\Fintech News/

Starling to become the first profitable retail challenger bank

As rivals record losses, Starling's set to turn profitable

By Freya Pratty

Starling Bank has become the first retail digital challenger bank to break even and is on course to become profitable, its latest trading update shows, as rivals continue to record significant losses.

Founded in 2014, the bank had made a loss every month since its launch, but today reported £9m in revenue for October and an operating profit of £0.8m for the month. 

“We hit break even in October and fully expect to be monthly profitable from here onwards on an operating profit basis,” Anne Boden, founder of Starling said.

Advertisement

Starling is the youngest of the consumer-focused digital challenger banks. Although founded in 2014, it launched in 2017, after Revolut in 2015 and Monzo in 2016. The sector is fiercely competitive Monzo’s Tom Blomfield worked at Starling before staging a walkout of top executives and forming the rival bank. 

Monzo reported losses of £115.4m last year, while Revolut’s losses grew to £107.3m in 2019, despite increasing customer numbers. 

Following the losses, the Bank of England issued a warning to challenger banks in the summer, saying that new banks had “underestimated the development required” to become successful. 

Boden, a former computer scientist who started Starling after working for 30 years in the banking sector, said her initial pitch for the bank was met with “healthy scepticism” but she’s “pleased to say that Starling has become the first of the new breed of digital banks to become profitable.”

“We’ve never ‘bought’ customers with cash incentives, or promotions. We don’t have jazzy metal cards and we don’t offer ‘perks’ such as access to premium airport lounges,” — she said, in a dig at rivals which have pursued such strategies. 

Starling will now focus on expanding its services around Europe, Boden said.

“We will become a formidable competitor in the European banking market as we gear up to scale across Europe. We know that our technology is hugely scalable because our tech team runs a constant simulation at around ten times our current capacity.”

While these numbers make Starling the first of its immediate rivals to turn a profit, it is not the first challenger bank to make a profit. Oaknorth, a more business-focused neobank which provides loans of between £500,000 and £45m for midsized companies, made a £66m pre-tax profit last year.

This piece was updated to reflect the fact that Oaknorth has long been profitable, and so Starling is really the first retail-focused challenger bank to turn a profit rather than just the first challenger bank as previously written.

Freya Pratty covers news at Sifted. She has previously interned at Bloomberg and tweets from @FPratty

Join the conversation

avatar
  Subscribe  
Notify of