Starling, the British digital bank, is on track to achieve its first full year of profitability, after its participation in the government’s Covid-19 rescue loan schemes drove a rapid increase in revenues.
Anne Boden, Starling chief executive, said the bank was “pulling away” from its start-up peers as it eyed a potential initial public offering by early 2023.
Pre-tax losses for its most recent financial year narrowed, the bank said on Thursday, adding that its performance had continued to improve.
Starling, whose backers include Goldman Sachs, is pursuing a more traditional banking business model than some fintech peers such as Monzo and Revolut, focusing on building a substantial lending business from its own balance sheet.
It reported a net loss of £23m for the 16 months ending March 31, compared with a £52m loss in the 12 months to November 2019. Revenues rose almost 600 per cent, while administrative expenses climbed 90 per cent. The annual report covered an unusually long period as the bank switched to a new financial year-end.
Revenue continued to climb in the first quarter of the new financial year, rising almost threefold from a year earlier and contributing to a pre-tax profit of £7.3m.
The bank had lent only a small amount by the time the pandemic hit last year, but its loanbook swelled from £54m to more than £2.2bn, thanks mainly to government-backed coronavirus business interruption loans and bounceback loans.
The loan schemes, particularly the bounceback loans, did not involve rigorous credit checks, and the Office for Budget Responsibility previously estimated that bankruptcy and fraud losses from the programmes would cost the government about £27bn.
Boden said that “Starling always had very rigorous fraud processes in place” and predicted that fraud and default rates among its customers would be lower than forecast for the wider industry.
The original rescue loan schemes came to an end in March and a new “Recovery Loan Scheme” has had relatively low take-up, but Boden said Starling had “a whole range of initiatives in place” to maintain momentum and continue growing its balance sheet. Efforts include arranging forward-flow agreements with specialist non-bank lenders and potentially acquiring other lending businesses.
Starling’s valuation climbed above £1bn after a £272m fundraising round in March, and it raised a further £50m from Goldman Sachs the following month, but the figure is dwarfed by rival Revolut, which was valued at $33bn after a new investment announced last week.
Revolut, which has focused on rapid international expansion rather than building full banking services in a single market, has attracted more than 16m customers compared with Starling’s 2m, but the latter has more customer deposits.
Boden said: “We never sought customers just for the sake of having customers . . . We have customers who are using us for real banking, and that shows in the balances we have in the accounts and the overall deposits we have.”
Revolut’s bumper valuation was “interesting”, she said, but Starling would focus on making sure it “gets to the right number when we float, and doing that on a very solid footing”.
She added the company aimed to IPO in late 2022 or early 2023, but said that “the important thing is we’re going to do it in our time. We’re not going to be forced to do it because it’s fashionable at the moment.”
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