Star­ling happy to take flight in post-lock­down bank­ing world

Founder and chief ex­ec­u­tive Anne Bo­den says the on­line-only lender is poised for prof­its ahead of its ri­vals, writes Lucy Bur­ton

The Daily Telegraph - Business - - Business -

Could coro­n­avirus kill on­line-only banks? That was a sur­pris­ing ques­tion posed by City an­a­lysts this sum­mer as they ar­gued the pan­demic could have counter-in­tu­itively ce­mented the po­si­tion of the big play­ers dur­ing lock­down.

In­stead of chal­leng­ing the high street banks, Bri­tain’s fi­nan­cial tech­nol­ogy stars Monzo, Star­ling and Revo­lut are yet to make a penny. But 60-year-old Anne Bo­den, who founded Star­ling in 2014 af­ter 30 years work­ing for “bor­ing big banks”, is de­ter­mined to change that this year.

“In De­cem­ber we will be monthly prof­itable,” the for­mer com­puter sci­en­tist vows, al­though she won’t be drawn into when the bank might turn an an­nual profit.

“We’ve al­ways had a busi­ness model that was go­ing to be prof­itable. Some of these other banks that launched from 2014 thought they could be Ama­zon and make losses for the fore­see­able fu­ture. But the Bank of Eng­land re­ally wants banks to be prof­itable within five years.”

Thread­nee­dle Street has clearly started to lose pa­tience with some of the bank­ing in­dus­try’s new­com­ers. Over the sum­mer its su­per­vi­sory arm, the Pru­den­tial Reg­u­la­tion Au­thor­ity, said that many new banks had “un­der­es­ti­mated the de­vel­op­ment re­quired” to be­come suc­cess­ful and now needed to fo­cus on mak­ing a profit. Its mes­sage came af­ter losses at Revo­lut more than tripled to £106.5m in 2019, while Monzo’s rose from £47.1m to £113.8m and Star­ling’s dou­bled to £52m.

Bo­den, who reads sev­eral busi­ness books a week, has not low­ered her am­bi­tious growth plans dur­ing the pan­demic and this week will find out if the bank has been awarded £35m in fund­ing to en­cour­age com­pe­ti­tion in bank­ing. While she has ac­cused her ri­vals of “swim­ming naked” with­out a route to prof­itabil­ity, the Welsh en­tre­pre­neur’s end game has al­ways been for dig­i­tal-only Star­ling to com­pete against FTSE 100 gi­ant Bar­clays, an am­bi­tious goal she’s well aware can only be achieved by mak­ing money.

“If you look at why we’re go­ing to make a profit [be­fore oth­ers], there’s a cou­ple of things go­ing on. A lot of the oth­ers make a lot of money on in­ter­na­tional travel and we’re far more do­mes­tic pay­ment based. We’re less im­pacted by in­ter­na­tional travel.

“Se­condly, our cus­tomers are not nec­es­sar­ily spend­ing on Star­bucks or Pret, they’re much more likely to be spend­ing at Sains­bury’s or Tesco.

“Our cus­tomers are older and tend to use us as a real ac­count. What we’ve done is build a cus­tomer base that is far more prof­itable – we have just launched kids’ cards, and our cus­tomers have kids. It’s pay­ing off.”

The in­tense com­pe­ti­tion in the on­line bank­ing sec­tor and the bit­ter ri­valry be­tween Monzo and Star­ling is widely known in the in­dus­try. Tom Blom­field, Monzo’s founder and for­mer chief ex­ec­u­tive, led a walk­out of key Star­ling ex­ec­u­tives in 2015, just be­fore launch­ing Monzo, and for 18 months the two com­pa­nies were based on ei­ther side of a small street off Fins­bury Square in Lon­don.

With the com­pe­ti­tion so close, Star­ling de­cided to frost all of its win­dows. “It’s true,” says Bo­den, laugh­ing. “But now they’ve moved up the road.”

The com­pet­i­tive­ness is not sur­pris­ing given that the po­ten­tial re­wards are huge. Coro­n­avirus has ac­cel­er­ated the shift away from branches and towards on­line bank­ing and Bo­den says this could cre­ate op­por­tu­ni­ties. “Try­ing to find things

for branches to do is a bad idea,” she says, ad­dress­ing a prob­lem fac­ing the high street lenders she’s try­ing to com­pete with.

“The banks need to get to­gether to share branches. You don’t need a branch from ev­ery bank in ev­ery town. Peo­ple are not us­ing debit cards, they’re us­ing mo­bile wal­lets, we did re­ally well on new ac­count open­ing dur­ing lock­down as peo­ple didn’t go into a branch.”

Bank bosses have long been try­ing to grap­ple with this shift in be­hav­iour. Se­nior ex­ec­u­tives from tax­payer­backed lender NatWest Group ap­proached Monzo for in­for­mal talks about a takeover around three years ago, high­light­ing how se­ri­ously ma­jor ri­vals take the threat.

Af­ter ex­ec­u­tives baulked at the sug­gested price tag, they de­cided to launch their own ri­val prod­uct – the at­ti­tude of some in­side NatWest at the time was that there were 42m peo­ple in the UK with­out Monzo, so why give the fin­techs a “free run”.

But mim­ick­ing the suc­cess of these start-ups proved trick­ier than ex­pected and six months af­ter launch­ing its prod­uct, Bó, the bank shut it.

Bo­den, a vet­eran of the bank­ing in­dus­try who has worked at NatWest, Al­lied Ir­ish Banks, Lloyds Bank and

UBS, has no doubt re­ceived sim­i­lar ap­proaches from the large banks but has her eye on a fu­ture stock mar­ket list­ing in­stead.

“I’ve al­ways said that I didn’t do this to sell out to a big bank, and I think that’s still true,” she says. “It’s too early [to say for sure]. Now is the ex­cit­ing stage be­cause prof­itabil­ity will give us an aw­ful lot of op­tions.”

Are in­vest­ment bankers try­ing to get work on Star­ling’s po­ten­tial float al­ready? “I can’t pos­si­bly say,” she adds, laugh­ing. “Every­body wants to talk to us, it’s not us want­ing to talk to them.”

But the next few months will also be tough. Coro­n­avirus cases are ris­ing and al­though no job cuts are on the cards (and no staff have been fur­loughed) Bo­den ac­knowl­edges that work­ing from home for such a long time could af­fect em­ploy­ees’ men­tal health. She has launched a pro­gramme called “Never

Home Alone”

in which staff can so­cialise with each other through on­line events such as cook­ing classes. Bo­den says she un­winds her­self by trawl­ing through fab­ric books, adding that per­haps she should have been a de­signer.

As well as keep­ing morale up dur­ing what could be a very dif­fi­cult win­ter, Star­ling is fac­ing the same head­winds as the rest of the in­dus­try. It is among the banks which has been of­fer­ing gov­ern­ment-backed coro­n­avirus loans to small busi­nesses, in­clud­ing the Trea­sury’s hugely pop­u­lar Bounce Back Loan Scheme, and at some point the sec­tor will be tasked with chas­ing these debts. “Col­lect­ing [the money] is go­ing to be dif­fi­cult and we’re ex­pect­ing a sub­stan­tial amount of de­faults,” says Bo­den. “At the mo­ment UK Fi­nance is work­ing with the Trea­sury and the Bri­tish Busi­ness Bank on all the pro­cesses to col­lect those loans. Every­body is con­cerned about the rep­u­ta­tional dam­age on this sec­tor when we have to start col­lect­ing … but every­body re­alises this has to be done care­fully.”

Bo­den’s CV has also got longer this year. She is now on the board of UK Fi­nance, the trade lobby group, and was ap­pointed to the Gov­ern­ment’s new post-Brexit board of trade.

UK Fi­nance is look­ing for a new chief ex­ec­u­tive af­ter its for­mer boss Stephen Jones quit over sex­ist com­ments he al­legedly made dur­ing the 2008 fi­nan­cial cri­sis and Bo­den thinks it’s im­por­tant women make it on to the fi­nal short­list.

Al­though the bank­ing in­dus­try is still male-dom­i­nated, more women are tak­ing lead­er­ship roles and Bo­den says there are many top fe­male ex­ec­u­tives with ex­pe­ri­ence of “ac­tu­ally get­ting things done”.

“You’ve got a sit­u­a­tion where they weren’t at the sharp end dur­ing the fi­nan­cial cri­sis, but they were clean­ing up the mess af­ter­wards – those women are not go­ing to let it hap­pen again,” she says.

“I have a lot of con­fi­dence in a whole cadre of women who will be lead­ing Bri­tish banks over the next cou­ple of years and I’m proud to be one of them.”

Star­ling’s ‘Help­ing Busi­ness Fly’ ad­vert fea­tured a small busi­ness owner’s fly­ing shed. Be­low, the bank’s founder Anne Bo­den

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