Starling Bank: Money-making In Digital Banking 

Updated: Aug 17

Starling was founded in 2014 by industry-leading banker Anne Boden, who recognised how technology could transform the way people manage their money and serve customers in a way that traditional banks in the UK did not. The Bank is built on four pillars - retail banking, business banking, Marketplace, and Banking-as-a-Service, each one supporting the others.

Anne Boden, with a clear sense of mission towards transforming the world of banking, kicked off the Starling journey by first looking at regulation, an important but often underestimated key to success.

Anne successfully landed a first investment sum of £48 million in January, 2016, from Bahamas-based investor Harald McPike. The funding was used to build banking products for retail customers and develop Starling’s BaaS, a product later released in 2018 which enables businesses to develop and scale their own savings or current accounts and debit cards without the need to become a bank themselves.

This gave Starling Bank a significant advantage over competitors such as Monzo and Revolut, who use open banking and APIs, but do not provide BaaS. Starling is also in front of Monese, who’s BaaS system was only released in late 2021.

Starling Bank doubly differentiated itself from competitors in the UK. Anne believed and prioritised building customer trust over acquisition, so Starling went on to obtain a full bank charter from start. After 2 years of processing Starling received a full banking license from the Prudential Regulation Authority and the Financial Conduct Authority in 2017, launched to the public the same year, but sadly missed the first wave of early adopters. Monzo and Revolut, on the other hand, first and foremost established themselves as FinTechs, only later obtaining a banking license to scale. To know more click on Ins and Outs of Digital Banks that provides a comparative analysis of 80 Digital Banks from around the world.

Starling was also the first digital bank in the UK to join the Faster Payment Scheme and Current Account Switch Service (CASS). This decision to join CASS led to Starling’s net gain of over 17,700 customers who switched from their previous banks to become Starling Bank customers. This is the most impressive volume of newly acquired customers seen by a Neo-bank in the UK in 2021.

Starling Bank has built its product capabilities from scratch, and has acquired partnerships along the way. The Bank first partnered with the digital receipt app Flux in 2017, and since then has built and expanded its Marketplace through partnerships in various banking products for retail and business banking. The latest financial statement shows that the Marketplace contributed a net income of £172m over the 16 months leading up to the 2021 reporting date.

In a push to enhance user experience by leveraging other FinTech services, between November 2019 and March 31 2021, Starling Bank launched 14+ new Marketplace integrations, and expanded its offerings to business accounts, sole traders accounts and joint accounts. It also partnered with the Post office for cash deposits and withdrawals.

Starling Bank saw its biggest growth spurt in 2019-2021, triggered by the Covid – 19 pandemic and the ensuing influx of grants worth £100 million from the Capability and Innovation Fund (CIF), administered by Banking Competition Remedies Limited (BCR), and leading investors Goldman Sachs and QIA, led Starling to further develop its banking products, BaaS platform, business lending services, and marketing projects.

During the Covid – 19 pandemic, Starling Bank consistently proved its ability to adapt to changes in the market. It received accreditation to distribute the “CBILS” and “BBLS” government loan schemes to SMBs during the crisis, which helped to diversify its sources of revenue and also served to attract new customers. Rather than just acquire customers, Starling Bank also knows how to retain them. The Bank demonstrates that a customer-centric approach is core to their operations through 24/7 customer support, as well as the release of products such as Connected cards. These cards cater to customers who require someone trusted to do their shopping on their behalf.

Starling Bank helps its customers to budget, save and travel at lower costs. Users benefit from the Bank’s many perks, and the practicality of mobile phone-based banking, which is additionally cost-effective for users. Through its diverse offering tailored to the needs of its users, Starling has earned itself a higher level of customer loyalty. As Starling grows in popularity, between 2020 and 2022 it increased its user base to reach 3+million.

Looking ahead, Starling plans to launch its software services SaaS proposition in the EU continent - France, Germany, the Netherlands, and Spain and globally in 2022/2023 under ‘Starling International’, and this strategy led Starling to withdraw its Irish Banking Licence application recently.

Based on the Bank’s last annual report, Starling’s administrative expenses and staff costs are stable. In comparison to 2019-2021(16 months coverage), it increased its revenue by 93%, generated a profit after tax of £44,938k (2019-2021- loss: £(23,319k) )in the previous 16-month period and expects a clear road towards profitability in the coming years as well.

Starling’s unique value proposition through its BaaS platform gives the Bank “first-mover” advantages in the SMB market, in which it currently holds about 8% of market share. Through continued collaboration with the Recovery Loan Scheme (RLS), combined with the BaaS platform, this number can only increase, as will Starling’s reputation as an innovator in the financial services industry.

In July, 2021, the Bank made its first acquisition of Fleet Mortgages, and its eyes are on many more in the lending space. With a current valuation of $3.4B, and 50+ awards under its belt, the future of Starling Bank will be one to reckon with, and its strong growth trajectory should not be underestimated.

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