Starling Bank posted its first full-year profit, according to its latest financial results, solidifying its leading position among fintech startups that mostly struggle to turn app downloads into revenue.
In results released today the London-based bank posted a pre-tax profit of £32.1m for the 12 months to March 31 2022, compared to a £31.5m loss in the previous 16-month period as revenues surged 93% to £188m. (Starling changed its reporting period last year.) The bank first broke even on a monthly basis in October 2020.
“This is a landmark year for Starling. We've achieved our first full year of profitability, just five years after launching, and we've achieved a sustainable business model that will allow us now to generate our own capital and to expand into new markets,” CEO Anne Boden told reporters.
Starling is one of the largest of the UK’s online banks and lends to both retail customers and — after a bold push during the pandemic — SMEs. Participation in state-backed Covid-19 lending schemes helped it boost its loan book significantly. Last year the bank also acquired specialist buy-to-let mortgage lender Fleet Mortgages.
In the year through March 31, the bank’s deposit base increased 55% to £9bn, and lending rose 45% to £3.3bn.
Starling, which is backed by Goldman Sachs and Fidelity, last raised in April of this year but did not bring on any new investors. All existing investors of the bank participated in the £130.5m raise, which valued the company at £2.5bn pre-money.
Here are takeaways from the announcement.
Boden says Starling would have been profitable even without Covid loans
There's been both concern and criticism about fraud and defaults in the government-backed Covid lending scheme — as well as questions on how much they contributed to Starling's growth. 93% of the fintech's SME loans were subject to the government guarantee at the end of March.
Boden said that she can’t say anything definitive before a broader report is made about the state of the scheme overall, but that “everybody is seeing levels which are much much lower than” the default rates of 30%-60% that had originally been expected.
“We would have been profitable even if we hadn’t done Covid loans,” Boden said.
On the decision to withdraw the application for an Irish banking licence
Boden told staff this week the bank would withdraw its application for a banking licence in Ireland and focus on selling banking infrastructure technology overseas through its Engine subsidiary.
Boden said it was a “huge decision” but that the bank wanted to focus on global growth.
“That will give us the global footprint, not just a footprint in Ireland and Europe that the Irish licence would give us.”
Despite that, Boden said that if a bank came up for sale in Europe that allowed Starling to launch in Europe, the team would “look at it seriously” but that it would have to be in a bigger country than Ireland.
On the macroeconomic environment and tech slowdown
Boden said that the company was in a good position despite the cost of living crisis, given its mortgage portfolio. “Mortgages are very, very safe in this environment.”
She did say that the bank saw customers cutting out some discretionary spending like subscriptions, though it was uncertain whether that was directly related to an increase in prices or a post-lockdown correction.
Given the drop in listed tech stocks and valuations of non-listed companies in tech and fintech, she said: “I think you'll see a divergence in the market between profitable organisations, and those organisations that have pursued growth and haven't really figured out how they're going to make money.”
She said there is “particular stress in the buy now, pay later area”.
An IPO in 2024 is most probable
Regarding a timeline for a public offering, Boden said that due to market conditions she would be aiming for “maybe '23, most probably '24".
Chief financial officer Declan Ferguson said that the bank would not likely raise another round of financing from external investors before a listing unless the bank were to do a significant acquisition.