• Inna Ri

UK digital bank Starling’s losses doubled in 2019 — but it expects to break even this year


Anne Boden, CEO of Starling Bank


By Ryan Browne


KEY POINTS


  • Starling posted a pre-tax loss of £53.6 million ($70.4 million) in the year ending November 30, up from a £26.9 million loss in 2018.

  • The app-based bank said it had seen lending activity spike this year thanks to U.K. government coronavirus financing schemes.

  • Its CEO says users have higher balances and aren’t as sharply impacted by a loss of international spending as competitors.


British digital challenger bank Starling said Thursday that its losses doubled in 2019, but that it now expects to break even by year-end amid a rebound in activity from the coronavirus crisis.

The London-based start-up posted a pre-tax loss of £53.6 million ($70.4 million) in the year ending November 30, roughly double the £26.9 million loss it reported for 2018. Revenues came in at £14.2 million, a steep rise from the £750,000 it pulled in a year earlier.


But in a separate trading update, Starling said it had seen lending activity spike in 2020 as it has taken part in the U.K. government’s emergency coronavirus financing schemes. By the end of July, the bank had £1 billion of lending on its balance sheet, the vast majority of which was government-backed lending to businesses hit by the pandemic.

That increase in lending appears to have given a significant boost to the company’s top line in recent months, with net interest income making up the bulk of the £6.7 million revenue it generated in July. Starling said it now has a run rate of £80 million, meaning it expects to make this much in annual revenue.

“We are doing really well financially and it’s a horrible thing to say but the crisis has has given us the opportunity of really spending some time to focus on getting new products out, getting new things launched and consolidating our position,” Starling’s founder and CEO Anne Boden told reporters on a call Thursday. “We are back on track to be profitable by the end of the year.”

The pandemic and resulting lockdown measures led to a 15-20% decrease in customer spending, Starling said, but this has since recovered and even surpassed pre-pandemic levels. While the crisis had forced Starling to pause its international expansion plans, the bank has now restarted talks to secure a banking license in Ireland that would allow it to eventually roll its services out across Europe.

Founded in 2014, Starling is one of several upstarts that came about in the years following the 2008 financial crisis with the aim of challenging the big banks. Other players in the space including British peers Monzo and Revolut, and German rival N26. Starling lags behind all three on customer numbers, with 1.5 million current accounts in total.


But Boden said Starling customers have higher balances and the company isn’t as sharply impacted by a loss of international revenues, since 88% of the revenue it earns from retail customers is domestic. Going forward, the bank expects to break even by the end of 2020 and achieve monthly profitability by 2021.

“Because we have higher balances, we use those balances to lend, and we’re not half a bank, we’re a full bank,” Boden said. “We have both sides of the balance sheet, we have the best of both worlds.”

Last month, Monzo also saw its annual losses double. The fintech company even warned that disruption resulting from Covid-19 has led to “significant doubt” about its ability to continue “as a going concern.” But while Starling’s losses have mounted, the firm said it has “adequate resources to continue in operational existence for the foreseeable future.”

Starling has raised £100 million in funding since the start of the year from its two main investors, Bahamas-based trader Harald McPike and U.K. asset management firm Merian Global Investors. Unlike many of its fintech rivals, Starling hasn’t had to rely on venture capital investment. Starling said its investors had “indicated their intention and ability” to continue supporting the bank.



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