Fin-tech revolution continues with Starling Bank as the UK's new leaders
The fin-tech revolution has been quite exciting for consumers and investors! For the first time as consumers we’re offered so much choice and such excellent user-led on demand services from the palm of our hands. Yes no humans required - no store visits or physical banks required!
Frankly i’m quite a digital banker anyway - i’ve only ever been in to a branch once every 5 years or so, however, for those who are not so digitally savvy the new wave of digital banks is transforming things further.
The apps are very self intuitive and once you have set-up your face ID you no longer need to worry about remembering too many passwords. Since it’s attached to your face - you’re reasonably secure also.
The new wave of technology offers much more than legacy/ traditional high street banks, from different pots you can create quickly to add money which you want to save for a purpose eg buying a home, buying a new car etc.
One of the features I love on Starling Bank is the Nearby payments, find and get paid by other SB account holders near you or share your banking details quickly with international IBAN and BIC also readily available. Sometimes you would spend forever finding these with traditional banks and most likely won’t find them and will be referred to a statement to access this information. Other great features include instant transaction notification, freezing and unfreezing cards, see your average spending in categories or by merchant, and importantly see and assess your recurring payments e.g that BT bill or Netflix bill, check and monitor your usage in one click.
Other features from managing your account details, creating statements for any date range, updating your personal details or adding money from Post Office deposits and another favourite feature - deposit a cheque by a picture! Up to £500 this saves a lot of hassle and if it’s over you can send the cheque by Freepost delivery!
If you lose your card or want a new one - order it in one click and receive what looks like a beautiful gift in the post! I felt like I had ordered from a luxury department store for a moment!
One may wonder how good are these apps, don’t they always get stuck or cause issues, well with a company that’s focused on hiring tech engineers this is seemingly a problem of the past. Money well spent on engineers and less on fixed overheads and costs seems to resulting in high ratings across the Apple app store at 4.8/5 and 4.5/5 on Google Play.
Starling also offers loans where the interest rate is always lower than its overdraft interest. These pre-approved loans can be repaid over 12, 18, 24, 36, 48, or 60 months. Users’ credit score and reasons shape the size, interest rate, and length of loans available.
More key unique features include Starling’s savings product called Goals. Users can create up to ten Goals with their savings targets, regular payments, Goal pictures and, because Starling counts cash stashed away in goals as part of users’ balance, means they’ll still get 0.5% interest. Round Up allows a Goal and all your main account spending will be rounded up to the nearest £1 and the difference will be added to that Goal. Rounding Up can be super-charged with 1x, 2x, 5x, and 10x multipliers which multiply the amount you save on each transaction. Starling’s 0.5% interest on savings is modest and falls to 0.25% on balances between £2,000 and £85,000.
Still need persuading? Monzo and Revolut both cap free ATM withdrawals at £200, then start to charge, Starling has no limit. Starling converts cash withdrawals and card payments into local currencies according to Mastercard’s exchange rate. Starling also offers a Euro account which helps people whose wage is in Euros or who have a property abroad. Starling leads Monzo and Revolut with features for SMEs and sole traders. It offers accounting software integration and no withdrawal, transfer, or overdraft fees. Starling also supports employees’ payments in cheque and cash. And with enough third-party providers, Starling’s Marketplace can integrate the latest fin-tech ideas.
What are some of the risks that Starling Bank will need to mitigate to maintain the position?
Capital - insufficient capital could fail to meet internal requirements to achieve business plan goals. Capital matters to Starling for expanding fast and surmounting setbacks to its profitability. The board must always apply the Internal Capital Adequacy Assessment Process to keep the business plan and fundraising realistic. Executives must monitor relevant metrics daily and the board must often review the capital levels in light of operational needs. Starling’s three-year forecast must remain healthy and its leverage ratio must be balanced.
Credit - actual and expected losses could be higher than planned due to market deterioration (such as caused by COVID-19), poor underwriting, and poor management of Starling’s credit portfolio. Lending creates risk as borrowers might fail to pay interest or the outstanding amount due. Adverse changes in macroeconomic factors which alter customers’ behaviour and circumstances are the key factors to understand. The board must review and approve Starling’s credit policy and risk appetite statement in line with the bank’s credit risk management and its procedures to acquire customers. Sub-committees must monitor changes daily and share findings and analyses with the board.
Liquidity - Starling may have insufficient cash to meet duties, achieve its strategy, or too meet goals at excess costs. A typical liquidity risk occurs when Starling uses customer deposits to fund investment or loans and customers demand Starling returns their deposits before investments mature or before loans are repaid. Relevant sub-committees must have policies
and procedures to track and assess daily liquidity needs against a contingency funding plan, which they report all to the board often enough.
Operational - this stems from inadequate internal processes, team-members, and exogenous shocks (like COVID-19). Starling has many operational processes, IT and communication systems, some of which it outsources to suppliers. These processes and systems may fail to operate as expected or may be damaged by cyber-crime or human error. Sub-committees must apply policies and procedures to identify, manage, and report on fraud, execution and delivery, supplier and outsource management, legal issues, business continuity, disaster recovery, information management, and data protection. Sub-committees must monitor compliance and show the board how they’re managing relevant factors.
Culture - poor behaviour can harm customers, counterparties, and whole markets. Starling must define, train, and nurture how to treat customers fairly. This culture must square with the FCA’s rules. Sub-committees have to measure team behaviour on each stage of the customer journey in order to provide effective cultural nurturing.
Competitors
Revolut has the most customers. A clean, intuitive, multi-featured app is the main reason. The ability to save and receive money in 29 currencies is another. Fast innovation has kept the company in the lead. Should Revolut improve its loan, overdraft, and saving features - it could become the dominant player for years.
Monzo’s strength is customer service. Monzo’s FAQ is industry leading. Its Whatsapp-style chat operator is reviewed as helpful and fast on review websites. Monzo is also more developer friendly as its Trello board is public. And Monzo allows users to program their own bank account.
Starling’s edge would lessen should Monzo or Revolut offer interest savings, no fees, and high limit foreign ATM withdrawals.
Starling’s opportunities
The UK average deposit has been around £1100 since 2013. In 2019, the global neo and challenger bank market size was $4.45bn it is expected to reach $44.50bn by the end of 2026, with a compound annual growth rate of 40.4% during 2021-2026. Europe has the biggest challenger bank market in the world. But the numbers are unclear.
The API economy, new payments legislation (revised Payment Services Directive and Open Banking), and a scalable Banking as-a-Service proposition revolutionise banking. Since 2007, platformisation has transformed the services of many industries. To stay at the forefront of these trends, Starling must balance staying aware of new services in Europe’s vibrant fin-tech ecosystem and obsessing about their customers’ needs. Working backwards from their customer first through vigorously earning and keeping their trust will establish Starling as the dominant player. Starling has been fortunate that the UK’s regulations and competition authorities have supported the fin-tech industry. This conducive environment underpins Starling’s opportunities.
More attuned machine learning models can help customers choose the best services for their needs. These models can also give suggestions to customers as to how much balance they need to meet their average weekly, monthly, and yearly spending.
Less clicks to open bank accounts. Starling takes 38 clicks to open an account compared to Revolut’s 24 and Monzo’s 45. Besting Revolut here boosts Starling’s popularity.
Concerns
Starling’s app launches and runs slower than Revolut and Monzo. Their marketplace is less populated than the other two banks. Further, Starling’s customer service has lower ratings on Trustpilot compared to Monzo and Revolut. Turning around each of these metrics can boost Starling’s growth. Although Starling’s app is simple and minimalist, Revolut packs more features and Monzo’s is more fun. Its categorisation of payments can be hit and miss. Some users have noted, for instance, that the app categorises a meal at a local pub as a ‘holiday’ payment. Monzo rarely goes wrong in this area and such differences shape user growth. Monzo also offers sending and receiving money via a link which Starling lacks.
One of the other new players is Tide, who have just launched that we think is super is Registering your company for FREE and getting a bank account at the same time. In addition Tide have two other unique features, Create an invoice in a couple of clicks and a built-in receipt importer so you don’t need to have two separate apps to do this! Just awesome we say!