Starling pivots to global B2B as digital banking consumers feel economic pinch

Challenger bank Starling said it will need to sell its software to other banks to fulfill its global ambitions rather than expand via its core consumer digital banking offering, and has set its sights on Europe, the US and – potentially – Australia.

Chief executive Anne Boden said it would instead use its software-as-a-service product – Engine – to gain a foothold in foreign markets. “[SaaS] will give us the global footprint, not just a footprint in Ireland and Europe that the Irish license would give us.”

When asked which markets the bank was targeting for its SaaS product, Boden said: “I booked my ticket to Australia for September. That’s a bit of a hint.”

She added that Starling was talking to potential customers across the US and Europe. Boden was recently in San Francisco pitching the business, a spokesperson confirmed.

The British fintech has withdrawn its bid for a banking license from the Irish central bank, in a move which came as a significant blow to its vision to expand its consumer digital banking service, for which it is best known, abroad.

The decision to use its SaaS product to gain international exposure is an about-turn for Starling, which has been trying to get an Irish banking license for four years. The digital bank has 3 million clients, about 500,000 of which are businesses. Boden described the decision as “really tough”.

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She said: “When we actually weighed up what is going to give us the best return over the long term we felt that entering the Irish market, which has a very small population, was not going to be as strategically valuable to us as the option of selling the Engine proposition across the whole world.”

Starling is pivoting as an economic downturn, rising inflation and looming recession hits consumers, dampening prospects for many European fintech companies. Buy-now-pay-later giant Klarna recently slashed its valuation to $6.7bn, way down from a previous estimate of nearly $46bn.

Starling competes with the likes of Revolut and Monzo on consumer banking. Revolut controls a large portion of the Irish market, with more than 1.7 million customers in the country.

The CEO added that plans for a potential initial public offering had been pushed back by roughly a year because of economic conditions. “We’re probably talking about late 2023, most probably going to be 2024.”

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Founded by Boden in 2014, the challenger bank is backed by Goldman Sachs, Chrysalis Investments and Qatar’s sovereign wealth fund. Much of its success in fundraising has been accompanied by the promise of pushing into foreign markets. It was last valued at £2.5bn in April.

Starling turned an annual profit for the first time in its eight-year history for the year ending March 31, as lending growth and a push towards its SaaS product nudged the challenger bank into the black.

The British company made £32.1m in pre-tax profit for the year ending March 31, up on a £31.5m loss for the previous 16 months ending March 2021. It changed its reporting period last year.

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Chief financial officer Declan Ferguson said the bank was only likely to need fresh fundraising if it decided to “do something very significant in the M&A space”.

Starling has become more aggressive in its acquisition strategy in recent years after buying Fleet Mortgages in July last year, then buying a £1bn mortgage book from Kensington Mortgages in November.

That is part of a bid to bring in new revenue and “bolster.” [its] resilience”, Boden wrote in her annual letter, adding that the company had more than £2bn of mortgages on its books as of June. Its latest move in the mortgage acquisition space was a £500m acquisition of another mortgage book from specialist lender Masthaven in May, according to the Financial Times.

“I’ve made no secret of our M&A ambitions and you can expect targeted acquisitions in the lending space to play a key role in the year ahead, but only at the right price and in the right market conditions,” she added.

To contact the author of this story with feedback or news, email Alex Daniel


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