Anne Boden, CEO Letter
A year of growth and transformation
2020 has been a transformational year for Starling. Our growth across the board has continued at pace, despite the impact of the coronavirus emergency.
When we closed our financial year at the end of November 2019, 926,000 retail accounts had been opened and 82,000 business and sole trader accounts. We held just over £1 billion on deposit. Now, less than nine months later, we’ve opened more than 1.5 million accounts: more than 1.25 million retail current accounts, almost 200,000 business accounts for small and medium-sized enterprises (SMEs) and almost 90,000 euro and US dollar accounts. And, as of the end of July, we held more than £3 billion on deposit.
Across our entire range - retail, joint, business, sole trader, euro and US dollar - we’re adding a new account every 35 seconds. In fact, Starling is the fastest-growing SME bank in Europe and now holds a more than 3% share of the UK’s SME banking market.
A typical active retail customer holds an average balance of around £1,500. For our SME customers, the figure stands at £15,250 and £2,850 for limited companies and sole traders respectively.
We’ve raised a further £100 million in funding from our existing investors in 2020, have become an established lender with £1 billion of lending and now have 27 services in our Marketplace and 22 clients in our Banking Services division. Over this period, we’ve seen a big increase in our annualised revenue run rate since November 2019. It now stands at £80 million and we remain on track to hit break even by the end of 2020.
We’ve grown our employee base by 352 since the end of our last financial year. That includes a net increase of 147 people since the start of the lockdown, bringing the total to 958 by the end of July 2020.
When the coronavirus crisis hit the UK, at Starling we were not prepared for all the ways it would transform everybody’s lives; but we were prepared for change. We always are.
At the time we were putting the finishing touches to a slate of new products for small businesses, including lending products. So when the lockdown started and small business owners needed emergency help, we were able to swing into action and have committed more than £1 billion of lending under the government-backed Coronavirus Business Interruption Loan Scheme and the Bounce Back Loan Scheme to support them.
We were also in the final stages of building a groundbreaking retail ‘Connected Card’. So, when individuals who were sheltering in place had suddenly to rely on trusted friends and neighbours to get their shopping for them, we were able to provide them with a secure way of paying. Around 20,000 Connected Card ‘Spaces’ have been opened.
None of this was a coincidence. To build a successful digital bank from scratch, you must first lay firm foundations, with a proper regulatory framework, a strong technology architecture and a clear product roadmap. This takes time, effort and resources. It may seem to slow down growth, but it means that when a storm hits, you can be ready to go in whatever direction you need to. And what a storm. It’s been a time of grief, uncertainty and fear, but also one of kindness, heroism, community, mutual support and strength.
At the heart of Starling’s strategy is the smart use of modern technology. In contrast to incumbent banks that rely on outsourced expertise, legacy systems or a mosaic of vendor packages and their own data centres, Starling has in-house engineering teams and its own core banking software running in the public cloud infrastructure. So we were uniquely positioned when lockdown was imposed in March to ensure business continuity and resilience, to move to remote working and to continue to support our customers 24/7.
Growth is one thing. But achieving sustainable growth is another. At Starling we’ve been very clear about mapping out our path to profitability from day one. And we’ve always kept costs under control.
Since the end of our financial year in November 2019, our performance has been strong. The biggest development has been the extraordinary growth of our loan book from less than £100 million to more than £1 billion. In the last few months Starling has played a critical role in supporting SMEs through the pandemic. We’ve contributed to both the CBILS and the BBLS schemes, lending money to more than 25,000 SMEs. We’ve also signed a partnership with Funding Circle, the UK’s leading peer-to-peer lender, to provide £300 million of CBILS lending to small businesses.
Despite the coronavirus emergency leading to a drop in interchange income for several weeks, card volumes are back to pre-lockdown levels. This, combined with our lending and growth in other parts of the business, has resulted in a significant increase in our annualised revenue run rate, which now stands at £80 million.
We remain on track to reach break even by the end of 2020, hitting the target we set a year ago.
You’ll find more numbers in the Trading Update published with this letter.
Meeting the challenge of the coronavirus emergency
When the Chancellor Rishi Sunak announced government-backed loans for small businesses through the CBILS and BBLS schemes, we didn’t need persuading that becoming an accredited lender was the right thing to do. Many of our employees worked round the clock to make this happen.
Both initiatives were designed to provide a lifeline for SMEs hit hard by the crisis. Bounce Back loans were particularly important to our business customer base. They were not a ‘nice to have’ for Starling. They were, and still are, an essential part of the service we need to provide to SMEs. We felt our customers could not be left without these loans whilst other banks' customers benefited.
I am extremely proud of what we have achieved on this front. And we’ve received some amazingly positive feedback from some of the 25,000+ companies we’ve helped with BBLS lending. They include the candle retailer who could pay her suppliers thanks to her loan, the former teacher who pivoted from making science kits for schools to producing homeschool kits, the man who was able re-open his shop, the driving instructor who could pay the bills on her car while she was unable to teach, the property entrepreneur who used the money to invest in a craft business that really took off during lockdown.
The urgency of the situation meant that we had to launch our government-backed lending at scale, practically from a standing start. We were upfront about the fact that we might need to make adjustments as we go. Not everyone qualified for a loan and some applicants were frustrated at being asked to join a wait list as we managed the exceptional demand. Crucially, however, we remained open to new business accounts, unlike many other accredited lenders.
The government had an imperative to get money out to small businesses as soon as possible via these schemes. However, we remain concerned about how some customers will be affected if they are unable to repay what they have borrowed. The government guarantee behind these loans protects the bank, not the borrower. It’s too early to know what default rates will be and what is the government’s plan to help those struggling to repay.
Additional support for customers
Our BBLS and CBILS lending was just one part of our support for SME customers during the pandemic. To support our retail and business customers when the virus first hit, we launched a number of initiatives, including:
- a new ‘Connected Card’, a second, secure debit card attached to the customer’s account for use by trusted friends, family or carers, to help those self-isolating to get supplies. It’s one of only two selected by the Royal Voluntary Society to provide payment cards to NHS Volunteer Responders
- cheque imaging so that customers can pay in cheques from home. We now process more than 30,000 cheques a month using this tool
- overdraft interest holidays, on request
- an eligibility checker on our website for businesses to find out what support they are entitled to.
Supporting our employees
We started the move to remote working before the government imposed a full lockdown and to support employees we launched Never Home Alone, an online well-being programme. We also stepped up our internal communications with company-wide Q&A live stream sessions, where I (and colleagues) take questions directly from staff every Monday, Wednesday and Friday. These sessions help keep us all connected and on point.
Since the start of the pandemic we have not furloughed any staff, so have had no need to call on government support. There have been no job cuts and no salary cuts. In fact, we’ve continued hiring.
We’ve taken more space in our Cardiff office since the end of the 2019 financial year, bringing hundreds of jobs to the region and adding to our bases in London, Southampton and, internationally, in Dublin. Having three UK offices gives us added flexibility, as does the fact that we’re not locked in long term to a big headquarters in the capital as we reevaluate our working practices post-lockdown.
One of my proudest achievements this year was awarding free shares, worth around £3,000 each, to all employees, allowing everyone in the company to participate directly in its success. They deserve no less; most join us because they believe in our mission to change banking.
We live in an age of multi-banking. When they start using us as their main account, people don’t always want to close the account they may have held with a legacy bank for years. We find that customers sometimes want to make the transition over time as they start using their Starling account more and more. Between the end of 2019 and July 2020, the number of customers using their account daily grew by more than 60%. Typical active retail customers credit and debit their accounts by more than £1,500 per month; while for typical active SME customers, the figure is over £6,500.
Support from investors
While other fintechs may have struggled with funding and maintaining ambitious valuations during the pandemic, our existing investors continue to support us and since the end of our financial year have invested a further £100 million, (£60 million in February and £40 million in May) bringing our total raised to date to £363 million.
Last year, I reported that we were in discussions with the Central Bank of Ireland to gain an Irish banking licence. This is to enable our expansion there and to act as a springboard to our wider European expansion, starting in the Netherlands, France and Germany. Our Irish discussions were temporarily put on ice during lockdown, but are now being kickstarted again. We now expect to start our international expansion in 2021.
Awards and honours
In March 2020, just before lockdown started, Starling was voted Best British Bank for a third consecutive year at the British Bank Awards. We were also named digital Best Business Banking Provider and Best Current Account Provider for a second year running. The awards were based on votes received from more than 40,000 consumers. In addition, we’re now one of only four banks to be awarded ‘Recommended Provider’ status by Which?
I now have the honour of sitting on the board of UK Finance, the financial services industry body, ensuring the voice of fintech is heard among the sector’s big players.
Hitting new milestones
Since the end of our financial year in November 2019, we’ve been busy launching a slew of new products, services and campaigns.
In February 2020, we launched our first business-focused TV ad. It follows the journey of a small business owner, heroically setting off into the unknown in her shed/home office, which literally takes off into the skies like a helicopter with the help of the Starling app. As her business gains height, she is struck by lightning, before breaking through the clouds and into safety. Although we couldn’t tell at the time just how relevant that lightning strike would be in 2020, I know as an entrepreneur myself what it’s like to navigate the highs and lows of starting a business.
We’ve also been busy with the Starling Marketplace, adding 13 new integrations since the end of the financial year. New additions include the accountancy software QuickBooks and the messaging platform Slack. Nearly a third of our business customers have an active Marketplace integration.
A key to becoming profitable will be charging for certain accounts and services. We will continue to offer free banking, but with the right products and the right pricing, we believe we can drive up customer numbers and revenue while also creating real value for our users. That last point is key. We started in 2019 with our first paid-for accounts: our euro accounts for personal and business customers have proved extremely popular.
In 2020 we followed up with our Business Toolkit, costing £7 a month, and our US dollar account for businesses, at £5 a month. We’re already working on our next paid-for products.
Our drive into paid accounts comes at a watershed moment for the fintech industry. As a digital bank, we’ve always known how important it is for our customers to be able to do all their banking on the go or from the comfort of their home. The coronavirus emergency has without doubt accelerated the shift to digital.
It has also focused minds in the fintech sector on business models and exposed those without a clear path to profitability. I’m reminded of what Warren Buffet said at the time of the financial crisis, “Only when the tide goes out, do you discover who has been swimming naked.”
Banking Competition Remedies
During our last financial year, Starling was awarded a £100 million grant from a fund created to increase competition in the market for SME banking. The grant is helping us deliver a technology-driven financial proposition to SMEs.
Having met our targets for the first grant on time or ahead of time, we’ve decided to apply for a further grant from the fund, one of £35 million or £25 million. If successful, we will use the grant to target larger SMEs and those with more complex ownership structures, as well as non-profits, a part of the market in need of more competition. We’ll invest a significant amount of our own money into these expansion plans too.
As we scale up, we’re conscious of our responsibility to grow sustainably. We’re turning our attention to how we might start reporting on this, so that we can be accountable to all our stakeholders and take a leading position amongst other fintechs as a net-zero business.
As a paperless, branchless bank hosted in the cloud, we already have a smaller carbon footprint than the old banks. We’re using 100% renewable energy in three of our four offices and hope to bring the fourth into line soon. Our main cloud service provider is Amazon Web Services (AWS) Dublin, which is carbon neutral. We do not invest in or take investment from any fossil-fuel based energy companies. Remote working presents many challenges to the climate change movement, but many opportunities as well. I’ll have more to say on this next year.
Building a diverse leadership team
Starling has always believed that diverse teams are stronger and more effective and has a positive track record when it comes to gender diversity. Half the executive committee and a third of our board are women. But that is only part of the picture.
The killing of George Floyd in America and the subsequent anti-racism protests, reminded everyone that we need to work harder on diversity. That work is well underway as we find new pathways to promotion internally and to attract new talent, particularly as we develop relationships with recruiters that focus on Black candidates. With a predominantly-white leadership team, we acknowledge that we have a long way to go, but we are embracing this with energy.
Making the world more inventive
Like many, I was enormously moved by the solidarity that swept the nation at the start of the lockdown, as we slowly absorbed the personal and national tragedy unfolding around us. The image of the nation coming together to clap for carers and to watch the daily Downing Street press briefing embodies the kind of team spirit that we value so highly at Starling. Let’s not let that spark die.
As we cautiously lift lockdown, I do believe that some good can come out of this. I very much hope that this crisis makes us, as a nation, more courageous and more creative. In recent years, the number of patents registered in the UK has declined sharply. We have slowed down and become less inventive. We need big ideas and we need individuals brave enough to run with them. We must speed up again if we are to solve the huge problems we are now facing. That means a coronavirus vaccine, it means a serious effort on climate change and it means that all of us, in whatever sphere we work, have a duty to move faster to bring about lasting change.
So, at Starling, as we reach maturity, we won’t be slowing down, we’ll be speeding up. And we’ll never stop changing.
We wouldn’t be able to achieve this without the support of our staff, our customers and our investors. Thank you all.