Digital challenger Starling to hit profit in 2019 says founder Anne Boden as European expansion takes crucial step

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Starling offers current accounts through its app

Digital-only challenger bank Starling will “definitely” be in profit by the end of 2019, its chief executive told City A.M., as it announced a major step in its plans for European expansion.

Anne Boden, who started work on the bank in 2014, said Starling will be “breaking even in about two years’ time” as it offers more of the profitable services dominated by traditional banks.

The bank will today announce it has become a direct member of the single euro payments area (Sepa), which allows credit transfers, direct debit and card payments in euros across the whole of the EU.

The Sepa membership will allow Starling to move into new markets beyond the UK, with euro-denominated accounts in Ireland during the first quarter of 2018.

Ireland and beyond

Boden said: “It is our intention to expand across Europe, first into Ireland and then into other European countries where the UK has good connectivity.”

France and Germany will be the first targets beyond Ireland, owing to their large populations and stronger demand for accounts in both sterling and euros, she added.

Boden is “very confident” the bank can carry out the expansion even as the uncertain Brexit process is in full flow. Starling will establish a subsidiary in Ireland, from which it will be able to offer banking services across Europe. It has already set aside enough capital to create the subsidiary as part of a “long-term plan”, she said.

Nevertheless, the bank still aims to raise £40m from investors, a process which is expected to end in June.

The bank last week announced another potential boost to profitability as it gained authorisation from the UK’s Prudential Regulation Authority and Financial Conduct Authority to offer customers direct access to loans, insurance, mortgages, ISAs and other investment products from within its app.

Starling faces strong competition for new customers among the field of app-based consumer fintech firms, with rivals such as Atom Bank, Monzo, Tandem, and Revolut among the fastest-growing competitors.

First mover

However, Boden believes her bank’s advantage as the first to market with a full-service bank operation with current accounts will give it an edge over rivals which are still operating using pre-paid cards.

“We’re a real bank with a real banking licence,” she said. “You need to be a bank to make money.”

Expansion into Europe will benefit from a relative lack of competition on the continent, she claimed, with the services Starling offers “largely not available at all across Europe”.

“We’re bringing all the fintech expertise of London into Europe,” she said.

RBS competition remedies

Meanwhile Starling is also keenly eyeing the enterprise market in the UK. It will apply for part of “Pool A” of grants worth up to £120m for the development of business current accounts. The grant funding will come from Royal Bank of Scotland as a remedy for competition concerns stemming from its bailout by the UK government.

If awarded the cash in the second half of 2018 the bank will invest in creating an online platform for small and medium-sized businesses beyond the app-only platform currently offered to current account holders.

Read more: UK's first mobile-only current account bank Starling to raise £40m

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