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Starling’s Challenger Bank Playbook

July 5, 2023

Starling’s Challenger Bank Playbook

Explore the journey of Starling Bank, a digital disruptor in the UK banking industry. With over 3.6 million customers, Starling aims to transition from a challenger fintech to a credible “grownup” bank. The report highlights their success in enhancing banking services, collaborating with fintech partners, expanding business banking, and global expansion through banking technology.  

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Description

Here’s what you’ll get to know from the 30-page report:

  • Business overview of the company, including stats and facts.
  • Brief on how Starling built its identity and brand as a digital challenger and amassed a sizeable user base.
  • Analysis of Starling’s differentiators – product suite, marketplace, asset diversification, and technology strategy.
  • Deep dive into Starling’s strategic business banking pivot that made it a contender to the UK big banks.
  • Analysis of the bank’s strong financial performance and how it compares with challengers and incumbents alike.

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Starling Bank’s ascension to “grownup” banking

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SME banking market share in the UK
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Growth in profit before tax in FY23
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Senior management roles occupied by women
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Rank for overall service quality as per CMA survey for 2 consecutive years

Since its inception in 2014, Starling Bank has made waves in the banking world as a digital disruptor, catering to retail customers tired of traditional banking methods. As one of the fastest-growing banks in the UK, it has made remarkable progress since obtaining its UK banking licence in 2016, gaining full regulation from the FCA and PRA, and launching its mobile app in 2017. 

With over 3.6 million customers, capturing 9.4% and over 2.4% of the SME and retail current account market, respectively, within six years, Starling now aims to transcend the challenger fintech space and compete in the big bank arena. We explore the pivotal moments of its journey as it endeavours to build itself as a credible “grownup” bank.

In pursuit of elevating beyond the challenger tag

Starling’s journey unfolds through a series of pivotal events shaping its visionary path:

    • Better banking for the masses: Starling has successfully prioritised enhancing banking services through its proprietary technology and introducing contextual offerings like virtual cards and spending and budgeting tools for its customers, specifically catering to the mass affluent segment. This strategy has garnered it a sizable and loyal customer base, with 77% actively engaged as of March 2023. Moreover, this approach also bolsters their deposit base, enabling cost-effective lending through low-cost customer deposits, yielding both financial and economic advantages.

What really matters to us is some of our values, and one of our values is ‘do the right thing’. It means doing the right thing for our customers and our wider stakeholders. And that sort of emphasis pays back in so many ways. Because we put so much effort into making things very convenient for our own people, they go the extra mile to serve our customers.

Anne Boden, Founder of Starling Bank

    • Winning through fintech collaborations: Starling’s retail and business marketplace, launched in 2017, showcases a wide range of specialised third-party financial providers from pensions, insurance, tax management, and more. By integrating these niche services into its app, the digital bank is able to deliver a comprehensive range of offerings to its users while also enabling commission income for the business. This streamlined approach enables Starling to focus on its core offerings, ensuring better quality and faster time-to-market.

 

    • Strategic leap into UK business banking: Starling secured a £100M grant in 2019 from the Banking Competition Remedies (BCR) Capability and Innovation Fund (CIF) to enhance its business banking services. This led to the development of a comprehensive suite of 47 business banking products, particularly benefitting SMEs. Notably, Starling responded effectively during the COVID-19 pandemic by lending substantial amounts to SMEs through government-backed bounce back (BBLS) and coronavirus business interruption loan schemes (CBILS) while introducing tailored tools like in-app cheque deposits and the business toolkit. However, the bank faced accusations of leveraging the COVID loan schemes to inflate its balance sheets without proper borrower assessment. In response, Starling maintains that a significant portion of its BBLS customers comprised relatively new businesses, which naturally face higher risks, and that the loan repayments have been in line with expectations.

 

    • M&A alchemy for asset portfolio diversification: As the business has matured, Starling has emphasised considerably on diversifying its asset portfolio through targeted M&A. Acquiring specialist buy-to-let lender Fleet Mortgage in 2021, followed by two closed portfolio acquisitions in 2022, added £984m to its loan books. Simultaneously, Starling is also looking to launch a residential mortgage product for its retail customers, adding further high-quality, low-risk assets to its balance sheet.

 

    • The Profit ‘Engine’: As a UK digital banking pioneer, Starling built its tech from scratch and began monetising it through a banking-as-a-service model in the UK. In 2022, it launched Engine, a groundbreaking cloud-native Software as a Service (SaaS) subsidiary, to spearhead global expansion and ensuring future growth flexibility. The focus starts with Europe and Australia, with the US as a key target market. Engine diverges from Starling’s initial plan of an Irish banking licence leading to a European BaaS expansion, as it recognised that SaaS deals with other banks and lenders would deliver its desired scale without the hassle of international financial compliance.

The next chapter towards transition and succession

Starling has achieved significant milestones so far, and its ambitious vision of becoming a mature bank while preserving customer trust propels its ongoing growth. Although it has successfully established operations in prominent UK cities like London, Cardiff, Southampton, and Manchester, there’s still untapped potential outside these main hubs. Furthermore, Starling’s SaaS subsidiary, Engine, offers a vast global opportunity for exploration and expansion.

Moreover, the recent change in leadership, with Anne Boden stepping down as CEO and CFO John Mountain taking the helm temporarily, adds an intriguing element to Starling’s future. The coming months will be pivotal in observing this ‘succession’ and its impact on Starling’s trajectory.

Starling’s Challenger Bank Playbook

Explore the journey of Starling Bank, a digital disruptor in the UK banking industry. With over 3.6 million customers, Starling aims to transition from a challenger fintech to a credible “grownup” bank. The report highlights their success in enhancing banking services, collaborating with fintech partners, expanding business banking, and global expansion through banking technology.
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