Anne Boden, CEO of Starling Bank, speaks at the Web Summit 2019 in Lisbon, Portugal.
Harry Murphy | Sports file for Web Summit via Getty Images
British digital challenger bank Starling announced on Thursday that its losses have doubled in 2019, but they are expected to break even by the end of the year as activity has recovered due to the coronavirus crisis.
The London-based start-up recorded a pre-tax loss of £ 53.6m ($ 70.4m) in the fiscal year ended November 30, roughly double the loss of £ 26.9m for 2018. Revenue was £ 14.2m, a steep loss increase from the £ 750,000 it had collected a year earlier.
However, in a separate trade update, Starling said lending increased in 2020 as the company participated in the UK government's emergency corona virus funding programs. At the end of July, the bank had loans of £ 1 billion on its balance sheet, the vast majority of which were government-backed loans to companies affected by the pandemic.
This increase in lending appears to have increased the company's return on sales significantly in recent months. Net interest income is the largest part of the £ 6.7m income generated in July. Starling said it now has a run rate of £ 80m, which means it expects to generate as much annual sales.
"We are doing very well financially and it is terrible to say, but the crisis has given us the opportunity to really spend some time concentrating on launching new products, bringing new things to market and our position consolidate, "said Starlings founder and CEO Anne Boden told reporters when calling Thursday. "We are on the right track again to be profitable by the end of the year."
According to Starling, the pandemic and the resulting blocking measures led to a 15 to 20% drop in customer spending, which has since recovered and even exceeded the level before the pandemic.
Starling was founded in 2014 and is one of several upstarts who emerged in the years after the 2008 financial crisis with the aim of challenging the big banks. Other players in the room are the British colleagues Monzo and Revolut and the German rival N26. With a total of 1.5 million checking accounts, Starling lags behind all three customer numbers.
However, according to Boden, Starling customers have higher balances and the company is not as badly affected by a loss of international sales, as 88% of sales are generated with domestic retail customers. For the future, the bank expects a breakeven point by the end of 2020 and monthly profitability by 2021.
"Because we have higher balances, we use these balances to lend, and we're not half a bank, we're a full bank," said Boden. "We have both sides of the balance sheet, we have the best of both worlds."
Last month, Monzo also doubled its annual losses. The fintech company even warned that a disruption caused by Covid-19 had given rise to "significant doubts" about its ability to "continue as a company". But while Starling's losses have increased, the company said it has "sufficient resources to stay operational for the foreseeable future."
Starling has raised £ 100m since the beginning of the year from its two main investors, the Bahamas-based trader Harald McPike and the British wealth management company Merian Global Investors. Unlike many of its fintech competitors, Starling did not have to rely on venture capital investments. Starling said its investors had "expressed their intention and ability" to continue supporting the bank.