High-flying starling gets into mortgage lending
Starling Bank made its first acquisition earlier this summer, a clear signal that the fintech is planning to offer domestic mortgages soon. Surprisingly, the purchase was for the buy-to-let specialist Fleet Mortgages. If Starling plans to be the first all-digital bank to offer mortgages and loans in the UK, why opt for a more targeted acquisition first? Was it just dipping a toe in the water or is there more to it?
Starling’s recent revenue report of 600% and doubling of the number of customers demonstrates how firmly it has established itself in the mainstream financial consciousness in the UK. Now he’s acquired a mortgage lender and suggested moving into the mortgage space. If the bank’s mortgage offerings are as progressive and user-friendly as its app, they will surely see unprecedented adoption. It would also make Starling the first all-digital mortgage lender, putting it ahead of other digital rivals Monzo and Revolut, and more in line with the traditional banks it seeks to improve.
If the bank’s mortgage offerings are as progressive and user-friendly as its app, they will surely see unprecedented adoption.
Fleet Mortgages’ clientele consists of professional or semi-professional rental owners. Perhaps knowing that the BTL market has become increasingly expensive for owners in recent years, Starling wants to offer a simple digital product that makes life easier. Perhaps he knows that his own primary customers – adults who lead digital lives – are likely to have multiple streams of income, some of which may come from property.
Whatever the reason, Starling herself confirmed that the move was part of a broader plan by the bank to grow lending through a combination of strategic forward flow arrangements, organic lending and targeted mergers and acquisitions activities.
A strategic maneuver
Anne Boden, CEO of Starling, said: “The acquisition of Fleet Mortgages marks the start of our transition to mortgages as an asset class and builds on a number of forward flow agreements that we close with leading non-bank lenders. In addition, the acquisition of credit facilities and the development of its own ability to lend on mortgages and take a share of the UK domestic mortgage market will strengthen Starling’s balance sheet and position it even better for its introduction in highly anticipated eventual scholarship over the next year or two. It had already been rumored for late 2021, but with the pandemic blocking everyone’s plans, the bank has remained steadfast in its commitment to doing its banking better, and Boden won’t be rushed. No public introduction date has yet been announced by the bank, but its activities in acquiring and expanding offerings such as BaaS for Europe and joint accounts suggest the organization is taking its time to optimize its position before embarking on an IPO.
This goes for both the disruptive technology that made it famous as well as the need for ‘traditional’ banking arrangements; ‘Banking. But better”, as the company slogan says. Starling’s IPO success will come from three things: first and foremost its technology. It has clearly positioned itself as a technology company and has built its own world-class technology from the ground up. It’s an incredibly complex and difficult thing to do and having developed this technology and become the market leader, it is justifiably proud of its achievements as a disruptor and challenger.
Second, by positioning itself as a real bank, not just an app (Starling got its banking license in 2014), it gains legitimacy and captures the idea of a traditionally trusted company that will make money for investors. Third, it is hugely appealing to customers, not only because of its ease of use and impressive technology, but also because of its ethical credentials. The banking sector as an industry has fallen somewhat out of favor with young investors at least, and several banks have come under fire lately for investing in industries that in turn fund arms production, climate degradation and human trafficking. Traditional funds and individual investors are increasingly concerned about corporate business practices and ESG credentials when investing, and Starling has aligned with this public mood in its ethics statement.
This should serve to further increase confidence that any IPO, when it happens, will lead to the bank’s success. From its early days as a disruptive bank, to its slew of ‘Best UK Bank’ awards, TV adverts encouraging customers to ‘break free’ from traditional banking and a brand new sponsorship deal with UEFA Women’s Euros 2022, Starling is clearly committed to her goal of ‘Bank. But better.’ A continued focus on M&A activity and optimizing its position while increasing its ranks of satisfied customers could be a winning combination. No wonder industry insiders are keen to know when they can step up and get a piece of the action.