5 things we learnt from Starling’s 2019 Annual Report

Can Anne Boden turn teal cards into tons of cash? Maybe next year.

Digital bank Starling just published its fourth Annual Report, covering the period November 2017 to November 2018.

As usual, it’s accompanied by a great Open Letter from CEO Anne Boden, but it’s Starling’s Annual Report itself that tells the true story of 2018. 

Here are the top 5 things we learnt:

1. Ireland is taking ages

Starling was said to be courting an Irish banking licence—Ireland being a market that Starling CEO Anne Boden knows well— and preparing to launch as far back as 2017.

What’s clear from Starling’s Annual Report and Boden’s letter is that Ireland is still very much a ‘work in progress’.

The document outlines that Starling is still “in the process of creating a subsidiary and applying to the Central Bank of Ireland for a banking licence”.

What’s happened over the last two years to slow down Starling’s Irish launch is unclear, yet Boden mentions Ireland in her Open Letter, indicating that expanding into this market is still a priority for her… albeit one that’s taking a long time.

2. Starling and Monzo’s lending race is heating up

Last November, when Starling actually filed its return, the bank reported a lending balance of £8.9m, or an average lending balance per active customer of £429.

That compares to Monzo which posted a total of £19.2m of lending by February 2019, along with an expected credit loss of £3.1m.

Starling meanwhile has an impairment allowance of £397,000—although it should be noted that Starling and Monzo are operating under different accounting practices (Monzo has adopted IFRS 9), so these figures aren’t comparable.

Similarly, due to the 4-month difference between the two filings, we’re still comparing apples to hot coral oranges for now.

3. Marketplace revenue is tough to come by

The first year of Starling’s Marketplace was pretty disappointing, especially when judged from a revenue perspective.

For 2018 Starling reported just £35,000 of revenue from Marketplace commissions, versus the £1.47m it took from the interchange paid by retailers for customer card transactions.

That said, now that Starling is moving into Business banking it’s Marketplace might be about to have a second wind with the addition of accountancy packages like Xero and FreeAgent...

4. We’ll have to wait until 2020 for Banking as a Service revenue

When Anne Boden announced that Starling is eyeing profitability in 2020 it seems there’s only one way Boden will manage to turn such a corner, with Banking as a Service.

Since August 2018 Starling has opened up its payment and banking services to third-parties like Raisin, Bankable, CurrencyCloud and the Department for Work and Pensions.

As this business unit started so late in 2018 it has yet to appear on Starling’s Annual Report, but based on Boden’s profitability prediction it’s clearly fast-becoming a core revenue driver.

Sadly we’ll have to wait until the bank’s next Annual Report published in 2020 to find out more.

5. Starling is working on a financial AI

While Monzo’s Tom Blomfield teased a shopping list of features his digital bank is working on in their 2019 Annual Report, Anne Boden was content to tease just one in Starling’s Report.

The key paragraph is under the subheading “Making the customers’ data work for them” and reads:

“With customers’ permission, the Bank collects rich transactional data that can be used to give them powerful insights into their finances. Using AI, the Bank will be able to help them see if they have enough money to last them to the end of their day, their week, their month or their life.

It’s the use of the word “life” which hints that Starling might not only be referring to more advanced spending analytics.

“Life” implies the analysis not just of transaction data, but investments, savings or even pensions… and, by extension, it hints that Starling might be working on one or more of these financial products for its customers.

2019 Takeaways

Similarly to Monzo, one of the biggest takeaways was just how well-capitalised Starling was at the end of this reporting period in 2018.

Starling reported cash in the bank at a group level of £187m, on annual losses of just £25m.

And that figure was before Starling secured a £100m grant as part of the RBS Competition Fund to further develop its Business Banking account as it has been.

But while these two digital banks may at first seem very similar, their strategies set them apart.

Boden is charting a humble path to profitability, with a UK-centric business model to boot, while Monzo remains in an exploratory phase, pursuing international expansion if not world domination.

Time will tell which strategy works out.