring further innovations to the product but she was unable to reveal them at this stage.
Piper said the bank was initially working with landlords, tenant advisers and leasing agents but had definite plans to work with mortgage brokers in 2024. “We see them as a very important part of our distribution strategy.”
She said there were benefits for a broker who had an existing relationship with a business owner who needed a bank guarantee.
“The broker can refer them to Avenue Bank and because it’s such a simple process and the applicant [can] do it within five minutes.”
While Liberty would help Avenue Bank with introductions to brokers, Peita said under the FSSA rules (Financial Sector Shareholdings Act), the two organisations had to work quite separately, given one is a non-bank and the other a bank.
Customer’s view of Avenue Bank offering
During its restricted licence period over the past two years, APRA allowed Avenue Bank to have 15 customers as part of its testing phase.
Avenue Bank customer Tank Stream Labs CEO Bradley Delamare said the bank’s tech solution was fresh and innovative.
“I went through the traditional bank guarantee process, and it was painful,” Delamare said. “Not only did I have to obtain multiple signatures for multiple documents, but I also had to hand deliver them to the bank’s head office. In the 21st century, surely there’s a better way. It feels like we’re in really good hands with Avenue Bank.”
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