Fintech Pioneer Starling Bank: Journey from Promising Startup to Challenged Firm
A Decade of Fintech Disruption: Rising Stars and Stumbling Blocks
Three fintech titans, Starling, Monzo, and Revolut, joined the banking scene over a decade ago, aiming to reshape the industry landscape. Utilizing cutting-edge technology, these newcomers streamlined banking operations, improved customer experience, and disrupted traditional financial models.
Starling, Monzo, and Revolut swiftly gained impressive customer bases, with Revolut leading the charge and reaching profit of £1 billion this year, even outperforming Europe's largest lender, HSBC. Attentions now shift towards Monzo as the firm gears up for a headline-making £6bn IPO on the London Stock Exchange.
However, while its competitors thrive in the fintech realm, Starling struggles in a nightmarish slump. Starling's profit plummeted to £223 million in 2024, a significant drop from the previous year's £301 million. Hefty operating costs, which soared to £403 million (up from £332 million), somewhat offset balanced revenue growth of £32 million to £714 million.
The Regulatory Burden
Starling's trouble stems from a £29 million fine from the Financial Conduct Authority (FCA) for lax regulatory measures. The FCA slammed Starling for inadequate anti-money laundering (AML) controls, pointing out systemic risks in the fintech's historical customer onboarding practices. Between September 2021 and November 2022, Starling opened over 54,000 accounts for 49,000 high-risk customers.
Furthermore, Starling was forced to set aside a £28.2 million loan provision in its 2025 accounts, after identifying pandemic-era loans that did not meet a crucial guarantee requirement. These loans were given under the Bounce Back Loan Scheme, a UK government initiative to support small businesses with low-interest loans backed by government guarantees during the pandemic.
David Sproul, chair of Starling's board, acknowledged resolving "important legacy matters" in the previous year.
The Fallen Starling
Regulatory woes weigh heavily on Starling's reputation, especially as it welcomed its first chief marketing officer, Michele Rousseau, to handle its brand and reputation management amidst escalating turmoil. The appointment came after reports of staff exodus, amid controversial instructions from Raman Bhatia, Starling's CEO, who mandated staff to return to office for ten days each month despite a lack of sufficient workspace.
Starling's workforce expanded dramatically in the last twelve months, with staff costs reaching an impressive £304 million. However, the momentum on the customer side began to wane, with the number of open accounts increasing by 10% to 4.6 million, yet half the growth rate of the previous year. On the other hand, Monzo's customer base swelled by 31% to 9.7 million, and its customer deposits surged 88% to £11.2 billion.
Starling's Lifeline: Engine
John Cronin, founder of Seapoint insights, emphasized that Starling has no other choice but to pursue increased risk, a concern raised before the current challenges arose. Cronin asserted that Starling's limited scale, high risk weights, and relatively higher deposit funding costs make it difficult to compete with mainstream banks.
The fintech's competitive advantage may come from Engine, its software-as-a-service (SaaS) subsidiary. Although Engine's contribution to overall income was minimal at £8.7 million, it represented a substantial year-on-year increase of 284%. Starling seems committed to boosting Engine, with plans for expansion across the US. Raman Bhatia, the CEO, expressed optimism, eyeing revenues of £100 million in the "short-to-medium term."
If Engine fails to deliver, Starling may risk losing more than its fintech darling status.
- In the midst of Starling's significant financial decline, the financial industry and economy are closely watching the firm's pivotal decision to appoint Michele Rousseau as their first chief marketing officer to address the deteriorating brand reputation.
- Amidst Starling's current turmoil, they are banking on their software-as-a-service (SaaS) subsidiary, Engine, to deliver increased income and potentially save the company from losing its fintech status in the competitive world of finance and business.
