Whilst there is a lot of fuss about failed speciality finance firms and fintechs these days, it should not surprise us that there are winners and losers, as in every field of endeavour.  City AM reported earlier this month however that the UK is home to 60 firms with Unicorn status - with five created since the pandemic including Starling Bank. 

Starling and its founder were chronicled in the UK Times in mid March 2021, following the bank's announcement of raising just under £300mio from Fidelity, Railpen (the pension scheme) and a cooperative founding shareholder Harald McPike. Well done to Starling for this news. Not only is it now a member of the UK unicorn club, joining Revolut, Monzo and others, but it has announced monthly profits for since the start of 2021 and passed the 2 million account milestone since inception. Is a floatation in the works for 2022?  Or will an un-named US acquirer step in to expand its current footprint into the UK high street?

In the Times article, Starling's founder - Anne Boden - shares that a stream of constant daily new tech releases (somewhat unique in financial services versus infrequent updates) combined with a focus upfront in building the tech is a key feature of the bank's development. Great marketing (its coral card is well known) and unlike some other Fintechs a leader with tech/risk and management skills honed over the years, possibly makes it a standout. Keen attention to fraud is one such standout area. 

Starling faces some challenges, for sure. Much of its loan book has been reportedly originated with government provided support during the pandemic period - that gives it a unique risk profile and it is unclear how that plays out. I was surprised to read Anne Boden's blog on the bank website in May 2020, in the middle of the first wave of the pandemic, where she acknowledged that lending during the period could be problematic: She writes "let's not forget in a year or two's time, whenever the defaults emerge, as a nation we went into this with our eyes wide open".  She concludes by choosing to not chose a "safe approach" with such programs.  

It must have been a challenging decision to take - how will such loans and the inevitable defaults play out? Can banks service and collect such loans balancing government, shareholder and community conflicting interests?  Will such defaults serve as blackmark on borrower records in the future or will it be seen as indirect aid funneled by UK commercial bank lenders?  One must respect Starling and its CEO for making the call at that difficult time.

Good luck to Starling as it goes from Challenger Bank to Unicorn status and beyond.

Photo credit: The Business Journal
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