Starling Bank wants to buy a lender
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Starling Bank, the digital bank led by founder-turned-author Anne Boden is looking for acquisition targets in the loan market as part of a deal that could trigger a wave of neobank-led consolidation in the fintech sector.
Speaking exclusively to Sifted, Boden said the company is now actively seeking “ready-to-buy companies”, with European non-bank lenders (including P2P companies) in the sights.
A deal makes sense for Starling because the bank, more than any other fintech firm, has capitalized on emergency lending programs designed by the UK government to support struggling businesses during the initial lockdowns of the pandemic.
Between October 2019 and October 2020, the startup’s gross lending rose from £ 37million to £ 1.5bn, mainly thanks to its work on 100% taxpayer-guaranteed rebound loans to small businesses. companies.
A decent chunk of that money has been distributed through partnerships with P2P lenders like Funding Circle and Zopa, and Starling executives have already admitted. having examined acquisition opportunities.
But Boden, in an interview with Sifted, went further. She said the company is now actively seeking a loan business to acquire.
“Because we have a European strategy, we are also keen to seek out ready-to-buy companies,” she said.
When asked again to clarify if this means Starling is actively looking for a lender to buy, she replied, “Yes.”
Boden explained that Starling would continue to provide loans under the government’s emergency funding programs, but added that “there are other types of loans that we are currently working on to replace that.”
Part of the reason is that while the emergency loans have been a boon to the business, helping it break even in October, Boden acknowledges that – even with the UK on lockdown again – the programs will not last forever.
This means that Starling must look for other ways to keep its lending operations strengthened.
Boden also provided a potential clue to which pools Starling is looking for acquisitions in, pointing out that the retail investors who have historically fueled P2P platforms have mostly been replaced by institutional financings, which are expensive compared to deposits. Retail.
Starling’s union, which has a bunch of cheap cash in the form of retail deposits, and a lender with a solid distribution, could be lucrative.
Boden added that P2P lenders and non-banks are currently under pressure because the government has effectively capped the amount of interest they can charge on their loans.
“Coronavirus Business Interruption Loan Scheme (CBILS) loans are capped at 15% [interest]. So these kinds of businesses are going to be under pressure because what the government backed loans have done is really cap the interest rates that people can charge SMEs. And if you’ve got a lending business model that’s superior to that, you’re really left out of that market, ”Boden said.
There aren’t any details yet on what lending activity Starling might consider, but there really aren’t many major non-bank lenders in Europe to choose from. Major P2P lenders in Europe include Funding Circle, which is listed on the London Stock Exchange, and October in France.
Here are a few more eye-catching quotes from our interview with the ever-energetic Boden.
- Starling customers were relatively unaffected by the foreclosure: “Our demographics are less likely to have been affected by the foreclosure [than other fintechs]. Our demographic is slightly older, slightly richer. So [our users are] more likely to have just come home to work and keep spending on the family shop and going to Sainsbury’s and Tesco’s and whatever.
- They were never very enthusiastic about using the bank to travel: “We are less affected by [the big dip in] travelling abroad. We only have about 15% of our transactions that were international travel, so the exchange wasn’t really affected. “
- Forget Freetrade, Starling customers are investing the old fashioned way: “One of our most popular merchants is Hargreaves Lansdown. Starling customers tend to be investors.
On the open bank
- Acquisitions in this space are a risk: “Visa buying Plaid and Mastercard buying Vocalink is a way to maintain what is fundamentally a duopoly. “
- So much for a third card system: “Especially in Europe there has been a lot of pressure for a third card system or an alternative and generally the introduction of an API through an open banking mechanism could have been a third way. ‘make these payments. So it’s a very, very interesting space for the owners of the existing rails.
- Starling customers don’t care about crypto: “We have a lot of people coming up to us asking if we would deal in crypto or something… almost nothing. People are asking for it, but we don’t think it will be what our customers really need.
This article first appeared in the beta version of our new fintech newsletter. If you would like to subscribe to and view the early adopters list, please subscribe here.