7 things we learnt from Starling’s 2021 Annual Report

Last week Starling published its sixth Annual Report, covering the 16 months between 1 December 2019 to 31 March 2021.

We’ve already covered the headline figures, including the bank’s profitability and huge growth in revenues but, with such a detailed 90-page report on the business, there’s a massive amount of fascinating detail on the state of this digital bank.

Here are the top 7 interesting nuggets we learnt:

1. Hiring is heating up

Hiring has continued at pace for Starling Bank, despite the disruption of the past 16 months.

While certain other banks had to furlough and lay off staff, Starling ended up adding a net 359 jobs during the period, taking its headcount to 1,245 staff.

This obviously pushed the bank’s expenses higher, lifting its overall staff costs up 117 per cent from £35.2m in 2019 to £76.6m in 2021.

Not that this is a problem, as Starling’srevenue growth more than grew enough to support that headcount. Speaking of revenue...

2. Lending revenue is booming, Marketplace revenue is... not

Interest income has become Starling’s No.1 source of revenue over the last year, overtaking card transaction revenue by a wide margin.

Looking back at 2019 card transactions brought in £9.4m for the bank, while Starling’s (largely consumer-focused) lending generated just £3.4m in interest income.

Fast-forward to 2021 and even though card transaction revenue has grown some 320 per cent to an impressive £39.4m… lending interest soared 1,700 per cent to make the bank a whopping £61.2m!

Meanwhile, remember marketplace revenue? Once upon a time marketplaces of third-party financial apps and services were thought to be challenger banking’s route to profitability through commissions. Not so much in 2021.

Indeed Starling’s marketplace revenue continues to limp along, pulling in just £172,000 in 2021, up from £71,000 in 2019.

One even wonders if this line item won’t just be wrapped into Starling’s £323,000 of ‘Other’ income next year…

3. Starling is (still!) working on ‘Murmur Financial Services’, aka Irish expansion

Oh Ireland. 

Starling’s plan for international expansion via Ireland dates back as far as 2017—and likely even before that, given CEO and founder Anne Boden’s former role as COO of Allied Irish Banks—yet Starling’s Irish banking licence remains eternally ‘in-progress’.

Boden told AltFi last week that Starling had to “pause the application with the Central Bank of Ireland during pandemic because, you know, everybody was busy with other things.”

But work has now resumed! And for 2021 Starling has created an exciting new subsidiary in Dublin called ‘Murmur Financial Services’ designed to spearhead its Irish banking licence application.

Starling has given the group a £1.9m loan and, we assume, instructions to get the licence sorted asap.

The report words it more diplomatically as: “we continue to have a strategic goal of taking the Starling brand into Europe and we are continuing our strategic objective to establish a bank in Ireland, subject to regulatory authorisation.”

Here’s hoping 2022 will be the year!

4. Banking-as-a-Service isn’t big business anymore

One of Starling’s earliest revenue wins was its Banking-as-a-Service operation, harnessing the payments and account tech that the bank had built and repurposing it for customers like Raisin,SumUp, Square and the UK’s Department for Work and Pensions.

The bank’s 2021 annual report reveals that revenue from BaaS more than doubled from £1.56m in 2019 to £3.21m today.

It’s not that Banking-as-a-Service isn’t doing well—105 per cent revenue growth isn’t to be sniffed at—it’s just that in 2021 this makes up just a tiny fraction of Starling’s now much larger business.

5. A BCR bank balance update

After scooping £100m in BCR grant funding in 2019, Starling Bank’s annual report indicates that spending that cash is going rather well.

Unlike several other BCR awardees, Starling was fortuitous that its spending pledges were largely in-line with exactly what its customers needed in the midst of a pandemic crisis.

Everything from Starling’s Business Toolkit, letting SMEs estimate and pay tax and VAT bills, to the addition of Euro and US dollar accounts and, of course, the bank’s whopping £2.18bn of SME lending have all been facilitated by that BCR grant.

Because of this Starling successfully spent £46m of the grant in 2021, on top of £19.7m it had spent earlier in 2019, leaving the bank with £34.2m still in the ‘bank’ to spend.

6. Starling’s embedded future?

As well as all the financials, annual reports are also an opportunity for CEOs to do a little future-gazing, and Starling’s boss is no exception.

For 2021 “embedded finance” is Boden’s buzzword, as she’s “particularly enthusiastic about the possibilities offered” in integrating “financial services into non-financial customer journeys, and believe that Starling is well-placed to grab the opportunities arising from this.”

Given Starling’s Banking-as-a-Service experience, this isn’t entirely left-field and could very well help reestablish BaaS as a key pillar of the business.

Then again, in 2019, Boden predicted that “AI” was Starling’s next big thing, helping customers “see if they have enough money to last them to the end of their day, their week, their month or their life.”

7. Anne’s shareholding (and possibly salary)

It’s well-known that Boden ceded her majority shareholding in Starling back in 2015 in order to save the bank with an injection of capital from Harald McPike—a story that the CEO detailed in her 2020 book Banking On It—and in 2019 was no longer a “person with significant control” according to Companies House.

What’s less known is where Boden’s shareholding in the bank stands today... until now.

The new annual report reveals that Boden maintained a 8.5 per cent stake in Starling as of 31 March 2020 (down from 12 per cent in 2019), and was entitled to 22 per cent of voting rights at the time.

Obviously since then Starling’s £272m March funding round has occurred, which may have further reduced the CEO’s stake, we’ll just have to wait until the bank’s 2022 annual report to find out by how much.

Finally, Starling’s annual report also notes that the highest-paid director of the bank got a 50 per cent pay rise in 2021, taking home £600,000 in base salary, up from £398,000 in 2019.

According to the Evening Standard that director was Boden.