Letter from the CEO, No. 1, August 2018
Starling Bank has passed many milestones in 2018. Whilst 2017 was the year of building out our technology and customer proposition, 2018 has been all about building momentum.
In November 2017, when we closed our financial year, we had 43,000 personal current accounts. Now, just nine months later, we have opened over 210,000 current accounts - an increase of almost five times.
This rapid growth is underpinned by the high engagement of our customers, with 60% of them using their account every month. With an average deposit of around £900 in each of these accounts, we’re showing remarkably high balances when compared to our peers. The proportion of these customers making monthly direct debits has more than doubled year-on-year. Similarly, the proportion of Faster Payments made by these customers has almost tripled over the same period.
Since November, we’ve processed in excess of £1 billion customer transactions and monthly transaction volumes now exceed £200 million a month.
Deposits have increased exponentially and currently stand at more than £100 million.
We’ve continued to invest in our employee base, which now stands at 221, up from 125 in November 2017. Some 40% of employees are women, a high proportion for the banking and technology sectors but still not high enough! As we add new team members every week, we’re working hard to achieve greater diversity.
The Retail Bank
Customers trust us with their hard-earned money. Our high and rapidly growing deposit balances mean we’re well-positioned to grow our profitable lending business. With an interest rate of 15%, our overdrafts are among the most competitive in the industry - as shown in recent ‘best buy’ tables - and have been popular with a segment of our customers who, at times, require short-term financing between pay cheques.
Our instalment loan product, Spread the Cost, which was launched at the start of August, is a completely mobile offering that takes the lending experience to a new level by giving our customers even greater ability to manage their cash flows and budget for higher value, infrequent purchases.
Our customers also benefit from the availability to send international payments to 39 countries, in 21 currencies, at industry-leading foreign exchange rates.
Thanks to features such as these, during the course of 2018 we have been honoured by an array of industry awards including:
- Best British Bank and Best Current Account at Smart Money People’s 2018 British Bank Awards
- Best Use of Mobile at the FSTech Awards
- Hottest Fintech startup at The Europas awards
Thanks to our accelerating growth and to features we’re extremely excited about, but can’t reveal just yet, we are expecting double digit growth in customer numbers throughout the remainder of 2018.
The Business Bank
Since launching our business accounts just five months ago, we have already grown to approximately 10,000 customers. The product, aimed at sole traders and micro enterprises, is unique in that all functions can be performed entirely via the mobile app by busy entrepreneurs on the go. We have a 70:30 split between limited companies and sole traders, with average deposit balances of more than £6,000 and £900 respectively.
While offering tremendous value to our business customers, these accounts are generating good revenue growth.
Starling’s constantly evolving consumer product is supported by a dedicated Marketplace of supplementary financial products that already gives our customers access to view and consume 8 best-in-class, complementary offerings from insurance and mortgages to pensions and investment services.
To our knowledge this is by far the largest Marketplace offered by a financial institution in Europe and we have a pipeline of another 80 partners that are expected to join our ecosystem in the near future.
To ensure that the proposition we offer to our business customers also remains industry-beating, we will soon be launching a Marketplace of products to meet their specific needs.
The Challenges of Growth
While we are further ahead in delivering cutting-edge features than we envisioned even nine months ago, we are not complacent. Every day in a high-growth company such as ours brings new challenges. The key to overcoming them lies in constantly setting the bar higher. That’s why we believe in moving fast and making things: in the last five months we have launched business and sole trader accounts, joint accounts, international payments and loans. We want to continue to be known for the velocity of our delivery and the superiority of the features we offer our customers.
We believe that the fintechs that succeed will be the ones that can maintain growth and operate efficiently at scale while continuing to innovate and deliver an excellent customer experience. Anything that doesn’t put customer interests first will become redundant and fail.
Having built best-in-class infrastructure to support our own banking needs, we are now opening up our technology to offer distinct Banking-as-a-Service propositions to financial service companies, corporates and governments in the UK and across Europe.
During the year, we successfully renewed our contract with the Department for Work and Pensions (DWP) for the support of the Universal Credit. We also signed a contract to provide payment services to support new initiatives at RBS/NatWest. In addition, we are the sole provider of access to UK payments schemes for Mastercard Send, which powers payments capabilities for some of the largest technology companies in the US.
We were proud to have won the award for B2B Payments Innovation of the Year at the Payment Awards.
We believe that the banking industry as a whole is at a tipping point. The API economy, new payments legislation such as PSD2 and Open Banking, together with scaleable Banking-as-a-Service propositions such as we offer, are revolutionising the banking industry. In this context, we announced earlier this month that we had won a significant contract with Raisin UK, the online savings marketplace, that enables their customers to offer savings products via our infrastructure.
Over the last ten years we’ve seen industry after industry be transformed by the platformification of their services. At Starling we are one of the first real implementations of this model for the banking industry.
For all of this to work, there must be a vibrant ecosystem of fintechs to benefit from these new easily-consumable services. We have been fortunate that the regulatory environment and competition authorities in the UK have been been supportive of these developments.
We have started a bank and built our technology, but we are ambitious by nature and it doesn’t stop there. The next stage in our evolution lies in the implementation of machine learning and artificial intelligence to further guide our customers in their financial life and help them select the best services for their individual needs.
With customers’ permission, we collect rich transactional data that can be used to give them powerful insights into their finances. We will be able to help them see if they have enough money to last them to the end of the day, the week, the month, the year or their lives.
RBS State Aid: Alternative Remedies Package
Starling is ideally positioned to apply for a grant from the RBS Remedies fund. As one of only a handful of banks that meets the entry criteria and also has the ambition to create a next-generation SME bank for the UK, we will be aiming for the biggest grant available of £120m. The winners are due to be announced in February 2019.
With funding of this scale, we would be able to deliver a groundbreaking, technology-driven financial proposition to the small and medium sized enterprises that make up the backbone of the UK economy.
We previously announced our intention to enter the Irish market in 2018. Once the full implications of the UK’s Brexit deal are understood, whatever the outcome, it’s our intention to launch a Starling proposition in key European markets during 2019.
As participants in the Single Euro Payments Area, or SEPA, we are members of the STEP2 and TARGET2 payment infrastructures in Europe. We are sponsored by the Central Bank of Ireland and are currently testing our Euro proposition.
The Four Pillars of Starling
Starling is built on four pillars: retail banking, business banking, Marketplace and Banking-as-a-Service. Each of these supports the other. Our retail and SME businesses are the first and important customers of our own Banking-as-a-Service proposition - in other words, we are proud users, as well as developers, of our own product.
The success of our industry-leading services provided to our own B2C businesses has given us the credentials to win the business of our marquee customers. The opportunities for volume and scale that we are now benefiting from will themselves provide scale economies to our retail business in a virtuous circle.
This is our first shareholder letter, but Starling’s fifth year. Building a bank cannot be done overnight; it’s the culmination of years of effort from a team that shares the vision of changing banking forever.
While I’m immensely proud of how far we’ve come, there are incredible opportunities right in front of us.
None of this would be possible without our customers, our investors and the employees who grow and develop Starling week by week. I would like to thank them all.