Starling Bank: Can it make technology its business?

Anne Boden’s shocking departure from Starling Bank as CEO in June left the once-named “Bank Possible” with one of its most important decisions in nine years.

The bank is not only looking for a successor to Boden, Starling’s founder and former CEO who has left the company “like a Catholic Church without a Pope”, according ot e senior banker rival, but it also needs to decide its future strategic direction.

Starling’s valuation has dropped , from about £1.5bn to £2.5bn . Investors are now demanding proof that it can rebound ahead of an IPO.

One top 10 investor said, “We are asking what we can do to make a business worth £5-£7bn worth IPO — and is there anything we can do to make it £10bn?” The challenge is to change the business in a way that people will look at it differently when it goes public.

The investor said, “We must demonstrate that this bank is capable of growing at least 20 percent plus sustainably and [and] maintain very high profit levels.”

Some hope that Starling will be able to reinvent itself as a high-value tech company by granting licenses for its banking platform Engine to other financial institutions.

One former senior employee said, “Their long term strategy is not the bank but the tech.” “Starling Bank may become a spin-off, but its primary business model is franchise out the technology stack.”

Declan Ferguson, Starling’s Chief Financial Officer, said in June the goal was to expand Engine beyond the UK. He noted that it is “definitely a possibility” for Starling to look more like a technology company in the future.

He said that “Demand for Engine has been enormous — and if you look ahead five or ten years, it will be generating the best returns in its class.”

Starling’s growth prospects are threatened for now by newcomers with deep pockets, such as JPMorgan Chase, who want to encroach on its retail markets. While investors see a way to a higher valuation for Starling, it’s not clear whether the company can transform.

One executive from another digital bank said: “Doing enterprise-wide sales of banking software differs greatly from having 3.5mn customers with current accounts.” It’s rare to find a bank that has turned off the switch. People familiar with the situation report that Boden, who is still on the board of directors, has decided to step down following a dispute over Jupiter’s sale of Jupiter’s holding at a lower valuation.

Starling denied that Boden had been forced out and said that she chose to step aside because she felt her roles as CEO and major shareholder were not compatible.

One former Starling employee said that, along with the disagreements with investors, there was internal skepticism as to whether Boden, whom some people consider a retail banking expert at heart, would be able to oversee the transition from a business focused on tech. Close friends of Boden and Starling have denied this concern.

Starling wants to license its own banking platform to other companies. It will provide a white-labeled version that they can use to offer more financial services, such as card transactions, payment processing, and customer account opening. Engine became a separate subsidiary in February, with its own CEO.

Critics claim that adding another business to Starling will only complicate an already complex bank.

A senior executive from another digital bank said, “It is a collection bits.”

Supporters of Starling say it can manage the transition, building on its reputation and allowing Engine’s development to proceed at a distance. Starling’s profitability was achieved in 2022, thanks to its current account business and mortgages.

Monzo, founded by Starling defectors with a focus on personal loans, is expected to achieve full-year profitability only in 2023.

David Brear is the chief executive officer of fintech consultancy 11,:FS. “They are playing at being better than a bank rather than changing the way financial services are run.”

The bank has yet to announce any major deals that will see major players buy Engine in different parts of the world. A spokesperson stated that “big deal are in the pipeline, and an announcement will be made soon”, but the section of the annual report on Engine simply said it had “made great strides” in Europe and Australia and instructed readers to “watch this area”.

A digital bank executive said, “They have been flying around the globe trying to sell it post-pandemic.” It’s been a lot of work in the last 18 months but doesn’t appear to have landed on anything substantial.

A former senior employee expressed similar skepticism due to the growing competition between fintechs, banks and other software providers.

Is this where the bank should go? They said that the market was crowded. Fintechs like cloud banking platform Mambu, and Thought Machine have customers such as Lloyds, Morgan Stanley, and JPMorgan.

Boden, who is still a strong figure in the bank, and has a seat in the board, may have a say in selecting her successor. People close to the process of decision-making suggest that interim chief executive John Mountain might keep his job.

The new Starling boss will need to show that they are capable of taking the bank to the top.

“Can you manage a growing bank and grow a global software offering? The digital bank executive said that it requires different management methods. The new Starling management will have to answer this question.