Goldman-backed digital bank Starling reports first annual profit

Starling Bank’s banking app on a smartphone.

Adrian Dennis AFP via Getty Images

British digital bank Starling reported its first annual profit on Thursday as the company’s revenue nearly doubled.

The lender posted a pre-tax profit of £32.1m ($38.3m) for its financial year ending March 2022, after losing £31.5m a year earlier.

The start-up’s revenue reached £188m, up almost 93% from 2021.

This is a rare show of strength in the fintech sector at a time when some companies in the industry are struggling with lower valuations and posting heavy losses.

Klarna, the Swedish buy-now pay later firm, recently saw its stock plunge 85%, while listed rival Affirm is down 69% year-to-date.

“What we’re seeing is that there’s a correction in fintech stocks that aren’t profitable,” Starling CEO Anne Boden told reporters on a call Thursday.

“If you look at the listed markets and certain units like ‘buy now, pay later’ and the like, we see a huge correction there.”

Some fintechs are also postponing their IPO plans as fears of a possible recession around the corner have markets on edge.

In Starling’s case, the company likely won’t list its shares publicly until 2023 or 2024, Boden said.

London-based Starling is one of many digital-only banks to have swept the UK over the past decade. Startups in this space have attracted millions of customers and high ratings, with Revolut now valued at $33 billion and Monzo at $4.5 billion.

Starling itself was last privately valued at £2.5 billion in a funding round completed earlier this year. The company’s shareholders include the likes of Goldman Sachs, Fidelity and the Qatar Investment Authority.

The company benefited from a sharp rise in mortgage lending following its acquisition of specialist lender Fleet Mortgages. The loan book grew 45% to £3.3 billion in fiscal 2022.

As of June 2022, Starling’s total gross lending was £4bn, of which £2bn was mortgages.

Starling had also been boosted by government-backed loan programs introduced in the wake of the coronavirus pandemic, most notably the bounce-back loan program.

Lord Agnew, the former UK anti-fraud secretary, accused the bank of not doing enough to stop fraudsters taking advantage of the system.

Boden said Starling wrote to Agnew asking to meet, but said he declined.

“He’s just wrong,” she said on Thursday. “Starling has done a fantastic job [job] by making sure we’ve done all the necessary checks and more.”

On Monday, Starling scrapped plans to get a banking license from the Central Bank of Ireland, four years after applying. The move would have enabled Starling to offer its services to customers across the European Union.

Boden said the turnaround was “tough” but from a strategic perspective, the short-term launch in Ireland would have been the “wrong decision”.

Starling is still open to the idea of ​​expanding by acquiring a European lender, but added “it would have to happen in a bigger country”. Goldman-backed digital bank Starling reports first annual profit

Drew Weisholtz

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