The most famous woman in British fintech bustles into a City meeting room on the sixth floor of the bank she built. At five foot, Anne Boden (pictured), chief executive of Starling Bank, is a fizzing ball of kinetic energy, all smiles and hellos, an atom the moment before it splits.
Boden, 60, will need every ounce of those resources over the coming year.
Last month, the app-only bank raised £60m from investors for its first push into foreign markets, and “in January or February” plans to post its first month of profit, in what will then be seven years since Boden founded the business.
Starling has come along away. The challenger bank has opened 1.25 million customer accounts and holds more than £1.25bn in deposits since it was launched in 2014. The digital bank has forged a reputation for bringing quality products to market across business banking, travel money or overdraft facilities that have won it several bank of the year awards.
However, the lender competes against UK rivals who have more customers such as Revolut which claims 10 million accounts and Monzo, which notched up four million accounts earlier this month.
The breakneck growth of digital banks
This year is perhaps the most crucial in Starling’s short history. Boden has to manage expansion into Germany, France and the Netherlands, maintain the bank’s quality, and produce a profit.
“The service we launch has to be appropriate to the culture of the country we are going into,” says Boden, a 35-year banking veteran who has worked all over the world and only carries a hint of her native Swansea accent.
She adds: “We can’t cookie-cutter our service. We need to offer something distinctive, but still in tune with the culture we are going into.”
Digital banks continue to build customers at an eye-catching rate, adding more than a million customers a month in the last six months of last year to notch up almost 20 million customers in 2019, according to a report from professional services firm Accenture last month.
But the next step is turning these customers into profitable primary account holders who hold their salaries there, rather than just transferring across a few hundred pounds a month to take advantage of cheaper travel money or restaurant discounts.
Neo-banks and lending
However, the Accenture report said deposits held across digital banks slumped by a quarter to £260 from £350. The average amount of cash held across all types of bank account is £3,214, according to research from comparison website Finder.
These sums are important because lending against the value of its deposits is the fundamental business model for retail banks.
“Digital banks have experienced high growth,” says Boden. “We are all putting on numbers. This has never happened before in the history of banking. But now we are moving into a period where these banks have to show they can make profits.”
The last funding round leaves Boden and her 900 staff with a 20 per cent stake in the business. The bank refuses to release its valuation.
Starling makes its cash from a mixture of charging fees on the cards it issues, its marketplace where it charges other financial service firms to sell products on its platform, as well as using its deposits to lend.
Friends in high places
“The thing to remember is that our cost base is so small the cash we raise here is meaningful,” adds Boden.
The bank says the average amount held across its accounts is around £1,000, but this includes its 100,000 business customers who are lucrative accounts that hold and borrow higher sums.
Starling was awarded £100m to boost business banking competition last February by the state-backed Banking Competition Remedies (BCR), which distributes £775m of funding that Royal Bank of Scotland had been ordered to set aside as a condition of its bailout by taxpayers in 2009.
This award caused a storm at the time after it emerged that Boden had worked with BCR director Aidene Walsh at Dutch bank ABN Amro, RBS and briefly at Starling. Starling says: “Anne Boden and Aidene Walsh had a good working relationship, but are not close friends.”
Starling, in its bidding document to the BCR, pledged to make over £900m of additional lending available to small firms by 2023 and expand its business customer base to 450,000 over the same period.
Chasing business banking
Over the next three years, it said it would introduce “52 digital banking products” for firms including flexible deposit accounts, instant invoicing, secured business lending and supply chain finance using blockchain-based technology. It added it will put in a further £95m of its own cash to boost its business banking.
The chief executive said the bank is using £60m to improve its technology support to small firms, with the remaining £40m spend on marketing.
Boden says a combination of these factors mean “we will be in a position to report our first month of profit in January or February next year.”
The importance of small business banking to digital banks was underlined earlier this week when OakNorth reported that it almost doubled its annual pre-tax profit last year to £65.9m. OakNorth, co-founded by chief executive Rishi Khosla five years ago, became the first UK digital bank to turn a full-year profit in 2018.
Boden has moved a world away from Bonymaen a modest area of Swansea, Wales, where she grew up with her steelworker father and a department store worker mother. She went to Cefn Hengoed Comprehensive and then went on to study chemistry and computer sciences at Swansea University, where she was one of three women in a class of 60.
Boden wanted to work in chemistry research when she left college, but her mother convinced her to try for a job in a bank. The young graduate liked the Lloyds bank traineeship because it focused on computer systems.
Her first job was working behind the counter at the local Lloyds branch in Hampstead, north London, at 21.
A long career in banking followed, which landed her senior roles at Standard Chartered, UBS, RBS, ABN Amro, becoming chief operating officer of Allied Irish Bank in 2012, which had been bailed out after the 2008 financial crash.
Boden said she was deeply affected by the way the crash had cost customers their jobs or left them unable to pay mortgages.
“I was embarrassed to be a banker,” she says. “Bankers were behaving as if nothing had happened. Technology had changed the way people shopped, and the way they bought music, but banking remained untouched by this.”
Boden took a second sabbatical after Allied Irish to think about how banking could be done differently. She spent her own cash talking to bankers around the world about the industry. Her first sabbatical from banking was just before the Irish job to do much the same thing.
By December 2013 she had come up with Starling.
“I took a bold step. I went around to investors with the idea of a cloud-based, customer-focused bank built on the latest technology from Silicon Valley. I thought it was going to be much easier than it was, but in fact everyone thought I was crazy. Fifty-five-year old women are not the kind of people who start businesses.”
Boden did not raise seed capital, it took her two years to secure a banking licence, she was surviving on her own cash, only getting backing from KPMG and PwC who worked with her on a contingency fee basis.
All that changed when she got a call from Harald McPike, the secretive Austrian billionaire trader, who made his first fortune playing blackjack. McPike, who once paid a $7m deposit for an aborted trip around the moon, had heard Boden was talking to investors.
He invited her to his Bahamas mansion to explain the business.
“He is a quantitative trader, says Boden. “He still codes. He is very mathematical, very talented.”
They talked for several days, with Boden returning to her hotel each evening. But McPike liked what he heard and cut her a check for £48m. “I had what I needed after that,” says Boden.
One of the toughest periods for Boden came a year into the business in February 2015 when chief technology officer Tom Blomfield and chief risk officer Paul Rippon and several others walked out to form rival Monzo. Blomfield is chief executive of Monzo.
It was a body blow to a fledging operation to lose so many senior heads in one go. Press stories openly speculated if Starling could carry on.
Boden says: “That was a bit of a bolt of lightning. I don’t want to dwell on this. But all startups go through these kinds of ups and downs. All I would say is, both firms have gone on to change the industry.”
The elephant in the room for all neo-banks is Big Tech firms such as Amazon or PayPal. These firms have deep pockets, large customer bases, and unlike high street banks, are platform companies themselves and so are comfortable with the business model.
The number of fintech deals by global tech giants – including Alibaba Group, Alphabet, Apple, Baidu, IBM, Microsoft and Tencent – increased for the fifth straight year, with $3.5bn invested across 46 deals in 2019, according to last month’s KPMG Pulse of Fintech bi-annual report.
Last May, US payments firm PayPal said it lent more than $10bn in loans to more than 225,000 small businesses around the globe since its unit began in 2013.
“I think Big Tech will want to distribute banking services, says Boden. “I don’t think they will want to get involved in the financial plumbing of moving money around. Or obtaining a license, that will mean more regulation, and they already face calls for more regulation as it is.”
Boden might be right, but when Big Tech collides into other industries, they tend to profoundly change sectors in ways that no one quite imagined.
But in the meantime, Boden has more customers to woo, more investors to impress, more small firms to sign up, more people to convince that it wasn’t a crazy idea for a middle-aged woman to start a bank.
Anne Boden – Business Snapshot
Average working: Starts the day at 7.30am at a coffee shop near work reading the papers and dealing with a few emails. Gets to the office between 8.15am and 8.30am. Prepares for meeting. Attends a 10am standup meeting with 12 of her senior team, going over yesterday and flagging issues to face that day. Meetings throughout the day. Often attends customer workshops or entrepreneurial events in the evening.
First job: Lloyds Bank graduate, started work in the Hampstead branch at 21.
Car: Audi TT
Music: “I don’t really listen to music.”
Gadget: iPhone 11 Pro Max
Favourite film: “I don’t really watch films.”
Favourite book: Recently read Ben Horowitz’s The hard Thing About Hard Things, Phil Knight’s Shoe Dog and Michelle Obama’s Becoming. She also likes business podcasts.
Company, other than I own, your wish you had started: “I would have liked to have started a fabrics business. I find the colours and the textures wonderful.”
Perfect day off: “I would sit on a balcony by the sea in the morning and read papers and magazines. I would look at my Macbook and answer a few work emails. That would be great. I would probably have lunch and dinner there, too.”