Financial missteps by regulators lead to a decline in Starling Bank's earnings in the UK's fintech sector.
Starling Bank's Profit Dip in 2023: Staff Costs Surge, Regulatory Fines Loom
The UK-based fintech, Starling Bank, has reported a 26% decline in annual profit to £223 million for the financial year, mainly due to a more competitive fintech market, increased costs, and regulatory fines. The bank's operating expenses escalated by 21.3% to £403 million, while revenues modestly rose from £682 million to £714 million.
Starling's staff costs surged by approximately 32%, reaching £303.7 million, primarily due to investments in risk management and technology infrastructure. This growth in personnel expenses led to a significant increase in overall operating expenses, contributing to the profit drop. The bank's average headcount jumped by 708 to 3,939.
Engine, a software-as-a-service (SaaS) subsidiary of Starling, was a primary driver behind the surge in staff numbers. The operations's fee income contribution to the group increased by 284%, totaling £8.7 million.
Despite the profit reduction and increased costs, Starling Bank's customer base continued to expand. The bank reached a record high of 4.6 million open accounts, a 10% increase compared to the previous year. Customer deposits also hit a new high at £12.1 billion, jumping from £11 billion.
Regulatory concerns weighed heavily on Starling during the financial year. In 2024, the bank was penalized £29 million by the Financial Conduct Authority (FCA) for not keeping pace with anti-money laundering measures in relation to high-risk customers. The regulator deemed the firm's lapses as "shockingly lax." The bank had opened more than 54,000 accounts for nearly 49,000 high-risk customers between September 2021 and November 2022.
Starling appointed Darren Pope to its board to bolster financial and risk understanding, given his experience at Lloyds Banking Group and TSB Bank. The bank has also focused on strengthening its risk management and compliance capabilities, aiming to address regulatory concerns.
Declan Ferguson, Starling's finance boss, emphasized the bank's commitment to increased investments in financial crime resources, thereby enhancing its risk management and compliance capabilities.
David Sproud, Starling's chair, described the bank's performance as "resilient" amid challenging markets. However, the momentum exhibited in account growth slowed compared to the previous year, with a 20% increase replaced by a 10% rise.
Raman Bhatia, Starling's group CEO, deemed the results as a significant milestone, marking the fourth consecutive year of profitability and revenue growth. He attributed this success to the bank's commitment to innovative banking solutions and exceptional service. The growth in Starling's deposit base and open accounts was especially noteworthy.
- The increased costs at Starling Bank, including staff costs, contributed to a dip in profit, as the bank reported a 26% decline in annual profit to £223 million.
- The banking industry, specifically fintech sector, has become more competitive, which is one of the factors that led to Starling Bank's increased operating expenses.
- The expansion of Starling Bank's customer base was significant, with a record high of 4.6 million open accounts and customer deposits hitting a new high at £12.1 billion.4.Starling Bank, despite the profit reduction, is focusing on strengthening its risk management and compliance capabilities, aiming to address regulatory concerns in finance and markets.
