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Breaking down Starling’s 2020 financials

Starling's 2020 financial result show good growth but heavy dependence on government loans.

By Isabel Woodford

Pictured: Starling Bank CEO Anne Boden

Starling has posted a £31.5m pre-tax loss in its latest financial results, nearly halving its losses from its last accounts. The new set of financial results run from December 2019 to March 2021.

The numbers show a strong 16 months* for the company, which recently confirmed it had reached unicorn valuation with backing from Goldman Sachs and Fidelity. Starling continued to grow in all directions during the pandemic, in large part due to its ability to ramp up lending via government schemes.

Here are the top takeaways from the announcement.

1. Revenues grew nearly 600%

Starling made revenues of £97.6m over the last 16 months. That’s up nearly 600% from £14m for the previous period.

A breakdown for those revenues shows that nearly £60m came from interest on loans. Card transaction revenues saw strong growth, while its banking as a service product (“payment and platform services”) seems to have made £3m. The marketplace offering made just £172k.

It made enough money that the company says it broke even in October 2020 and has been profitable for the last nine months.

The company said it now expects to post a fully profitable 12 month period in March 2022. Its current projected annualised revenue for 2021 is £170m. That could mean 2020 was its last set of loss-making financial results for the foreseeable future.

2. Its lending book now stands at £2.2bn

Starling has stuck to its word of acting like a bank by lending.

The company has now lent out £2.2bn, up from £54m. Its goal now is to generate interest off of those loans and to minimise the risk of defaults.

In a press call, founder and CEO Anne Boden said she was optimistic about customers’ ability to pay back their debts.

“18 months ago, we were expecting 30-60% to default. We [now] expect things on the lower end… So far, things have been very positive,” she said. “We’re not going to see, in my opinion, the defaults people predicted.”

Still, it’s worth noting that Starling’s buoyant lending capacity may be short-term. A large part of those funds came from government support schemes, rather than its own balance sheet. Its results show it funded 53k customers via government loans, and that 95% of its SME loans were subject to the government guarantee.

As those schemes come to a halt, Starling may struggle to sustain that lending rate.

To maximise its lending capacity, Starling has several partnerships with third parties. Boden said some of those third parties are now using Starling’s deposits for mortgages.

3. Operating costs rose to £113m

Starling seems to have invested heavily on the tech front. The company disclosed it had spent £5m on its banking platform and £16m building out its lending provisions (including risk analysis).

Elsewhere, it nearly doubled its headcount to 1245 employees, with staff absorbing the vast bulk of costs at £76.6m.

Starling also stressed that its “fixed costs have remained relatively stable,” year-on-year.

4. Deposit base grew to £5.8bn from £1bn

Starling continues to stand out from its peers in terms of its deposit base. It ended the accounting period with £5.8bn in deposits — of which £3.9bn were to its 300,000 SME customers.

That’s up 500% from the end of 2019, when Starling narrowly hit the £1bn mark.

The average SME customer now holds £13,000 in their account, while the average retail customer holds £2000.

The bank argues that’s because its customers are using Starling as primary accounts for the most part.

“We have customers that are using us for real banking and it shows in the balances that we have in the accounts, and the overall deposits we have,” Boden noted.

5. It’s doubled its customer accounts — but it wants SMEs

Starling has doubled its overall customer base to 2.1m.

That’s strong growth, with the overwhelming increase coming from retail customers.

Nonetheless, Starling is hungry to go after the lucrative SME market. As of July 2021, Starling calculates that it has 6.3% of the small business banking market, and estimates it will have over 10% by December 2022.

Boden also said Starling is beginning to experiment with an SME credit card, but that there was no timeline yet to roll it out.

Looking forward

Starling says it has plenty of plans for the year ahead. Efforts to expand into Ireland have resumed, after the application to get a licence with the Bank of Ireland was put on hold during the pandemic.

Acquisition plans are still ago but remain vague, as Boden offered no further update. Plans to offer crypto storage seem to be off the table, with Boden calling some cryptocurrencies “dangerous”.

Starling is also looking to roll out its own card processor, which it has built.

An IPO is also on the cards but not yet, Boden stressing, circling the end of 2022 as the earliest scenario. “We want the right number when we float, and we’re on very solid footing,” she concluded in a press call.

* Results usually cover a 12 month period but Starling has opted to change its reporting date on a one-off basis. It’s worth flagging that comparisons with the 2019 results are not entirely like for like.

Check out Starling’s previous results here!

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