Banks: This is how the British digital bank Starling wants to conquer Germany
London Actually, the British digital bank Starling had already planned the start in Germany for the past year. But the pandemic ruined this plan. Now it should start in the coming year.
“We are preparing our European operation,” says Starling founder Anne Boden. Initially, they want to concentrate on the large markets of Germany and France. There is not yet a specific start date. This depends on discussions with potential partners.
Because Boden has fundamentally changed its strategy for Europe: Instead of appearing with its own brand, the bank now wants to act as a service provider for retailers or marketplaces. “Banking as a Service” is the name of this model, which the Berlin start-up Solarisbank is also pursuing in Germany.
The bank makes the entire technological infrastructure available to the customer via API interfaces – from accounts to payment processing. The name Starling only appears in the small print. It is “Starling Inside”, says Boden, referring to the advertising slogan of the chip manufacturer Intel.
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An advantage for the company: Starling does not have to run a marketing campaign to introduce itself to German customers. The bank can benefit from the image and customer base of a well-known brand in this country. That could be a retailer, a car manufacturer or an online marketplace, says Boden. Talk to several potential partners. “This way, we can get to more countries faster than if we tried to do it with our own brand alone,” explains the banker.
In fact, the experience of other fintechs such as Revolut and Monzo shows that it is difficult to gain a foothold abroad. “Many neobanks have a few hundred thousand customers in each country,” says Boden. “I don’t think this strategy will work. You need more than that for a sustainable business. “
Starling is one of the UK’s leading digital banks. The start-up grew strongly in its home market during the corona pandemic. The bank has 2.5 million customers, around 400,000 of whom are business customers. From the beginning, Starling had a strong focus on small businesses. That paid off in the pandemic because the bank was allowed to issue state corona loans. The loan book grew to three billion pounds in the year and a half.
In the lending business with small businesses, they now have a market share of six percent, reports Boden. For comparison: the traditional bank Barclays has 15 percent. In ten years’ time Starling will be as big as the “big boys”, predicts Boden. That would be a particular satisfaction for the 61-year-old Welshwoman, who quit after a career spanning decades at major banks such as RBS and Allied Irish Banks in 2014 to shake up her industry with Starling.
The question, however, is whether Starling can maintain the pace of growth after the expiry of the corona loan programs. Boden believes that the digitalization surge will continue after the pandemic. Many entrepreneurs would have stood in front of closed bank branches and looked for online alternatives. And here digital banks like Starling simply offer better service than traditional houses, she says.
In order to generate even more growth, Starling is now also entering the mortgage business. The bank recently bought UK mortgage company Fleet Mortgages. They are looking for more credit companies to buy, including on mainland Europe, says Boden. Because after the deposits have grown to more than seven billion pounds, the bank needs new channels to lend the money.
Big US banks discover the UK market
However, Boden is in no hurry to go public – the bank still has enough capital. In March, the startup raised $ 272 million from investors including Fidelity, Qatar’s sovereign wealth fund, and Millennium Management. In April, the US bank Goldman Sachs invested another $ 50 million. Since then, Starling has been valued at $ 1.1 billion.
On top of that, the fintech has been profitable for eleven months. In the current financial year until the end of March 2022, Boden expects the first annual profit. Starling would be the first digital bank to do that.
Success attracts potential buyers. US bank JP Morgan Chase was reportedly interested in buying it. Boden does not comment on this. “Starling isn’t for sale,” she says.
JP Morgan has since announced that it will launch its own digital bank in the UK under the name Chase. Goldman Sachs is also already represented with Marcus. Boden is not worried about the competition between the two Wall Street giants. Instead, she regards their presence as confirmation. “We’re showing that you can take market share from Lloyds, Barclays and HSBC,” she says. “That’s why banks like JP Morgan think the UK market is attractive.”
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