Anne Boden, CEO Letter
July 2021
Starling Bank and the Relevance Revolution
The numbers
Starling’s 2021 annual report and accounts cover a period of 16 months, from 1 December 2019 to 31 March 2021. The bank changed its financial year-end from 30 November to 31 March, to help stakeholders better compare financial results on a quarterly basis. From 2022 onwards the report will cover a regular 12 month period ending on 31 March every year.
Starling is a very different bank than it was 12 months ago. We’ve met the changing and complex needs of our growing customer base during the pandemic, while at the same time innovating with new products, features and services, building up our deposit base, executing on our lending strategy and growing responsibly.
For the period to 31 March 2021, our revenue rose by nearly 600% to £97.6 million, from £14 million for the previous period ending 30 November 2019, while our loss more than halved to £23.3 million from £52.1 million.
Our deposit base grew to £5.8 billion (2019: £1 billion), while our customer accounts more than doubled to 2.1 million (2019: 926,000) and our lending shot up to £2.2 billion from a very low base. We broke even for the month of October 2020 and have recorded a profit every month since then.
You’ll see from our quarterly trading update, also published today, that our growth continued strongly after the close of the financial year. Quarterly revenue reached £42.8 million in the three months to the end of June 2021, Q1 of our current financial year, putting our annualised revenue run rate at more than £170 million.
And we continue to add new accounts - at the rate of one every 34 seconds. As of 30 June 2021 we had 2.3 million open accounts; 1.8 million retail current accounts, 374,000 accounts for small and medium-sized enterprises (SMEs) and 126,000 euro and US dollar accounts. We now have a 6.3% share of the UK market for small business banking, up from 3% last year.
As at the end of June 2021, we held more than £6.7 billion on deposit across all account types. A typical SME customer in credit at Starling held an average balance of £13,000+. For retail customers the figure stood at £2,000+.
Now that we’re profitable, we’re gaining momentum, generating our own capital and seeing the results of the seven-year plan we put in place in 2014. As they say, if you’re sitting in the shade today, it’s because someone planted a tree years ago.
Transforming Fintech
I’ve always believed that how we deal with adversity defines us as individuals and businesses. Equally important is our ability to recognise when the world has moved on definitively to new values, behaviours, working principles and business models. 2020 and 2021 brought about such change.
Change of such magnitude doesn’t occur all that often, but when it does, people and organisations that recognise it and adapt early gain a massive advantage.
During the past 18 months I’ve observed a big shift in the power dynamic between the big banks and Fintechs. Pre-pandemic, the Fintech world was defined by spaces and events where the accelerators of the old banks mixed with fleet-footed start-ups and upstarts. Small sums of money were invested and spread amongst potential game-changers. The conversation centred on a new way of seeing the financial world.
Today the conversation has moved on. A profound transformation has taken place, accelerated by the pandemic. In 2020-21 the only thing that really mattered in Fintech was being relevant to customers. Companies providing reliable, useful, relevant services - services that added real value to their customers’ lives - gained ground over those with ‘nice to have’ products and features. For Starling, it was our biggest test and our biggest success.
We rolled out more than £2 billion of lending and introduced innovative products and features to support our customers’ changing needs. And we proved our business case, combining a great experience with low fixed costs to generate profits. This has allowed us to pull away from the Fintech pack.
Now, across the sector, larger sums of money are being invested in companies that have reached scale; these are the independent businesses that have defended themselves from the acquisitive tendencies of the big banks. Starling among them.
We’ve continued to raise capital and have diversified our investor base to include some of the world’s biggest financial heavyweights, who believe we have what it takes to become a mainstream brand and take on the incumbents.
When I look at how digitisation is transforming everything, it’s clear to me that changes in banking are only just beginning. It’s naive to expect that progress in digital banking will stop with customers logging into apps, doing transactions and then logging off again.
Things will move on. What people need are payment rails and safety barriers; these can be delivered in new and exciting ways. I’m particularly enthusiastic about the possibilities offered by embedded finance, the integration of financial services into non-financial customer journeys, and believe that Starling is well-placed to grab the opportunities arising from this.
In the meantime we expect to ramp up our Banking-as-a-Service (BaaS) offering to new and established brands that want to build their own financial capability.
Executing on our lending strategy
The growth of our lending has been achieved amid a strengthening of our balance sheet and our market-beating cost of funds of approximately 4 basis points.
As we continue to sustainably grow our balance sheet, we plan to expand lending through a mix of strategic forward flow arrangements, organic lending across various asset classes and a targeted M&A strategy focusing on selected lending originators. Watch this space.
Government-backed lending and the economy
We will continue to build out our own lending and also to support customers who are borrowing from us under the government-backed Coronavirus Business Interruption Loan Scheme (CBILS), the Bounce Back Loan Scheme (BBLS) and the Recovery Loan Scheme (RLS).
We hope and believe that earlier speculation about BBLS and CBILS defaults was overdone, although it is still too soon to know what the scale will be. We will support those who struggle to repay their loans and we believe that the Pay As You Grow scheme, which enables borrowers to extend the term of their loan and/or take payment holidays, is a simple but powerful tool for businesses to manage their repayments. In many cases it will make cash flow more manageable, even if businesses aren’t struggling to make repayments.
The Starling way
Amid the adversity of the pandemic, we’ve been fortunate and have benefited from a number of external tailwinds. If we were well-prepared to take advantage of them, it’s largely due to how we work. We’re often commended for our execution ability; you could say it’s in the Starling DNA. We have big ambitions and we take on big tasks; after all we built a bank from scratch. But big ideas on their own are not enough. It also takes discipline, attention to detail, high standards, a readiness to fail and a willingness to make rapid adjustments. It is not just the result that matters at Starling; but how we do it.
This brings me to a couple of questions we’re often asked - about the timing of a possible initial public offering (IPO) for Starling and which market we would choose to list on. Let me make this clear, an IPO is our goal, but we will seek a listing when it is right for our business, not just because it is fashionable to fit in with the pack. Starling has always forged its own path.
To our colleagues and our customers: thank you
Our colleagues proved to be our greatest asset as we navigated the challenges imposed by the pandemic. I am grateful for their hard work, resilience, motivation, ingenuity and good humour, which allow Starling to face the year ahead confident of further growth.
We’ve always had a lively dialogue with our customers. We learn a lot from them even, or rather especially, when they criticise us.
As we open up the economy, we’ve noticed something interesting and exciting in our growing SME customer base. We’ve witnessed an impressive growth of newly-formed companies, as entrepreneurs grab hold of new opportunities presented by the pandemic and reinvent themselves. At the same time we’ve seen many existing businesses face up to the challenge of the pandemic with extraordinary determination, courage and inventiveness. Many succeeded against seemingly impossible odds, but where they didn’t, it certainly wasn’t for want of trying. As an entrepreneur myself, I’m in awe of them all.
We know that the recovery will be uneven and fragile and that we are not yet out of the woods, but this combination of creativity and grit gives me hope. Whatever happens next we will remain open for business.
Anne