UK fintech Starling withdraws European banking license application

LONDON – The British digital bank Starling is ending its bid to obtain a European banking license, which is a significant setback for the company’s international expansion ambitions.

The company told staff on Monday that it had withdrawn its application for a banking license from the Irish central bank, four years after the process began. Starling’s application had had problems earlier, with the digital lender temporarily halting talks with regulators in 2020 due to the Covid-19 pandemic.

Starling will instead focus on selling its software-as-a-service product, aimed at helping banks with their digital transformation strategies, and expanding into new lending areas, CEO Anne Boden told employees in a note on Monday. The memo was first reported by Sky News and then confirmed to CNBC by a Starling spokesman.

The news comes as a blow to Starling’s European expansion plans. Supported by the likes of Goldman Sachs and Qatar’s sovereign wealth fund, Starling has won investments from such high-profile investors with the promise that they can achieve success in countries outside the domestic market.

Starling is one of the UK’s largest online banks, with more than 3 million customers, of which 500,000 are companies. It competes with a number of popular fintechs in the country, including Revolut and Monzo, as well as its own investor Goldman, which offers savings accounts through a digital banking brand called Marcus.

The privately held company was last valued at £ 2.5 billion ($ 3 billion) in April, double what it was worth in a 2021 funding round.

Fintechs has had a tough time in both public and private markets, with the Swedish acquisition now, later paying the company Klarna which recently saw its 85% fall in value to 6.7 billion dollars from 45.6 billion dollars last year.

Starling said they still intend to pursue expansion in Europe, only through software agreements with other lenders instead of their own bank brand.

“Ultimately, we felt that an Irish subsidiary would not deliver the added value we seek,” Boden said in the memo on Monday.

“We will now focus on taking our software to banks around the world through our Software as a Service subsidiary, Engine, and by expanding our lending across a range of asset classes, including through targeted M&A activity,” she added. .

Starling bought Fleet Mortgages, a specialist home lender, for £ 50 million in July 2021.

The company was recently criticized by Lord Agnew, a former British minister, who questioned the deployment of government-backed lending schemes aimed at helping companies through the corona crisis.

Agnew, who resigned as anti-fraud minister this year due to the government’s handling of Covid loan fraud, called Starling “one of the worst” offenders when it comes to checking companies applying for the government’s £ 47bn loan program. The government promised lenders 100% support for the loans in case a company did not repay.

Boden retaliated against Agnew’s allegations, calling them “defamatory” and “wild accusations” and threatening to sue the politician if he did not withdraw his comments.

The Covid loan program gave a big boost to Starling’s bottom line, with the emerging bank publishing its marque profit in October 2020 after a significant increase in lending activity. The bank’s loan book increased from barely any lending to almost £ 2.2 billion between 2019 and 2021. Starling is expected to reveal its latest full-year accounts this week.