The digital bank will use deposits to fund unsecured loans of up to £5k.
The marketplace model, used by digital banks to cross-sell services, looks to be increasingly irrelevant in the field of lending.
Starling Bank has just launched its first loan product. It’s an instantly-accessible, unsecured consumer loan of up to £5,000, carrying an annual interest rate of between 11 and 15 per cent. The app-based bank already offers flexible overdrafts, which are more expensive than the newly-launched loans.
Customers can apply for the loans in minutes through the app by entering their monthly income and monthly outgoings, with money hitting their accounts instantly if approved. They can also set their own repayment days and the period of time over which to pay loans back.
Starling says its users will have ‘full visibility’ over the lending process, including what the total repayment amount will come to at the end of the term.
Stuart Leak, Starling Bank’s head of lending, said in a statement: “Our spread the cost loans offer a structured repayment schedule giving customers greater flexibility and control of their money.”
“If an unexpected bill hits your account, or you are faced with an unavoidable large expense, you’ll be able to spread the cost with a loan and choose a repayment method, including both the time period and monthly repayment amount that suit you.”
The new loans are closely tied to the firm’s overdrafts. Those with an existing overdraft will be able to apply for a consumer loan to borrow the amount that is left in their overdraft. For example, a customer with £2k still to spend of a £4k overdraft could convert that £2k, or a part of it, into a loan – which would be cheaper – with Starling then reducing their overdraft accordingly.
For additional financial products like loans, mortgages and insurance, fintech banks have until now looked to what is typically termed the ‘marketplace’ approach. This entails striking partnerships with a range of specialist fintech firms and making their services available to current account customers via seamless integrations.
But Revolut confirmed in July this year that it plans to bring consumer loans in-house along with business loans, just as soon as it gets granted a European banking licence, which it is currently in the process of applying for.
Starling, which already has a banking licence, has skipped straight to lending out its own money.
Now in its sixth year, the AltFi London Summit returns on 18th March 2019 to 155 Bishopsgate. Last year proved to be a crucial turning point for the key players building the future of finance. Leading platforms launched oversubscribed IPOs, digital banks proliferated and mainstream financial institutions started their own disruptive propositions. With 2019 certain to be another landmark year, more questions will be asked by regulators with investor interest in disruption also poised for more rapid growth.