How Starling Bank Is Continuing to Disrupt Post-Coronavirus Banking in the UK
The banking industry, in which the clientele typically crave security and stability, may seem like a difficult one to disrupt – but that hasn’t stopped challenger banks in the UK fintech scene from growing rapidly in popularity. Some 23% of British adults (12 million people) have an account with a digital-only bank, according to a 2020 survey by consumer group Finder.
However, the pandemic has hit the UK’s thriving challenger bank scene hard. Monzo, an industry leader, recently revealed it has doubled its losses due to the pandemic. Revenues at key player Revolut have gone up, but losses have tripled. Starling Bank, however, expects to break even this year.
Frean explains that Starling is in “high growth mode,” with over 1.5 million accounts, including more than 200,000 small business accounts. It’s not an easy time to be a British company that relies on investors, yet Starling was able to finalise a second round of funding since the start of lockdown. This May, it concluded the second leg of a £100 million fundraiser, all through existing investors.
“Funding hasn’t been a problem at all,” Frean explains, “because we’ve got a solid and reliable business model. We have different streams of revenue, we have retail accounts and business accounts. We have paid-for accounts now. And we've always had a tight control on costs. So when we completed our fundraiser, we didn’t have to do a down round.”
“We’d been working on similar technology already and we thought we’d be able to utilise that for something good.”
Perhaps that’s what made it easier to stand out compared to their competitors? Having the stability and organisation, backboned by already established processes?
Frean explains that while growth has been a positive factor, “it all really comes down to the culture,” and making the most of their small, flexible size.
“We hope that as we get bigger, we will still carry on working as we do,” she says. “As a company which began as a startup scaling up, our challenge is not to lose that very precious way of working, and not to become obsessed by process. We’re a bank, so we’re highly regulated, but it’s about being willing to make decisions quickly.”
Starling Bank has created new fintech offerings since the start of lockdown as well as updating already existing features on its app for individuals.
“We launched something called the Connected Card a couple of weeks after lockdown started,” Frean says. “All companies were trying to do their bit for society, and we thought about how we could chip in. This card was designed for people who were self-isolating – it’s a second debit card you can give to someone you trust to do your shopping, and has a maximum balance of £200, and can’t be used at an ATM or online.”
The card has been popular with clients with over 19,000 cards ordered to date. This was also endorsed by the Royal Voluntary Service (RVS). Since Starling’s launch of the card, the Royal Bank of Scotland (RBS) has also rolled out a similar product called “the companion card.”
Frean explains that Starling has also introduced cheque imaging, which helped people avoid going to the banks, and have made their savings feature (called ‘Spaces’) on the app more user-friendly by enhancing editability and control.With challenger banks, business banking functions can often be just as valuable in helping individuals save.
But how does the team at Starling come up with new ideas to keep ahead of the curve? Traditional banks are starting to catch up with the disruptive field of fintech by becoming much more user-friendly, especially when it comes to app interface.
“The big banks can copy our products - and they are and we’re really happy about that because we set out to disrupt the industry and this is proof of that - but what they can't copy is our cost base,” Frean says. We’re a very lean, small organisation and we’ve built all our technology whereas the big banks have got lots of negative technology and much longer approval processes. Any technology they build is on top of many layers of existing technology – it’s very, very expensive for them to do the things we can do for a fraction of the cost.”
She also adds that Starling’s size, much like other challenger banks, helps it have a more responsive relationship with its users.
“Customers are very vocal about what they want us to build, and they’re very engaged with telling us what they’d like to see. We listen to them and see how feasible or practical something can be for us,” Frean says. “Of course we also look at data and how people are spending their money and what might help them - but the starting point always has to be ‘what is the benefit for the customer?’”
The stress on communication isn’t just limited to customer service. Starling, true to its start-up roots, works in cross-discipline teams. “When we’re designing a product we’ll start with everyone. We don’t just have the techies sitting in a lab and then they hand it off. When you think that way, it’s problematic when something doesn’t work because not everyone is on the same page. It’s a very slack structure – we don’t have masses of bureaucracy which enables us to move a lot faster – we can launch a product in a matter of weeks.”
Frean hopes that the innovation brought on by challenger banks continues to motivate key players in the industry to become more consumer focused and flexible: “All these things – keeping the customer in mind, working together – they sound like really obvious things all banks should be doing”.
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